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Guest
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 Posted: Wed May 18, 2016 3:39 pm GMT Post subject: |
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Why would he have any interest in burning down the FIRE economy? His wealth
is RE. |
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admin
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Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Wed May 18, 2016 3:59 pm GMT Post subject: |
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| Guest wrote: | Why would he have any interest in burning down the FIRE economy? His wealth
is RE. |
It is bizarre, but if you take him at his word, it does seem like his proposal of buying back debt at a discount would torpedo US Treasuries as the world's reserve currency, which would in turn do serious damage to the FIRE industries and the US economy in general:
http://money.cnn.com/2016/05/09/news/economy/donald-trump-us-debt/
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Guest
Guest
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| Posted: Wed May 18, 2016 4:24 pm GMT Post subject: |
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| I wouldn't take anything he says at his word. He changed his stand on just about everything so far. |
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admin
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| Posted: Wed May 18, 2016 4:43 pm GMT Post subject: |
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| Guest wrote: | | I wouldn't take anything he says at his word. He changed his stand on just about everything so far. |
Oh, I know it's not possible for him to mean everything he says, given that a lot of it is mutually exclusive. But I am concerned that he is serious about at least some of what he says, including negotiating down US debt, which would be a technical default. For the president to even just say that has the potential to spook markets and make it a self fulfilling prophecy.
As for why he would want to hurt the FIRE industries when his wealth is in RE, that's not his goal (I assume), just a likely side effect. One might think that he should see such an obvious side effect given that he's so rich and presumably smart with money. However, he's not rich because he managed his money well - he inherited his money and has underperformed the S&P 500. He could have twice the net worth he has today if he had simply bought an index fund and retired.
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Gurst
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| Posted: Thu May 19, 2016 2:37 am GMT Post subject: |
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My explanation for his wealth has been simply that he had seed money and a head start in the family business, and that he would have had to be brain dead not to have made money in the NYC RE market over the last 40 years.
A 1000 sf condo in the East Village in 1981 was worth less than $30K. The same condo now would sell for $2M. |
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optimus
Joined: 23 May 2008
Posts: 39
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| Posted: Fri May 20, 2016 1:11 am GMT Post subject: |
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| Maybe Trump wants to collapse real estate so he can buy up properties for pennies on the dollars and become even richer once the market recovers. |
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admin
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| Posted: Fri May 20, 2016 12:42 pm GMT Post subject: |
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Loss of reserve currency status is not something that would be recovered. Once it's gone, it's gone. US interest rates are lower than they would be otherwise because Treasuries are the global reserve currency.
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Guest
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| Posted: Sat May 21, 2016 12:46 pm GMT Post subject: |
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| Quote: | | Loss of reserve currency status is not something that would be recovered. |
Green back as international reserve currency is the core source of power to maintain global domination of U.S.A. Anyone or any event that would threaten such, will result in a very nasty war, either from military front or from economic front or from both. |
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optimus
Joined: 23 May 2008
Posts: 39
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| Posted: Mon May 23, 2016 2:03 am GMT Post subject: |
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| Anonymous wrote: | | Quote: | | Loss of reserve currency status is not something that would be recovered. |
Green back as international reserve currency is the core source of power to maintain global domination of U.S.A. Anyone or any event that would threaten such, will result in a very nasty war, either from military front or from economic front or from both. |
I bet Boston's housing market still wouldn't fall if there was an economic war. |
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Mon May 23, 2016 2:28 pm GMT Post subject: |
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| admin wrote: | Loss of reserve currency status is not something that would be recovered. Once it's gone, it's gone. US interest rates are lower than they would be otherwise because Treasuries are the global reserve currency.
- admin |
Admin, this is almost certainly wrong (although a common misconception). If you believe this, perhaps you'd like to explain why German and Japanese yields are much lower than US yields. In fact they are negative out to 5 and 10 years respectively. In the latter case a common (if also incorrect) reason people give is that Japanese debt is mostly held domestically, which is exactly opposite to the argument you make.
Bond yields for a country with its own central bank (as the ECB is for Germany) are determined by arbitrage with the expected CB short term rate. Saying the USD is the 'reserve currency' means more USD bonds and cash are held non-domestically. This can certainly have an effect on the exchange rate, but saying it has an effect on interest rates means that you think that short term rate expectations by non-domestic holders differ significantly from those of domestic holders. There is no reason for this that I see, and no reason the difference is more likely to lead to higher rather than lower rates. |
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admin
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| Posted: Mon May 23, 2016 3:29 pm GMT Post subject: |
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If you believe this, perhaps you'd like to explain why German and Japanese yields are much lower than US yields.
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That's not really pertinent. The assertion is that US rates are lower than they would be if other countries didn't uses Treasuries as the de facto reserve currency. There's no reason to expect the rates to be the lowest in the world, just lower than they would be otherwise.
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...but saying it has an effect on interest rates means that you think that short term rate expectations by non-domestic holders differ significantly from those of domestic holders...
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Foreign holdings are mostly not short term, by the typical definition of that being <= 12 months. ~17% of Treasury holdings are short term from the one graph I was able to find. That said, the maturity is also 5 years or less 74% of the time, so it isn't as long term as I expected either, which yes, would dampen the effect on 10 year Treasuries and mortgage rates.
I'm not sure about the rate expectation arbitrage being 100% efficient. Treasuries are the one "risk free" asset, and there is no substitute for that.
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mpr
Joined: 06 Jun 2009
Posts: 344
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| Posted: Mon May 23, 2016 4:06 pm GMT Post subject: |
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| admin wrote: | | Quote: |
If you believe this, perhaps you'd like to explain why German and Japanese yields are much lower than US yields.
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That's not really pertinent. The assertion is that US rates are lower than they would be if other countries didn't uses Treasuries as the de facto reserve currency. There's no reason to expect the rates to be the lowest in the world, just lower than they would be otherwise.
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Well you can assert anything - I can assert that US rates are low because of sun spots. But, you haven't explained any plausible mechanism behind your assertion.
Of course you can just say that whatever other factors are at play, being the reserve currency gives you somewhat lower rates (how much lower ?). What I'm saying is that the model I understand - which explains the German and Japanese examples - doesn't support that.
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...but saying it has an effect on interest rates means that you think that short term rate expectations by non-domestic holders differ significantly from those of domestic holders...
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| admin wrote: |
Foreign holdings are mostly not short term, by the typical definition of that being <= 12 months.
- admin |
I didn't say anything about maturity of non-domestic holdings. Only about their *expectations* of future short term rates. Even if I have only long maturity holdings, my valuation of them is influenced by my expectations of future short term rates; I can either buy a 30 yr tsy, or keep my money in 30 day T-bills for the next 30 years. |
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