Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 3
https://paulkrugman.substack.com/p/gaming-out-a-su...It is an interesting read. He touches on the trade deficit, the capital inflows from international investors, and net domestic/international investment rates. Then changes in in those trends and the impact it would have on interest rates and the economy.
He leads off with Dornbusch's Law, which feels apt to repeat here:
The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought.I have been heavy in USD awaiting a buying opportunity, and I'm having second thoughts. I wonder how many others are in the same position, and how they might react, and where that capital would flow. It is a bad situation, the 30 year treasury chart speaks for itself.
No. of Recommendations: 1
similar situation, although lightened risk mostly in nov 2024 with possibility of not being confident of normal equity weight until end of trump term. currently , market says no amount of leading indicators matter, and reinforced by sentiment for the most speculative junk other than biotech.
borrowing heavily from verdad ; there is near universal agreement across politics and wealth class when inside a true crisis. (as opposed to peak bubble)
we are nowhere close, and a mild recession may not put us there either.
make a plan for a true crisis and see if you can adhere?
No. of Recommendations: 2
> there is near universal agreement across politics and wealth class when inside a true crisis. (as opposed to peak bubble)
we are nowhere close, and a mild recession may not put us there either.
> make a plan for a true crisis and see if you can adhere?
I wasn't very clear - I'm not worried about missing the boat on an equity pullback or that we are in a crisis, I'm worry about the relative purchasing parity of my USD position. I had a plan, but I am concerned there was a flaw in it. I thought the USD (short term treasuries and money market) would be relatively stable, and that is what I'm having second thoughts about. I have the ability to execute forex and international trades, and I've been following a lot of the threads from long term posters on the topic, but I was hoping sanity would prevail in America. Again, second thoughts.
My crisis plan was just to have dry powder. I am approximately 50% managed - possibly soon to be self-managed - just trying to track indexes (with gratitude to rayvt, AdrianC, and sykesix in the index investing board), 45% cash equivalents, and 5% my personal trading portfolio (see the interesting microcaps boards, some tech, junior miners, etc). Other than that, the crisis dictates the plan to some extent.
It's not clear to me what this next crisis will be. 2000 and the dot com crash was a valuation crisis. 2008 was a liquidity crisis. The Krugman article resonated because that scenario has been what worries me; a systemic crisis at the same time as US/USD confidence crisis.
Why has America had such strong returns in the last 100 years. What combination of culture, legal system, international monetary role, economic policy, geographical luck, and accident of history is it? What could kill that golden goose? Because if the golden goose dies, maybe I look to forex and international markets and not wait for a pullback in US equities.
No. of Recommendations: 1
Am I reading thre second FRED chart right?
Below the words "Here’s our net international investment position, the difference between U.S. assets abroad and foreign assets here, shown as a percentage of GDP:"
Foreigners own 9/1000 of US GDP as net investments. Is that supposed to be scary?
FWIW there are a lot of - too many - disastrous policies being implemented but I am absolutely not going to worry about a "sudden stop" to foreigners buying US assets. Zero.
Worry far more about tariffs, vaccinations, social unrest, legitimizing racism and prejudice etc etc. The list is longer than Trump's tie.
Maybe my confirmation bias but Krugman the lefty is about as "brilliant" as Laffer the righty. Wrong and overhyped.
No. of Recommendations: 4
I don't follow Krugman, but I did read the linked article, and his concerns seem legit
to me. But they are just opinions.
The Bond Market, on the other hand, wields its opinion with some real world consequences.
"The Treasury Department’s auction of $16 billion in new 20-year bonds should have been routine. But the yield on those Treasuries (the amount investors demand for buying the bonds) rose from 4.6% to 5.05% — a signal that the market is very much not in the mood for more U.S. debt."
https://www.msn.com/en-us/money/markets/the-bond-m...The link is from MSN, so righties will probably discount it with "fake news" yada, yada,yada.
But the actual data backs up the part I snipped.
Higher interest rates means higher interest payments, for both the Government and American
Consumers. Consumers will also be getting hit with paying extra for the tariffs Trump
is implementing. These are inflationary, unless one believes the fairy tales that Trump and
MAGA spew.
Trump is playing with fire. Trump thinks he is a genius, that he knows more about
everything than everybody. But Trump's track record shows he is closer to being an
idiot than being a genius, so the odds are pretty good that there are more stupid actions
to come from Trump.
So I do think Krugman has a point about the odds of a "sudden stop" are definitely not
anywhere near zero. Nobody knows nuthin for sure, so handle your money and investments
accordingly.
No. of Recommendations: 5
> But they are just opinions.
I largely agree with your post, but it is worth remember that a large amount of effort has gone into painting Krugman as a liberal commentator.
He is also was an individual recipient of a Nobel (*Memorial*) Prize in Economics, was a long time professor at MIT (where he did his graduate work) and Princeton. His published work is important in multiple areas of economics. He has focused on economic crises and his currency crisis work is one of his most important contributions.
I don't think it's entirely appropriate to discuss his thoughts through a political lens. He has been one of the world's foremost experts in this technical area of currency crises. One shouldn't disagree with him lightly on economic topics.
No. of Recommendations: 24
I am absolutely not going to worry about a "sudden stop" to foreigners buying US assets. Zero.
I think the pithy summary of Goldman's chief economist makes a pretty compelling observation:
The US current account deficit is about $1.1 trillion/year. There is no realistic chance of the current account deficit shrinking materially any time soon. That gap is plugged almost entirely by non-US entities putting $1.1 trillion/year of fresh net investment capital into US stocks and bonds each year. (a few other things happen too, but stocks and bonds are the only big item).
If they do less of that net investment, and the deficit stays anywhere around the same size, the US dollar *WILL* fall relative to other currencies. They don't have to be net sellers, they don't have to stop buying, they would only have to buy incremental US investment assets at a somewhat slower rate.
So...
I agree with you that there is no need to worry about a sudden stop to non-US investors putting money into US assets. But it doesn't have to be a full "stop" to cause quite a big upheaval in the settling prices of the US dollar and of those investment assets. There is a price for everything, and so the capital can always be pulled in, but it might have to be pulled in at very much lower prices.
US investments have become so compelling to the world's savers almost entirely because of the long period of good returns. But the outstanding returns are in large part from rising valuation multiples, which has built a feedback loop attracting ever more capital and causing ever higher prices. Since investment memories are not longer than investment careers, more and more myopic investors mistake rapidly rising prices for rapidly rising value. That dynamic definitely can't go on forever, so it will definitely stop. I conservatively assume that if US equity valuations can rise on trend for 40+ years, one shouldn't assume that they could never fall on trend for 40+ years.
Jim
No. of Recommendations: 3
One could lose a lot of money listening to Krugman.
A winner of the Nobel Prize in Economics, Paul Krugman wrote in 1998, “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”
No. of Recommendations: 1
Foreigners own 9/1000 of US GDP as net investments. Is that supposed to be scary?
I think the graph says about 90% of GDP, not 0.9%. This amount is securities and bonds. It does not include direct investment.
I am not sure what value should be scary.
Aussi
No. of Recommendations: 0
I think the graph says about 90% of GDP, not 0.9%. This amount is securities and bonds.
That, plus Jim's statistics, makes much more sense.
The Y axis of the graph is captioned $0.1 million net investment per billion dollars of GDP so that's how I did the math.
Regardless, I will always ignore Krugman whether he is right or wrong. I don't have the time in terms of search cost to find out.
No. of Recommendations: 1
I don't think it's entirely appropriate to discuss his thoughts through a political lens.
I think people started doing this mostly after he became a political commentator.
No. of Recommendations: 0
A winner of the Nobel Prize in Economics, Paul Krugman wrote in 1998, “The growth of the Internet will slow drastically, as the flaw in ‘Metcalfe’s law’—which states that the number of potential connections in a network is proportional to the square of the number of participants—becomes apparent: most people have nothing to say to each other! By 2005 or so, it will become clear that the Internet’s impact on the economy has been no greater than the fax machine’s.”
Instead it followed whatever "law" it is that states: The paperwork always expands to fill the availability of any new cabinet space
No. of Recommendations: 0
The Y axis of the graph is captioned $0.1 million net investment per billion dollars of GDP so that's how I did the math.
That is also how I did the arithmetic looking at the Y axis. Is there another way to do the arithmetic? I learned that it didn't matter what was your viewpoint, 2+2=4, no matter how many times someone who is trying to lead you astray says 2+2 can be any number you like!
Regardless, I will always ignore Krugman whether he is right or wrong. I don't have the time in terms of search cost to find out. Searching for facts would be much quicker if there wasn't so much misinformation being published!
Aussi
No. of Recommendations: 0
That is also how I did the arithmetic looking at the Y axis. Is there another way to do the arithmetic? I learned that it didn't matter what was your viewpoint, 2+2=4, ...
Right, but flagellating the expired equine a bit more, Y axis numbers were +/- 10...90.
90 * .1M / 1B = 9/1000.
No. of Recommendations: 1
back to the original query :
in general, foreign equities earning mostly in non-dollars would theoretically the most frictionless way to address the concerns.
but you would be fighting a long history of how much the global economy is coupled\owned by america, and thus foreign equity correlated to american equity.
"When U.S. equities experience a major drawdown, American investors tend to withdraw funds from stocks and move them into safer assets. But they typically reduce their exposure to foreign equities as well."
https://www.reuters.com/markets/europe/european-eq...so, options exist, but in general you have to assume lower than prior historical risks (per your geographic preferences) after a global drawdown results in a much larger than normal margin-of-safety.
No. of Recommendations: 1
The equation is:
(0.1 x (assets/1,000,000))/(GDP/1,000,000,000)= 90 (for this example)
Therefore
Assets= ((90 x 1,000,000)/(0.1 x 1,000,000,000)) x GDP
Assets = (9/10)x GDP
Aussi
