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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.

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Default Denialism is real

Default deniers posit that it won’t happen because to default is by definition irrational. Most articles by sensible commentators conclude with that idea. The latest is a piece on the Schwab website. The reality is the House Crazy Caucus is and will continue to be irrational. I wonder what the odds of default are on Fan Duel? I still am trying to figure out where to hide. One thing is for sure, hoping for a deal that sacrifices Social Security and Medicare won’t be much of a win win for us old guys.


  • Physical gold would be the place to hide.
  • Thanks LB. That’s hardly practical…. You think it’s gonna get that bad? That rings of being a prepped.
  • edited January 24
    I don't think it will get that bad, but if it did get that bad, that would be the place to hide. I think the irrationalism we are observing in Congress with one party is always like the human equivalent of "other people's money" in the financial world. Only in the case of politics, it's other people's lives. Moaning about critical race theory or the border or zygote's rights in no way affects the pocketbooks of the party leaders. So, for instance undocumented immigrants are easy targets with little to no downside politically, and considerable upside in terms of votes from their base. But putting the country in default will dramatically affect these politicians' pocketbooks. I don't think they will do it, and what seems irrational to us on those other human, i.e., "social issues" is completely rational to them from the perspective of pandering to their base and their financial backers. It is rational irrationality when all you care about is winning and lining your pocketbook even if it is absurd and cruel to everyone else.
  • Randall Forsyth makes a case for gold in the current Barron’s. It’s a bit complicated. Goes beyond traditional arguments. (I’m decidedly agnostic on the subject.)
  • LB. thanks again for your thoughtful responses. I was just reading the Levin Report in Vanity Fair in which she talked about the speaker of the house and his new BFF,,,, the articulate and rational MTG. And I will add his other new pal who has too many aliases for me to list here. What could possibly wrong? LB
  • If anyone is interested the Bogleheads have a lively discussion of this issue that is up to almost 300 contributions. Normally anything that might have ANY connection to politics is quickly shut down and the group ethos to any situation is stand pat and follow your investment policy statement or some such thing …. Not this time.
  • edited January 24
    IMO, the US lawmakers, who grew up in the dollar-reserve-currency environment don't appreciate the global significance of a potential US default, technical or not. There are already serious global concerns on dollar-diplomacy/weaponization and this is really a bad time to mess with this debt-ceiling issue. The time for discussions is when federal appropriations are made, not when the bills come due.

    Gold (physical GLD, gold-miners GDX) has been outperforming since October lows.,SPY&id=p72295455994

    Global reserve currencies have 100+ or so years of life (in the list below from Bitcoin enthusiasts, you can ignore the last projection), and the US can only hasten the change.

    "World reserve currency periods:
    - Portugal (1450–1530)
    - Spain (1530–1640)
    - Netherlands (1640–1720)
    - France (1720–1815)
    - Great Britain (1815–1920)
    - United States (1921-2030)
    - Bitcoin (2030-Forever)"
  • edited January 24
    @larryB To me, the Boglehead policy of not alowing any connection to be made between investing/money and politics is the equivalent of don't-ask-don't-tell in the military or don't-say-gay in Florida. There are definitely politics in the investment world, and the investment world is very much in politics--see any number of lobbyists working for financiers/money managers--but there is this pretense that the investment activity itself is apolitical.

    Ironically, denying there is any connection between money and politics is intensely political just as denying that there are gay people in the military or Florida whose voices need to be heard is. A Don't-Say-Politics policy is endorsing a belief in the pursuit of financial profit by any means necessary regardless of that pursuit's impact on employees, consumers, nation states such as America, humanity and the planet's ecosystem. It's pretending life is all profit numbers and there aren't flesh-and-blood people--employees and consumers--producing the profits much like an abstract physics problem which pretends anything falling is falling in a frictionless fictional world.
  • @Lewis B. Agree 100% That’s why the BH controllers allowing 299 responses to the default question is interesting.. The issue is more about politics than anything else and they have specifically let it run. Till they don’t.
  • @LarryB

    I looked at the gold funds and think for retirement accounts. pick the one with the lowest ER and decent liquidity.

    In taxable accounts Gold is taxed at long term capital gains rates of 28% as a collectible ( ST is income tax rate)

    However, if you use a Canadian fund like PHYS, you can fill out a form every year with your taxes and pay usual LT capital gains rate.

    Otherwise buy a mutual fund like SGGDX which seems to have done betted than the index of miners like GDX. NEM is also a possibility as it has a nice dividend.

    I agree Political issues always affect investments. For example, massive changes in the tax laws, an obviously political issue, made huge changes in expected investment returns.

    We should be able to distinguish between political discussions with people of good faith presenting opposing but reasoned and fact based arguments or informed ( who of us really knows what is in McCarthy's head?) opinions based on their actual data or professional knowledge, and screes and ideology amplified by the internet with a hostile core.

    Unfortunately there is much more of the latter than the former. Many once respected voices of facts and reason are now just the scene of shouting matches. While the NYT is not much better (looking at you 1619 project), I remember how thoughtful and insightful the WSJ used to be. The articles are still generally useful, but no where near as detailed and insightful, but the opinion pages distort and cherry pick facts to rile up the faithful.

    This then pollutes everything associated with it. I am reading a pretty good book now about PGE and the California wildfires "California Burning" by K Blunt. My cousin whose house almost burned down in one of the fires refuses to read it as it is written by WSJ reporter. Everything is distorted through you own, mightily amplified political viewpoint.

    There seems to be very few places for moderates and independents to have a discussion without getting yelled at.
  • "There seems to be very few places for moderates and independents to have a discussion without getting yelled at."

    Yes, and MFO is one of them, thanks to Dr. Snowball.
  • A technical default (even if it lasts just a couple of days) is almost certain imo. Nothing is off limits for the current band of crazies in the House. McCarthy does not care as long as he stays Speaker, he will cave in to anything.

    More than 70% of the country does not know or care what a debt default is.
  • If the Repubs cut Social Security and or Medicare- they are toast!!!!
  • edited January 24
    Geez. I just left a “non-political” thread on the subject to come here.:(

    No problem. Carry on guys.

    Of course, Putin could render the entire topic mute by lobbing a nuke or two over there. You don’t suppose he follows U.S. domestic politics?
  • @Benny B. Yes they are toast in the long run but what about us old guys in the short run?
  • @staycalm. I think you nailed it in both paragraphs. But I would suggest that more than 70% have no idea and of those that do have idea still think that cooler heads will prevail because it generally has in the past. But what do they say about past performance?
  • @StayCalm said- "Nothing is off limits for the current band of crazies in the House."

    Looks like Mitch McConnel agrees with StayCalm: "I can't imagine any debt ceiling provision passed out of the Senate with 60 votes could actually pass this particular House," McConnell told reporters Tuesday.
  • LarryB-I hear what you re saying and agree!
  • Some gold ideas.
    FUNDS. There are many ways to play this GOLD rally: gold-bullion (GLD, IAU, GLDM, SGOL), gold-miners (majors GDX, combo majors + minors GDXJ), commodities ETF BCI (futures-based; K-1 free; 19.5% precious metals), OEFs (FKRCX, FSAGX, OPGSX, SGGDX (combo bullion + miners)), stocks (ABX, NEM, WPM) (some pay variable dividends). Gold is benefitting from weakening DOLLAR and INFLATION (global central banks are also buying gold to reduce their exposure to Western currencies). Bullion-miners mix depends on whether there is soft landing (better for miners) or recession (better for bullion). (Gold sold off later in the week, post-FOMC) (By @lewisbraham at MFO)

    Silver better?
    COMMODITIES. Industrial-precious metal SILVER is outperforming gold, although the two have high correlation. This is an indication that global economic activity is picking up, including China reopening. Silver is also important for energy transition and EVs, besides its traditional uses in industrial products/processes and jewelry. Weak DOLLAR is also tailwind for precious metals. Silver targets are in $30s with soft landing and $10s with recession.

  • I've been burned so many times with miner funds in the past, I stay away as if they were the plague. Good luck to those smarter (or luckier) than me who know how to play them.

    Gold (IAU) on the other hand, I've been holding since the covid bear at about a 4-5% holding as portfolio diversification. I also hold a smaller amount of SLV mixed in, but boy is it more volatile than the gold holding. In any case, I've been adding to IAU throughout January, mostly in anticipation or defense of dramatic political wrangling or a global recession - or both.

    Thanks @yogibearbull for the links and ideas.
  • edited February 4
    ”but boy is it more volatile than the gold” / That is correct. Silver is a lot more volatile. That’s its reputation among traders. I’ve never been able to get a good answer as to why. Apparently it is more thinly traded.
  • Using M* standard deviation (SD) data,

    Gold-bullion GLD SD = 15.12
    Silver-bullion SLV SD = 36.39

    So, SLV is 2.4x more volatile than GLD.

    As silver is used both as industrial and precious metal, it has more cyclicality tied to economy. This is also indicated in projected range for silver in Barron's article, $10s (recession) - $30s (soft landing).

    Gold:silver ratio is about 83, high. At one time, 60 was considered ideal ratio. So, historically, gold is overvalued relative to silver, or silver is undervalued relative to gold.
  • edited February 5
    @yogibearbull - Do you know the earliest time on Friday Barron’s might be available to select readers? I watched a mining stock Friday hoping to catch it on a decline. But it lost very little compared to most. I just discovered it’s one of 3 miners recommended in the Barron’s gold investment article this week. So, wondering if some traders may have had advance knowledge it would be mentioned before markets closed Friday?
  • @hank, Weekend Barron's articles start trickling in at Barron's Online about midweek. Most of them are available Friday when I start my Summaries. I guess based on categories and authors. The current Editor tends to rotate authors and also has multiple articles that may fit a category - in the old days, column authors sort of owned their columns, but not now (just imagine Alan Abelson - Editor himself - rotated in/out from Up and Down Wall Street).

    It used to be that Barron's market impact was felt on Mondays, but now, it can be in the late week (Thursday-Friday). The articles on gold in this issue were available on Friday, but gold still tanked on Friday.

    To your question, the ENTIRE weekend issue is available at Barron's Digital early-AM on SATURDAY - 4am Central is the earliest I have checked, but just months ago, it was after 6am CT only. I also rely on my home delivery that is between 5am-7am CT on Saturday; Barron's can expect a call from me about missed delivery and redelivery request around 7am+ CT Saturday.

    My Summaries are out on Saturdays - Part 1 by early-AM, Part 2 by late-AM. About 2 years worth of Summaries can be found at this link (searchable) but I have decades worth of Summaries (also searchable) in my PC.
  • edited February 5
    @yogibearbull - Thanks for a comprehensive answer. From your following remark it sounds like the article might have appeared online before the end of the trading week: ”Weekend Barron's articles start trickling in at Barron's Online about midweek”.

    It wouldn’t seem to be in Barron’s own interest or their subscribers’ interests to publish specific stock recommendations piecemeal before their print edition hits the stands Saturdays or can be read in its entirety online. In the case I alluded to, the recommendation of a specific mining company was made by someone they interviewed (in their lead gold piece). Only named 3 out of the dozens of players. The AU miners lost over 4% on average Friday. Roughest down day in a while. But one I was interested in fell only about 1.7% - after strengthening late in the day. In addition, it is one of the bigger players in silver, which fared far worse than gold Friday and so should, one thinks, have experienced an even bigger decline.

    While the above mentioned was a “secondary” recommendation made by a person interviewed in the article, I have found Barron’s own recommendations generally spot-on. And, surprisingly, haven’t noticed huge upsurges in price immediately following them - but their picks do mostly rise in the weeks and months afterward. One extreme example of how well their picks do: Only 3 or 4 weeks ago they ran an article promoting TLSA, recommending readers buy it and claiming it was way oversold. But in this week’s edition they found it necessary to run another article strongly suggesting investors sell TSLA (after a huge run up).

    Thanks again.
  • Well, Barron's had to compromise, now being "online". It now wants to be relevant DURING the week and also have BREAKING news online. The old way was to just wait for the weekend issue.

    This went through an earlier iteration (that I hated) when Barron's authors put out small snippets of their final columns, or publish pieces during the week that are further edited and consolidated into the final weekend piece. Your favorite, Forsyth, does that a lot.
  • edited February 5
    Ouch! I must say his (print) recommendations late in December to buy BCAT and GUG has panned out. Both have done nicely since that article published. Up roughly 10% each. And he does not, as a rule, generally promote individual securities.
  • I liked the "old" Barron's far better. I could leisurely mull over the articles all weekend.

    Unfortunately, I can't even get the print edition delivered at my house anymore. Now it is mailed so it doesn't arrive until Tuesday some weeks

    Customer service has no idea why they can't deliver it here, other than to say that the "distributor" was notified. I assume it must reflect the fact that nobody wants to deliver newspapers even for a part time job, and all the paper boys are in the library studying.

    I still wonder how confidential, pre publication, any of their ideas are.
  • And the PM miner funds mentioned are around a 40 SD. Not for the timid.
    Using M* standard deviation (SD) data,

    Gold-bullion GLD SD = 15.12
    Silver-bullion SLV SD = 36.39

    So, SLV is 2.4x more volatile than GLD.
  • Customer service has no idea why they can't deliver it here, other than to say that the "distributor" was notified.
    @sma3, the distributer in my area distributes all different papers including the local paper, Barrons, WSJ, Times, ect... Same person. So, if you are able to get your local paper delivered it is a little strange you can't get the Barrons paper copy. My Barrons is in the driveway by 7:00 A.M. every Saturday morning.

    I prefer sitting down with Barrons hard copy, but it isn't cheap. I'm thinking of biting the bullet switching to just digital.
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