Someone explain to me-T-Bills set all time low record today

[Thump553]

For the ten year T-Bill, an all time low price was set today-2.14%. That is below the rate S&P crapped on the US credit rating. Rates should have gone up then, probably substantially.


Obviously what is happening is money is pouring out of equities into US securities. But if the S&P lowering of our credit rating triggered the stock market collapse, does it make any sense at all to put your money into the supposedly weakened US debt obligations?

It's an old truism that the market can always be irrational longer than your money can last, but that certainly is being proven correct again. I suspect the markets are going to whipsaw for quite a while, and every bit of bad news/rumors will be greatly magnified.

Also on my cannot figure it out list-based on market capitalization (stock price times number of outstanding shares) Apple is neck and neck with Exxon for the most valuable company in the world.

 

[theeedude]

Noone in their right mind believes S&P. An entity who has a legal right to print unlimited amounts of money cannot default on its loans unless it decides to do so for the LULZ. So the only real risk is high inflation, which is something the markets don't see happening given where our economy is right now.

 

[Craig234]

A few points.

One is, the market is not 'rational' like ideologues like to think. It can be constantly pointed to for irrational behavior.

Just over the last couple days, the fundamentals of the economy and the outlook for stocks didn't really change 5% in a matter of hours, repeatedly.

You are right, while the credit rating might have triggered activity by 'scaring people', the fact is, it scared them right into the safest investment around, treasury bills.

That is a contradiction; see point 1.

On Apple stock, part of it is simply the public visibility Apple has. When people are buying stock, many look for a 'company doing well', and they think of Apple.

Part of it is just Apple having that visibility for an industry - the 'high tech/consumer tech' industry. There are all kinds of risky companies - even big ones like Microsoft, who has all kinds of strategic threats - but Apple appears to have a long-term record of selling a lot that makes them an easy pick for many people for 'a high tech investment'.

I'm not sure how much Apple investment is from individuals like I describe.

 

[UglyCasanova]

Investors are looking for a safe haven, and there is no where else to go. Every large investor is out there doing their own legwork as far as market research and analyzing what and with whom they are investing their money. The credit rating agencies are just one of many tools used to determine risk.

 

[LegendKiller]

Apple is not "neck and neck" with Exxon as the most valuable company in the world. That comparison is moronic. Exxon repurchased or dividended out more than $91bn in cash over the last year.

 

[Bitek]

Investors are looking for a safe haven, and there is no where else to go. Every large investor is out there doing their own legwork as far as market research and analyzing what and with whom they are investing their money. The credit rating agencies are just one of many tools used to determine risk.

They are indeed just one of many tools.


IMO, the way the market for Tbills makes perfect sense. The econ has been looking dangerously weak since May, and bad signs were out there before. I think the markets were still held up by a sense of optimism that we will some way muddle ourselves through this, so no need to panic then.

Given the stupidity that was displayed during the debt deal and a total lack of focus from the govt on jobs, 2 mos of bad job #'s, Q1 2011 growth rate being revised down below 1%, and the Euro debacle rising up again w/ no real soln in sight, the kindling was pretty dry for this level of conflagration.

Being said, I think it is overdone, but there are so many things going on at once its hard to not have opinion change by the hour. Personally I'm optimistic, just not for right now. All depends on the moves of the Idiots in Charge.

 

[feralkid]

Noone in their right mind believes S&P. .

Peter Noone does NOT believe S&P!

 

[Jhhnn]

I'm surprised you'd ask, given that it was explained over here, a thread you're posting in-

http://forums.anandtech.com/showthread.php?t=2183533&page=12

The S&P downgrade was a symbolic act- meaningless against the backdrop of the economy & the market. We're entering a liquidity trap, and a debt/deflation spiral.

The known ways to escape that are over time, lots of time with lots of economic pain, or with income redistribution to create jobs, as was done in the 1930's.

Things will get worse before they get better, simply because the interests of wealth are being protected above all other considerations. I doubt that will change, unless things get really, really terrible, at which point public denial will collapse.

 

[Thump553]

Apple is not "neck and neck" with Exxon as the most valuable company in the world. That comparison is moronic. Exxon repurchased or dividended out more than $91bn in cash over the last year.

I agree-but based on market capitalization it is neck and neck. For a while on Monday Apple was #1. Especially crazy because as you pointed out Exxon pays dividends and Apple never has-any profit you make there is purely off of stock price gain. Commonsense would tell you Exxon is far more valuable to our society than Apple, but the stock market says differently.

 

[Doppel]

Noone in their right mind believes S&P. An entity who has a legal right to print unlimited amounts of money cannot default on its loans unless it decides to do so for the LULZ. So the only real risk is high inflation, which is something the markets don't see happening given where our economy is right now.

This, and "But if the S&P lowering of our credit rating triggered the stock market collapse" <- the lowering of S&P didn't trigger a collapse. The market was already trending down quite far and that seems to have been the excuse or straw that broke the camel's back. The market is stupid and also volatile. Exhibit A: 634 point drop followed by 400+ rally followed by 500+ point drop.

The economy is a piece of sh*t. The stock market is finally realizing it. Corporate profits, which do drive stocks, have been great, but they are not possibly without constant money-throwing by the federal gov and if that comes to an end sh*t gets real.

 

[Thump553]

I'm surprised you'd ask, given that it was explained over here, a thread you're posting in-

http://forums.anandtech.com/showthread.php?t=2183533&page=12

The S&P downgrade was a symbolic act- meaningless against the backdrop of the economy & the market. We're entering a liquidity trap, and a debt/deflation spiral.

The known ways to escape that are over time, lots of time with lots of economic pain, or with income redistribution to create jobs, as was done in the 1930's.

Things will get worse before they get better, simply because the interests of wealth are being protected above all other considerations. I doubt that will change, unless things get really, really terrible, at which point public denial will collapse.

It's explained why the cash is flowing into US bonds when the equity markets crash, but a downgrade in the rating of the bonds should make them less valuable. The same act (S&P downgrade) seems to have simultaneously caused the same investors to take diametrically opposed actions, it just doesn't make sense to me.

Not really complaining though, because even with all the damage the market collapse is causing to long term investments, raising of the US bond interest rates would have triggered off a whole new set of problems, of a vastly bigger scale and importance to the economy, namely rising interest rates on almost everything.

 

[CLite]

In my personal view the S&P destroyed hundreds of billions of dollars in market value because of their profound dislike of our political system. In the end the downgrade contributed to the market crashing which caused everyone to run to the safe haven (US Treasuries). One of the stupidest sequences of events I've ever seen.

All of this coming from the abomination of a ratings agency which valued sub-prime mortgage packages as AAA.

 

[glenn1]

Unless you're a money manager whose bylaws prohibit you from purchasing equity, it's foolish to buy Treasurys when you can get blue chip or fast-growing small cap or midcap dividend stocks with reasonable yields and low payout ratio. There are tons of great companies out there meeting this profile right now that are superb picks for folks seeking yield at reasonable risk.

 

[JSt0rm]

Noone in their right mind believes S&P. An entity who has a legal right to print unlimited amounts of money cannot default on its loans unless it decides to do so for the LULZ. So the only real risk is high inflation, which is something the markets don't see happening given where our economy is right now.

To be fair to S&P the tea party republicans would default for the lulz.

 

[Jadow]

The US Govt will NEVER default because they can (drum roll....) PRINT MONEY!

ohh 15 tillion in debt, no biggie print of a 15 trillion dollar pill and call it even. Of course that will cause hyper inflation, and really F up the economy for a few years, but it will work out.

 

[Jhhnn]

It's explained why the cash is flowing into US bonds when the equity markets crash, but a downgrade in the rating of the bonds should make them less valuable. The same act (S&P downgrade) seems to have simultaneously caused the same investors to take diametrically opposed actions, it just doesn't make sense to me.

Not really complaining though, because even with all the damage the market collapse is causing to long term investments, raising of the US bond interest rates would have triggered off a whole new set of problems, of a vastly bigger scale and importance to the economy, namely rising interest rates on almost everything.

Forget the bogus downgrade for it all to make sense. It's meaningless- it obviously doesn't apply.

 

[Fern]

For the ten year T-Bill, an all time low price was set today-2.14&#37;. That is below the rate S&P crapped on the US credit rating. Rates should have gone up then, probably substantially.


Obviously what is happening is money is pouring out of equities into US securities. But if the S&P lowering of our credit rating triggered the stock market collapse, does it make any sense at all to put your money into the supposedly weakened US debt obligations?

It's an old truism that the market can always be irrational longer than your money can last, but that certainly is being proven correct again. I suspect the markets are going to whipsaw for quite a while, and every bit of bad news/rumors will be greatly magnified.

Also on my cannot figure it out list-based on market capitalization (stock price times number of outstanding shares) Apple is neck and neck with Exxon for the most valuable company in the world.

I disagree with the idea that S&P's downgrade has had a big impact. I also disagree that the market is acting irrational.

WRT the stock market- forget the debt ceiling crap etc., at that time we had new GDP numbers where prior quarters were substantially downgraded and the economic outlook was substantially downgraded. We saw Europe in trouble, first Greece, then Italy and now France. The Euro is no place to park money. England is in turmoil too. These are far more important than S&P's downgrade.

People are trying to find a safe place to park big money. What is safer than US Treasuries?

I saw a report where big banks are now CHARGING if you want to park money with them. So, Treasuries are te place to be if you want to to park big money.

It's quite rational. You need to hide your money in a safe place until this storm passes.

Now, back when a possible downgrade was discussed many people, myself included, questioned what the impact, if any, would be. Is there any place safer in the S/T? No.

Also, it's not like we were downgraded to 'dogsh!t'. We just went to AA+, which is a damn fine investment grade rating.

As fas as market swings, different people are in for different reasons, with different objectives and different periods. E.g., if you're in L/T and like good dividends yields there are likely bargins to be had. If you're S/T, better run & hide. Also bear in mind some are technical traders following their model, when certain numbers are met you follow your model and buy or sell. And your action may trigger others' models.

IMO, things are rational. There is a good deal of uncertainty about how Europe will handle their developing crisis and therefore many will go into a defensive posture to protect their equity/principal - park your money in safe port until the storm blows over.

Fern

 

[Craig234]

The US Govt will NEVER default because they can (drum roll....) PRINT MONEY!

Only if the Congress agrees, or the President acts unilaterally.

Which there is some question about.

 

[Fern]

Originally Posted by Jadow
The US Govt will NEVER default because they can (drum roll....) PRINT MONEY!

Only if the Congress agrees, or the President acts unilaterally.

Which there is some question about.

I understand what you're saying, but I don't believe the President or Congress has control over the supply of money.

Fern

 

[LegendKiller]

I agree-but based on market capitalization it is neck and neck. For a while on Monday Apple was #1. Especially crazy because as you pointed out Exxon pays dividends and Apple never has-any profit you make there is purely off of stock price gain. Commonsense would tell you Exxon is far more valuable to our society than Apple, but the stock market says differently.

Again, market cap is an arbitrary measurement. It doesn't mean anything. How much stock is float?

For example, Aramco would be worth far more than Apple, but it's not publicly traded. So is Apple worth more? How about Goldman Sachs, it's still owned 48% by the partnership pool, not floated, thus it isn't even part of the market cap?

Or how about some of those .bombs that had market caps higher than GE? How about the one time Cisco owned 50% of a company that itself was worth $50bn, meaning Cisco should have been worth at least $25bn, but it was only worth $20bn.

See how worthless market cap is?

 

[theeedude]

I understand what you're saying, but I don't believe the President or Congress has control over the supply of money.

Fern

They do have control over taking money from that supply and paying the obligations though. The Fed can only get the money out there if the government "borrows" it.

 

[piasabird]

Government just announced that Prime Interest Rate is going to be zero percent for next 2 years. Even the FED does not have confidence in America. What do you expect? Every time the USA raises the Debt Ceiling money becomes diluted and worth less! How much intelligence does it take to see what is going on? You asked for it you got it ....

 

[theeedude]

Government just announced that Prime Interest Rate is going to be zero percent for next 2 years. Even the FED does not have confidence in America. What do you expect? Every time the USA raises the Debt Ceiling money becomes diluted and worth less! How much intelligence does it take to see what is going on? You asked for it you got it ....

It's always some BS that kind of sort of sounds like economics from you rightwingers. Are you saying the Fed does not have confidence in America because the money is diluted when it's the Fed that is providing the money to do the dilution?

 

[Craig234]

I understand what you're saying, but I don't believe the President or Congress has control over the supply of money.

Fern

They have control over spending it, including paying US debts.

 

[Craig234]

Again, market cap is an arbitrary measurement. It doesn't mean anything. How much stock is float?

For example, Aramco would be worth far more than Apple, but it's not publicly traded. So is Apple worth more? How about Goldman Sachs, it's still owned 48% by the partnership pool, not floated, thus it isn't even part of the market cap?

Or how about some of those .bombs that had market caps higher than GE? How about the one time Cisco owned 50% of a company that itself was worth $50bn, meaning Cisco should have been worth at least $25bn, but it was only worth $20bn.

See how worthless market cap is?

I think the truth is in the middle. Market Cap might be worthless as a literal value, but it's still not useless. Ask Time-Warner, when AOL's inflated value let AOL buy them.