Thinking about something like the Big Short guys did with housing. Just seems the story for student loans does not end well. Not that I have any money to throw at it, just curious to know if it exists...yet.

People were able to make money off the housing collapse thru CDS market with Countrywide, Bearn Stearns, WaMu, etc

As txaggie_08 mentioned, situation is completely different here with the Federal Government holding the student loans. They could simple forgive them and borrow or raise taxes to offset.

Interesting question, but I agree with the others - there's no real good hedge against the US Gov't who backstops these loans. All I can think of is put options on long-term US Treasuries. You could hedge with international debt, but most are in worse shape than us. If there were a futures proposition bet on a US credit downgrade, that might work (where is Proposition Joe when you actually need him?). Shorting for-profit universities won't help, because they don't care if it's the students who pay them, or the US government.

Bottom line, this is only useful to discuss hypothetically, because there are many factors which could simultaneously offset the student loan default effect on the US government's finances.

I bleed maroon said:

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Interesting question, but I agree with the others - there's no real good hedge against the US Gov't who backstops these loans. All I can think of is put options on long-term US Treasuries. You could hedge with international debt, but most are in worse shape than us. If there were a futures proposition bet on a US credit downgrade, that might work (where is Proposition Joe when you actually need him?). Shorting for-profit universities won't help, because they don't care if it's the students who pay them, or the US government.

Bottom line, this is only useful to discuss hypothetically, because there are many factors which could simultaneously offset the student loan default effect on the US government's finances.

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I'm always here.

But I'm always here because most of you know 100x what I do about the financial markets.

Proposition Joe said:

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I bleed maroon said:

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Interesting question, but I agree with the others - there's no real good hedge against the US Gov't who backstops these loans. All I can think of is put options on long-term US Treasuries. You could hedge with international debt, but most are in worse shape than us. If there were a futures proposition bet on a US credit downgrade, that might work (where is Proposition Joe when you actually need him?). Shorting for-profit universities won't help, because they don't care if it's the students who pay them, or the US government.

Bottom line, this is only useful to discuss hypothetically, because there are many factors which could simultaneously offset the student loan default effect on the US government's finances.

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I'm always here.

But I'm always here because most of you know 100x what I do about the financial markets.

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That may be true, but you are the recognized TexAgs king of gambling.

I'm guessing the odds of a US debt downgrade in 2024-2025 are probably 200 to 1 or so. Thoughts?

Stepping back a little bit I actually like the thesis here; i.e. high probability of record rates of default on credits cards, auto loans and even mortgages in the offing. What instruments / setups would you use to profit off of this. I can't buy / short credit default swaps an individual investor.

But wasn't one of the major plot points of The Big Short that the industries were so corrupt and so protective of their investments that they were able to (fraudulently) keep the music from stopping for years and years?

I think that is the main concern. Back then no one dug deep enough into the housing situation to understand exactly what was going on with these tranches and just how leveraged everything was -- the value was in Burry and others seeing something that no one else saw yet.

In this case, everyone knows consumer debt is way too high. Everyone knows there will be a reckoning. But every industry (and politician) is incentivized to delay addressing it and kicking the can down the street as long as they can. So you're not really betting on IF something will happen - we all know it will... You're betting on WHEN something will happen, and IMO when it comes to major financial markets there's not many people that can do that and if they can there's much less riskier/profitable plays to be made. Burry was right, but if I remember the story correctly his risk-level and the length of time it took for him to be right put the company at great risk of toppling before profits were ever realized.

It's betting on a rigged game.

Also think its understanding that there's major firms that can "control the market". They can't necessarily stop something from happening, but they can certainly prop a market up for an extended period of time in which you may be "right", but as far as profiting in the market is concerned, it doesn't matter.

To make a sports gambling parallel, there were often times where someone might know exactly the amount of money was coming in on whatever side, and be waiting for a spread to hit a certain number (assuming no other major market forces at play)... but depending on the event (typically lower volume ones), we controlled the market so it didn't matter what the data was showing - we were going to dictate which way the spread moved.

I don't think its much different in the financial world with the enormous banks and hedge funds. You may be right, but you're betting against guys that have 1000x the market control.

Proposition Joe said:

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Also think its understanding that there's major firms that can "control the market". They can't necessarily stop something from happening, but they can certainly prop a market up for an extended period of time in which you may be "right", but as far as profiting in the market is concerned, it doesn't matter.

To make a sports gambling parallel, there were often times where someone might know exactly the amount of money was coming in on whatever side, and be waiting for a spread to hit a certain number (assuming no other major market forces at play)... but depending on the event (typically lower volume ones), we controlled the market so it didn't matter what the data was showing - we were going to dictate which way the spread moved.

I don't think its much different in the financial world with the enormous banks and hedge funds. You may be right, but you're betting against guys that have 1000x the market control.

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I fundamentally disagree with most of this broad brush view that it's "rigged game" and a few big guys have 1000x control that we do. Surprising that freemhayden has such a cynical view.

I think it's a fairly wide-open and free game, with a lot of competition between a lot of independent entities. The fact is, economies of scale (and associated tools, methods, and intelligence-gathering) allow certain big players to gain an ever so slight edge over us (mostly simple arbitrage), and due to the scale of the transactions, their results look huge comparatively.

In that way, it is very similar to sports betting, but the fact is that you can either invest to approach their scale and methods, or watch them very closely and copy their moves. Or, take a totally new approach, and live with the risk-adjusted results.

Proposition Joe said:

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But wasn't one of the major plot points of The Big Short that the industries were so corrupt and so protective of their investments that they were able to (fraudulently) keep the music from stopping for years and years?

I think that is the main concern. Back then no one dug deep enough into the housing situation to understand exactly what was going on with these tranches and just how leveraged everything was -- the value was in Burry and others seeing something that no one else saw yet.

In this case, everyone knows consumer debt is way too high. Everyone knows there will be a reckoning. But every industry (and politician) is incentivized to delay addressing it and kicking the can down the street as long as they can. So you're not really betting on IF something will happen - we all know it will... You're betting on WHEN something will happen, and IMO when it comes to major financial markets there's not many people that can do that and if they can there's much less riskier/profitable plays to be made. Burry was right, but if I remember the story correctly his risk-level and the length of time it took for him to be right put the company at great risk of toppling before profits were ever realized.

It's betting on a rigged game.

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So you're telling me

Quote:

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The market can stay irrational longer than you can stay solvent

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Or as others have unfortunately stated

Quote:

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The house always wins

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birdman said:

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Betting against the house in a casino is a loser bet.

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JJxvi said:

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buy physical gold

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Buy DIGITAL gold