Trump, LDI and defaulting government debt
Joseph Mariathasan
Director of GIST; Contributing Editor at IPE; Partner at Peak Sustainability Ventures; member of Advisory Boards of Moneyhub and of pinBox Solutions, Advisor to Bitelabs Healthtech
Imagine there’s no risk-free debt. It’s easy if you try. That may be a shocking idea to many, but it may also be a source of liberation – there would be no hell beneath us, above us only sky (to paraphrase John Lennon).
Such a situation would not be in anyone’s LDI models. Yet some investment managers have the strong belief that government sovereign-debt defaults are a natural conclusion to the current path on which we find ourselves. US president-elect Donald Trump even announced in a CBS interview earlier this year that, if the US economy “crashed,” he would offer to pay creditors less than what they were owed. “You go back and say: ‘Hey, guess what? The economy just crashed. I’m going to give you back half’.”
As a self-proclaimed consummate deal maker, he is well experienced in renegotiating debt. Some now argue that it is not only the US, but the euro-zone, the UK and ultimately most of the world’s governments that are going to default on their debt. That will certainly be a source of worry – but a recognition of that possibility might also lead to a less blinkered view of the relative merits of investing in near-zero or even negative-yielding government debt, and equities with yields of more than 3% with built-in inflation proofing.
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Orbis Investments
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