No such thing as a Treasury bond bubble - Eric Janszen

[metalman]

Re: No such thing as a Treasury bond bubble

It would be nice to receive some guidance regarding what to do. If you believe the fed is buying stocks, then why aren't you recommending that your readers do the same?

note he added an addendum this a.m. on that topic. we're not in kansas anymore, toto.

[metalman]

Re: No such thing as a Treasury bond bubble

Many of us revise our theories based on facts on the ground. Ej's comments seem like an obtuse way of saying that something may be afoot (does he have inside information). Or is this a trial balloon lofted into the itulip hive mind?

it's along the line of his 'there are no rules' posts... for readers who are having difficulty imagining how much more fucked up things can get... get ready to see the gov't messing directly with the stock market. what to do? play along? run away?

[we_are_toast]

Re: No such thing as a Treasury bond bubble

Enter the gods of government: the Treasury Dept. and Federal Reserve. Their task: get fearful investors out of the Treasury bond lifeboats, into the frigid high risk financial markets sea to the sinking USS FIRE Economy – where they can be put to work re-floating it.

As I continue my economic education here on iTulip, postings by EJ always bring up a whole lot of questions and send me off on a quest to try and figure out what he's getting at.

Is there an assumption being made that there are an excess of dollars tied up in U.S. Treasury bonds that are essentially being taken out of the economy and not being put to work?

Doesn't the Treasury simply issue the bonds it needs to pay for government? So the drop in interest rate is a reflection of the demand, but does not reflect quantity. The same number of dollars enter the treasury whether the interest rate is 5% or 1/4% as long as the bonds are sold. And those dollars are almost immediately spent by the government and injected into the economy.

So why would the government want to kick them out of the lifeboat when they need those dollars and they're getting them at a low interest rate?

Send the dollars to buy equities? For the most part, buying equities simply parks dollars and takes them out of circulation (except for new issues). Most stock buying is one long term trader buying from another, and the dollars just bounce around in the market without doing any real work in the real economy. So why would the government want to send treasury dollars it needs, to an economic nonproductive stock market?

So I'm having a hard time understanding the concept of there being an excess number of dollars in Treasuries (although there is great demand). If this is true, where are the dollars? And I'm having an even more difficult time understanding why the government would want to chase them out, when all it would do is drive up interest rates and cost the government more.

[SJ]

Re: No such thing as a Treasury bond bubble

Sorry for the confusion. What I am saying: Don't expect equities to rally (except for a few days/weeks at best) because the Treasury/Fed starts buying them. In fact, you should expect them to fall (after the initial sucker's rally) because US Treasury yields will rise rapidly.

Based on the insanely rapid rate at which the Fed is increasing money supply, the only items whose nominal value we can expect to increase are (1) real assets with relatively inelastic supply (precious metals, oil, usable land) and (2) interest rates.

Hope that helps.

[metalman]

Re: No such thing as a Treasury bond bubble

Sorry for the confusion. What I am saying: Don't expect equities to rally (except for a few days/weeks at best) because the Treasury/Fed starts buying them. In fact, you should expect them to fall (after the initial sucker's rally) because US Treasury yields will rise rapidly.

Based on the insanely rapid rate at which the Fed is increasing money supply, the only items whose nominal value we can expect to increase are (1) real assets with relatively inelastic supply (precious metals, oil, usable land) and (2) interest rates.

Hope that helps.

makes total sense. means... stay out of the stock market and stay in your 10 yr old gold and treasury debt. will interest rates tend to rise on the short or the long end first?

[metalman]

Re: No such thing as a Treasury bond bubble

mega posed this just now...

Bank of England to buy up short-term company debt
Saturday, 7 February 2009

The Bank of England will start buying short-term company debt as early as next week as a first move in its £50bn plan to unfreeze the markets for corporate credit.

The central bank said yesterday that it would be ready to buy commercial paper, debt issued by companies for up to 90 days, from Friday. But it said it was still working on a more important proposal to buy longer-term corporate bonds and was consulting market participants so that it could launch as soon as possible.

Companies had hoped that the plan would be fully up and running this week after the Bank’s Governor, Mervyn King, exchanged letters with the Chancellor last week agreeing terms for the radical operation. In his letter to Alistair Darling, Mr King said that commercial paper was not a particularly important form of company debt in Britain compared with the US.

Mr King and the Government have focused their recent plans on freeing the supply of credit to cash-starved businesses to prevent viable companies folding.

http://itulip.com/forums/showthread.php?t=7877

[labasta]

Re: No such thing as a Treasury bond bubble

The problem is that the bottom for earnings isn't yet in sight.

That's it, isn't it. It seems like they are trying to put the cart before the horse.

Rather than get the real economy going in the solid slow traditional way of good business and then have the FIRE economy naturally boosted by this, they are boosting the FIRE hoping that there's a spin off to the real economy. The real econ. can't be revived through FIRE anymore, can it? This means (hyper)inflation coupled with depression, doesn't it?

How's this for an analogy (if may be crap, but it's my first one):
The economy is like a big bonfire. The real econ. is the sticks and logs, the FIRE econ. is the flames. If you light the logs, it takes a while for the flames to take hold, with lots of smoke at the beginning. The flames live off the logs which are replaced every so often (new business). The FIRE econ. has burnt out the logs without replacing it with new real businesses. The government is now applying a flame thrower to the burnt out logs hoping to get a fire going again, which can't happen. Instead it should be finding new businesses (and then maybe using a flamethrower to get it going quickly). Maybe the new logs is the alt energy business.

Ok, a bit long winded.

[don]

Re: No such thing as a Treasury bond bubble

"Investors desired safety of principle, to stay alive to fight another day."

That's funny. Well stated. Like a good martini, irony is best served dry :cool:

[Quincy K]

Re: No such thing as a Treasury bond bubble

the people in government are so out of touch they can't seem to realise that the average earning worker/consumer has reached their debt limit and so can't buy any more.

if people can't afford stuff , company earnings will decline.

So why would you buy stocks in companies that are going to lose money or have much lower earnings?

you would buy stocks because they are going up regardless of fundamentals(casino) and you reap the capital gains. would you want to be short if you knew the USG was goign to start monetizing equities? it wouldn't surprise me if the USG created 1 trillion in gvrnmnt works programs to destroy excess housing just to rebuild it again. anything and everything is possible at this point.

IMO, the USG and all the CB's are just hoping for an orderly controlled decline and doing anything in their power to assure that. they do not want to see anarchy and chaos which could very well happen if everyone simultaneously runs for the exits.

[jk]

Re: No such thing as a Treasury bond bubble

if the gov't is going to buy equities, they will want to do so in sufficient size to have an impact. the deepest, most liquid markets will be required to handle the flow. the only candidate is the s&p500. purchases can be made quickly via the futures market [the playpen of the hypothetical ppt], or via spy or just baskets or programmed trades. money will then flow into other equities as players take profits in the s&p to move into lagging names. if -unlike me - you are into trading and have a knack for deft timing, you can spread the big caps against the small caps and then reverse that trade at the proper moment. or you can just buy the spy's and then get off the elevator at the proper time.

if - like me- you think the fire economy can't be resurrected [or - in ej's metaphor- refloated], then it's hard to see equities really performing well without an even more severe washout - "hitting the reset button." thus this analysis doesn't tempt me to move heavily into equities. pm's, and perhaps oil, remain the most likely beneficiary of all these scenarios.

btw, allowing people to sell equities to the government also provides another channel to move cash into the economy. how many investors are praying for their stocks to get back to where they were purchased so that they can "get even.?" will they sell at that point to the government purchaser? and if so, what will they do with the proceeds?

[icm63]

Re: No such thing as a Treasury bond bubble

It would be nice to receive some guidance regarding what to do. If you believe the fed is buying stocks, then why aren't you recommending that your readers do the same?

Itulip are LONG Gold - However entry around 60 week MA is wise.

Wanna get rich:
Play the massive swings in GOLD STOCKS that will happen over the next 5 or so years. Rising gold and rising stocks, GDX will rally hard, falling stocks GDX will sell off, falling gold and falling stocks GDX will fall hard. (GDX = Gold miners ETF : see also ASA, ABX etc)

Watch the $USD, once that tops out, GO LONG non-USD currency (EURO, YEN, EUAN)

When $USD falls hard, BUY USA exporters (like before: MOS, POT) and CRUDE as USA fund managers will want purchasing power protection (just like what happened in 2006/07). Thus commodities will rally back up.

The trades in the future will have a lot to do where the $USD will trend. However if this disinflation falls into deflation, then the $USD may not turn down. Ituilp do not support general wide deflation expectations, they support a limited view that is debt deflation not general goods deflation, with inflation pressures to follow.

My view is the $USD will tell us what USA (world) will get...disinflation, deflation, inflation, hyperinflation. Currency and bond markets are smarter than stock markets.

Timing these markets..well that's a whole thesis !!

[Guest]

Re: No such thing as a Treasury bond bubble

Great tactical macro calls icm63.

I'm copying this to a memo and pasting it to my refrigerator to try to remember and execute on. I think you are spot on. With regard to the USD index moves giving the signal as to how the chips will fall, you are also spot on IMO, but beware of placing too much emphasis because we may (likely will) get an "anomaly" as all currencies act like minnows and pilotfish, either trailing, or possibly even leading the USD down in the next couple of years. So that would yield a USD index which was not apparently "doing very much" in response to accelerating USD debasement.

Also using the CRB as a benchmark may prove treacherous in that the CRB may not be reacting "normally" to a submerged USD plunge. The distortions in purchasing power may instead accumulate under the surface and only break out once the tectonic pressures become large enough. In effect the USD progress of disintegration, observed on the surface of things, may proceed in a very herky-jerky way so that timing your various macro trades descibed below will be difficult due to the difficulty of getting a firm "read" on where we are. Otherwise I think your assessment has a beautiful simplicity about it and is spot on.

Itulip are LONG Gold - However entry around 60 week MA is wise.

Wanna get rich:
Play the massive swings in GOLD STOCKS that will happen over the next 5 or so years. Rising gold and rising stocks, GDX will rally hard, falling stocks GDX will sell off, falling gold and falling stocks GDX will fall hard. (GDX = Gold miners ETF : see also ASA, ABX etc)

Watch the $USD, once that tops out, GO LONG non-USD currency (EURO, YEN, EUAN)

When $USD falls hard, BUY USA exporters (like before: MOS, POT) and CRUDE as USA fund managers will want purchasing power protection (just like what happened in 2006/07). Thus commodities will rally back up.

The trades in the future will have a lot to do where the $USD will trend. However if this disinflation falls into deflation, then the $USD may not turn down. Ituilp do not support general wide deflation expectations, they support a limited view that is debt deflation not general goods deflation, with inflation pressures to follow.

My view is the $USD will tell us what USA (world) will get...disinflation, deflation, inflation, hyperinflation. Currency and bond markets are smarter than stock markets.

Timing these markets..well that's a whole thesis !!

[icm63]

Re: No such thing as a Treasury bond bubble

I use 60 week EMA for marco trends. What you are talking about is whipsaws, and getting in too quick. Timing, is tough.

MY guess

$USD will see 100 before it sees75 again..
Gold will see 800 before it sees 1000 again..
Stocks will rally to 1000 SP500 (or close to it....thats a long shot)..

[metalman]

Re: No such thing as a Treasury bond bubble

I use 60 week EMA for marco trends. What you are talking about is whipsaws, and getting in too quick. Timing, is tough.

MY guess

$USD will see 100 before it sees75 again..
Gold will see 800 before it sees 1000 again..
Stocks will rally to 1000 SP500 (or close to it....thats a long shot)..

after reading the japan data in this article then snooping around, i put high odds on some gov't freaking out and doing something stupid in the next 6 months.

[Guest]

Re: No such thing as a Treasury bond bubble

ICM63 - I read you and agree with you on all of that - 4X4.

I use 60 week EMA for marco trends. What you are talking about is whipsaws, and getting in too quick. Timing, is tough.

MY guess

$USD will see 100 before it sees75 again..
Gold will see 800 before it sees 1000 again..
Stocks will rally to 1000 SP500 (or close to it....thats a long shot)..