30 year bond resultsbeware

[johngaltfla]

Re: 30 year bond resultsbeware

Yeah, lots of deflation in the air.:rolleyes:

Let's see, back in February I penned a brief piece titled (speculatively of course) "Has Back Door Monetization Already Begun?"

I only did that of course because I have nothing to sell, nothing to market and only write as an observer with a personal holding in physical PMs and my writings I'm sure would sway the metals markets by billions each day (/sarcasm off now).

In reality the point I have been trying to make is that if you look at the TARP and the current government acquisitions (AIG, Citi, BoA/Merrill) you have to ask yourself:

Would our government, yes, that one the one that took over Chrysler and GM illegally, dare to tell trading desks what investments to make on a daily basis to insure market actions insure "confidence" to other investors overseas and domestically?

Nah, no way. There's no way that could happen in our modern age.:rolleyes:

BUT if you note, each of those corporations under the Uncle Sam umbrella just "happen" to own numerous subsidiaries and hedge funds in the Caribbean Islands. And a funny thing happened to the TIC report starting last September when TARP and other bailout programs started to influence our financial system.

I'll let you look at the graph and draw your own conclusions. I've made mine already and hope I live long enough for historians to publish the truth on this era.

[flintlock]

Re: 30 year bond resultsbeware

That's not really metalman, it's Oscar Wilde, known for his biting wit.

This is the real Metalman

[goadam1]

Re: 30 year bond resultsbeware

This is the part of the conversation where some true believers talk theory instead of practice. Yes some of my competitors will and are going out of business. I may go out of business. But there really is a near bottomless production or output gap in my business. So my business will keep duh-flating because isn't that hard or expensive to start a competing business and there are ever so many talented people to step in at cheaper prices. Clients know it. I understand that if you debase the currency finite things will grow more expensive in relative terms. But don't confuse that with the duh-flation going on with my business. And I bet the restaurant raised there prices to keep up with rising input costs. I'm glad the economy allows for them to pass the costs on to costumers.

[big67]

Re: 30 year bond resultsbeware

Hey Guys,

Saw this on Market ticker and its kind of interesting... Would love some input from the itulip folks, would love to hear EJ's/FRED's thoughts as well....

http://market-ticker.denninger.net/a...ts-Beware.html



Since EJ and most folks here (myself included) are betting on inflation, i would like someone to help me make sense of this argument... With these treasury sales results are FCB's betting on deflation? AND if so, can they make it happen? Perhaps we can discuss this data point as i believe EJ likes to look at data and use it to evaluate his thesis....

Your question is a good one.

I can't answer posting datas, will try to bring some ideas- gut feelings instead.

If we look at the ability of producers to raise prices, my feeling is that the prices are already raising for the goods that are non deferrable purchases: food, oil. The elasticity of demand is very limited there, and speculation is rampant. Look there and you will find already your (price) inflation.

If you look at deferrable purchases, such as PCs, handy phones, IT in general, also some services, even some medical services (ex. dentists), vacations, hotels, air tickets, you will find still some (price) deflation.

My feeling is that you can't deflate forever prices in such conflicting environment. Take air tickets for example: there is a very real price bottom there (not only oil, that is impacting the same on all the airlines, but wages, royalties for the landing slots, airliners maintenance...).

Marginal producers of deferrable purchases will eventually go out of business. Alitalia did. Opel did. GM did. In China too they go out of business, the poster child to me are chinese toys producers.

My feeling is that wages in the west will stay where they are today, or decrease for the not specialised workers. Non deferrable purchases will rise in price, driven by energy and food, real demand from BRIC and speculative demand, eating away the budget for the other items. Marginal producers will rapidly go out of business in many areas worldwide, but expecially in the western block.

Add to the mix the political reaction, that is borrowing like there is no tomorrow to try to keep big dead businesses alive. Production base is shrinking and subsidized, debt is growing. Eventually this will debase the currencies big times. Overall inflation will thus set finally in.

[*T*]

Re: 30 year bond resultsbeware

I think it makes sense to revisit this question periodically, to keep he thinking fresh, as it were.

[grapejelly]

Re: 30 year bond resultsbeware

My feeling is that wages in the west will stay where they are today, or decrease for the not specialised workers. Non deferrable purchases will rise in price, driven by energy and food, real demand from BRIC and speculative demand, eating away the budget for the other items. Marginal producers will rapidly go out of business in many areas worldwide, but expecially in the western block.

Add to the mix the political reaction, that is borrowing like there is no tomorrow to try to keep big dead businesses alive. Production base is shrinking and subsidized, debt is growing. Eventually this will debase the currencies big times. Overall inflation will thus set finally in.

That's exactly what I think, too. It is 100% inevitable. There is no other way.

That doesn't meant here won't be another deflation scare. But it is so much hype. I actually expect a deflation scare in the fall. But in the end, it will be more virulent inflation than we've ever seen in the Western world.

At some point the 30 year will be discounting this. Another option is that short rates will come up, that is, the yield curve will at some point flatten out and all rates will be more like the 4 or 5% range. Bob Hoye, whom I respect a ton, says that this has happened in the past during similar time periods which he says is 1875 and 1930.

[flintlock]

Re: 30 year bond resultsbeware

This is the part of the conversation where some true believers talk theory instead of practice. Yes some of my competitors will and are going out of business. I may go out of business. But there really is a near bottomless production or output gap in my business. So my business will keep duh-flating because isn't that hard or expensive to start a competing business and there are ever so many talented people to step in at cheaper prices. Clients know it.

Now you see what small businesses in the construction industry have been going through for years. FIRE economy requires constant growth or this happens. Seems like there is always someone who'll do it cheaper. Or course eventually quality suffers in the race to the bottom.

In my case, residential electrical service, there used to be higher barriers of entry. A license was required and you had to pay taxes, insurance, payroll taxes, etc. Now every dufus with a pickup is trying their hand at it, regardless of the law. The authorities refuse to enforce the licensing requirements like they are supposed to, or the labor laws, and its basically anything goes. The upshot of all this is now 50% of my business is fixing their mistakes.

[Aerius]

Re: 30 year bond resultsbeware

His fundamental theory is that FCBs are smart and buy treasuries to make money. That is, why would a rational entity buy an asset that is expected to decrease in value.

I think it ignores FCBs propping up the US for non-profit reasons. It also ignores how some countries are also in horrible shape and need to recycle dollars to keep their currency pegs/bands in order to protect exporters.

The argument may have some merit in that the dollar depreciation will be orderly and possibly limited as other CBs debase their currencies as well.

I agree that it's always good to revisit past thesis, especially when it becomes the dominant thought. Herd mentality is a dangerous thing, especially when investing.

[Ted Spread]

Re: 30 year bond resultsbeware

I saw that post too - it reminded me of a passage from Richard Feynman's book "Surely You're Joking, Mr Feynman!" where he is describing the work that won him the Nobel Prize in Physics....



"
I went to Professor Bacher and told him about our success, and he said,
"Yes, you come out and say that the neutron-proton coupling is V instead of
T. Everybody used to think it was T. Where is the fundamental experiment
that says it's T? Why don't you look at the early experiments and find out
what was wrong with them?"
I went out and found the original article on the experiment that said
the neutron-proton coupling is T, and I was shocked by something. I
remembered reading that article once before (back in the days when I read
every article in the Physical Review -- it was small enough). And I
remembered, when I saw this article again, looking at that curve and
thinking, "That doesn't prove anything!"
You see, it depended on one or two points at the very edge of the range
of the data, and there's a principle that a point on the edge of the range
of the data -- the last point -- isn't very good, because if it was, they'd
have another point further along. And I had realized that the whole idea
that neutron-proton coupling is T was based on the last point, which wasn't
very good, and therefore it's not proved. I remember noticing that!

"

[goadam1]

Re: 30 year bond resultsbeware

Now I see? I'm not trying to seem like a jerk. I've been experiencing this for years. But the bubble was helpful to my business.

I'm not trying to take issue with Metalman or Itulip. But let's call some of the changes "rising productivity" and not duh-flation. Sounds cooler now.

[metalman]

Re: 30 year bond resultsbeware

Now I see? I'm not trying to seem like a jerk. I've been experiencing this for years. But the bubble was helpful to my business.

I'm not trying to take issue with Metalman or Itulip. But let's call some of the changes "rising productivity" and not duh-flation. Sounds cooler now.

i could be wrong, but my recollection is that at the time ej published the duh-flation article the debate still raged re deflation spiral (denninger, mish, ackerman, krugman, keen) vs the fed printing money and buying stuff (ej).

the deflation you're talking about is built into my tech industry (i'm a tech writer). prices of products with the same feature set go down, down, down. innovation enables new products that we can charge more for. input costs... materials, labor... stay about the same.

restaurants can't feature innovate their way out of lost pricing power. home builders can to a certain extent, i guess... use techniques that reduce costs to add higher end features to more homes.

[flintlock]

Re: 30 year bond resultsbeware

Now I see? I'm not trying to seem like a jerk. I've been experiencing this for years. But the bubble was helpful to my business.

I'm not trying to take issue with Metalman or Itulip. But let's call some of the changes "rising productivity" and not duh-flation. Sounds cooler now.

Sorry, I should have said, "now people can see". Didn't necessarily mean "you" literally. I don't even know what industry you are in. I just find it amusing that I'm hearing stories now that 10 years ago people didn't want to hear when it was only the lowly construction industry getting hurt. I heard quite a bit of things like. " That won't ever affect me, I'm in a higher level industry".

Things change a lot faster now. You train and educate yourself trying to get ahead, but it seems about the time you figure it all out, the game changes again.

[c1ue]

Re: 30 year bond resultsbeware

Treasury bond rates rising from 2% in December to nearly 4% earlier this week - with foreign purchasers buying less (percentage wise) than before is not a good sign.

The EJ/iTulip predicted quarterly Fed monetization is coming up, but the point is that rates are higher now than before the previous Fed monetization.

If the rates were too high then, what are they now?

If the Treasury auctions were not fine then, why are they fine now?

[Chomsky]

Re: 30 year bond resultsbeware

Treasury bond rates rising from 2% in December to nearly 4% earlier this week - with foreign purchasers buying less (percentage wise) than before is not a good sign.

The EJ/iTulip predicted quarterly Fed monetization is coming up, but the point is that rates are higher now than before the previous Fed monetization.

If the rates were too high then, what are they now?

If the Treasury auctions were not fine then, why are they fine now?

Must be time for Bernanke's next parlor trick:

http://itulip.com/forums/showthread.php?t=10346

[phirang]

Re: 30 year bond resultsbeware

It's actually very simple, like all central banking.

The bond market was collapsing - this is true.

There's excessive speculation in commodities and stocks - also true.

However, banks NEEDED fools to think that the above was sustainable, allowing them to offtake crap and get treasuries instead.

Banks with crap hate deflation. Banks with treasuries LOVE deflation.

Bernanke had enough time to prep the banks for another deflationary spat. Now, it's time to protect the Treasury market, rescue housing (again), crush speculators(again), and prepare for the next leg of asset recycling/disposal(which generally moves price levels up a notch every iteration).

ps: why is gold down? $40B drained from Fed this week.