bailout endgame: will treasurys crash due to Fed monetization?

[Guest]

Re: bailout endgame: will treasurys crash due to Fed monetization?

[quote=phirang;70211]Peter Schiff is an idiot. Listen to him at your own peril.[/quote

Yet he's the one on tv reaching an audience of millions weekly with the yacht and hundreds of millions in the bank and you're here trolling on a forum read by dozens and dozens.

Life must be so unfair that your wisdom hasn't been recognized.

[BadJuju]

Re: bailout endgame: will treasurys crash due to Fed monetization?

[quote=brucec42;70363]

Peter Schiff is an idiot. Listen to him at your own peril.[/quote

Yet he's the one on tv reaching an audience of millions weekly with the yacht and hundreds of millions in the bank and you're here trolling on a forum read by dozens and dozens.

Life must be so unfair that your wisdom hasn't been recognized.

Larry Summers also reaches millions and millions of viewers, yet he is a blithering idiot. Peter Schiff, likewise, is an idiot as well.

[metalman]

Re: bailout endgame: will treasurys crash due to Fed monetization?

[quote=brucec42;70363]

Peter Schiff is an idiot. Listen to him at your own peril.[/quote

Yet he's the one on tv reaching an audience of millions weekly with the yacht and hundreds of millions in the bank and you're here trolling on a forum read by dozens and dozens.

Life must be so unfair that your wisdom hasn't been recognized.

send a note to ej... tell him to hire a pr firm run by his brother, suck up to the msm while bashing the latest msm has-been scapegoats, talk about himself 7/24, recommend commodities and predict a dollar crash in 2008 and lose his investors' $$$... call investors personally to talk them out of selling his funds... for god's sakes don't go to cash!!! and tell him to buy a yacht with the suckers' money...

...all so that YOU... bruce42... will respect him!

he'll get right on it, fer sure. go ahead, give it a try... eric@itulip.com... he answered my last note... peter will answer yours too, if you threaten to sell...

[GRG55]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Yet he's the one on tv reaching an audience of millions weekly with the yacht and hundreds of millions in the bank ...

Description fits Cramer too.

I don't listen to him either...

[we_are_toast]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Another take on the situation.

The bond bubble is an accident waiting to happen

The bond vigilantes slumber. As the greatest sovereign bond bubble of all time rolls into 2009, investors are clinging to an implausible assumption that China and Japan will provide enough capital to keep the happy game going for ever.



Ambrose Evans-Pritchard
Last Updated: 12:22PM GMT 12 Jan 2009


They are betting too that debt deflation will overwhelm the effects of near-zero interest rates across the G10 and nullify a £2,000bn fiscal blast in the US, China, Japan, Britain, and Europe.

Above all, they are betting that the Federal Reserve chief Ben Bernanke will fail to print enough banknotes to inflate the US money supply, despite his avowed intent to do so.

Yields on 10-year US Treasuries have fallen to 2.4pc – a level that was unseen even in the Great Depression. This is "return-free risk", said bond guru Jim Grant.

It is much the same story across the world. Yields are 1.3pc in Japan, 3.02pc in Germany, 3.13pc in Britain, 3.26pc in Chile, 3.47pc in France, and 5.56pc in Brazil.

"Get out of Treasuries. They are very, very expensive," said Mohamed El-Erian, the investment chief at the Pimco, the world's top bond fund, in a Barron's article last week.

It is lazy to think that China, Japan, the petro-powers and the surplus states of emerging Asia will continue to amass foreign reserves, recycling their treasure into the US and European bond markets.

These countries are themselves bleeding as exports collapse. Most face capital flight. The whole process that fed the bond boom from 2003 to 2008 is now going into reverse.

Woe betide any investor who misjudges the consequences of this strategic shift.

Russia has lost 27pc of its $600bn reserves since August. The oil and metals crash has left the oligarchs prostrate. China's reserves fell $15bn in October. Beijing has begun to fret about an exodus of hot money – disguised as foreign investment in plant. The exchange regulator is muttering about "abnormal" capital flows out of the country.

China's $1,900bn stash of foreign bonds is a by-product of holding down the yuan to boost exports.

This mercantilist ploy is no longer necessary, since the currency is weakening. Beijing needs the money at home in any case to prop up the Chinese economy – now in trouble. Even Japan has slipped into trade deficit.

Clearly, the US and European governments cannot rely on Asia to plug the $3,500bn hole in their budgets this year.

Asians are just as likely to be net sellers of their bonds. Which implies that central banks may have to "monetize" our deficits.

James Montier, from Société Générale, has examined US bonds back to 1798. Yields have never been this low before, except under war controls in the 1940s when the price was set by dictate.

That episode is not a happy precedent. The Fed drove the 10-year bond down to 2.25pc, much as it is doing today with mortgage bonds. It helped America win World War Two, but ended in tears for bond holders in 1946 when inflation jumped to 18pc.

Mr Montier said yields have averaged 4.5pc over two centuries, with a real return of around 2pc. By that benchmark, the market is now banking on a decade of deflation.

Investors have drawn a false parallel with Japan's Lost Decade, when bond yields kept falling, forgetting that Tokyo waited seven years before resorting to the printing press. Mr Bernanke has no such inhibitions. He has hit the nuclear button in advance.

"Today's yields are woefully short of the estimated fair value under normal conditions. There maybe a (short-term) speculative case for buying bonds. However, I am an investor, not a speculator," he said
Of course, we may already be so deep into debt deflation that bonds will rally regardless. Fresh data suggest that Japan's economy contracted at a 12pc annual rate in the fourth quarter of 2008; the US, Germany, and France shrank at a 6pc rate, and Britain shrank at 5pc.

If sustained, these figures are worse than 1930, though not as bad as the killer year of 1931. The UK contraction from peak to trough in the Slump was 5pc. Gordon Brown will be lucky to get off so lightly.

The Fed's December minutes reek of fear. The Bernanke team is no longer sure that stimulus will gain traction in time.

The Fed's "Monetary Multiplier" has collapsed, falling below 1. This is unthinkable. We are in a liquidity trap.

So yes, printing money is not as easy as it looks, but to conclude that the Fed cannot bring about inflation is a leap too far.

The Fed has only just started to debauch in earnest, buying $600bn of mortgage bonds to force home loans down to 4.5pc. US mortgage rates have dropped 150 basis points in two months.

My tentative guess is that Bernanke's blitz will "work" – perhaps later this year. Markets will start to look beyond deflation. They will remember that the Fed is boosting its balance sheet from $800bn to $3,000bn, and that it sits on an overhang of bonds that must be sold again.

"The euthanasia of the rentier" will wear off, to borrow from Keynes. That is when the next crisis begins.

[billydixon]

Re: bailout endgame: will treasurys crash due to Fed monetization?

The FedGov will always do whatever it takes to ensure its survival. My guess is eventual currency devaluation of some sort to significantly reduce national debt so that more "borrowing" can begin again. This will happen once our foreign creditors abandon further purchases of USTreasuries. Once foreigners quit funding our deficits, there will no longer be any incentive to continue protecting the value of the USTs that they have already purchased.

My question is: how to predict when that "event" is near? Predicting that event is crucial to all iTulipers economic survival. Because if you are not in gold, oil, and ag commodities when that happens, your net worth just vanished by the amount of the currency devaluation.

We already have historical precedent for this, FDR did it in 1933. FDR did it 4 years into the Great Depression. Since this Greater Depression will be worse and happen more quickly, I think it should happen 2-4 years into this downturn. The downturn started in 2007, so somewhere between 2010 and 2011. I predict 2010 because Obama will have figured out by then that the stimulus will not work and the Greater Depression will have deteriorated to the point where foreigners will no longer buy USTs after losing confidence that the US FIRE economy will ever come back.

Thoughts?

[FRED]

Re: bailout endgame: will treasurys crash due to Fed monetization?

The FedGov will always do whatever it takes to ensure its survival. My guess is eventual currency devaluation of some sort to significantly reduce national debt so that more "borrowing" can begin again. This will happen once our foreign creditors abandon further purchases of USTreasuries. Once foreigners quit funding our deficits, there will no longer be any incentive to continue protecting the value of the USTs that they have already purchased.

My question is: how to predict when that "event" is near? Predicting that event is crucial to all iTulipers economic survival. Because if you are not in gold, oil, and ag commodities when that happens, your net worth just vanished by the amount of the currency devaluation.

We already have historical precedent for this, FDR did it in 1933. FDR did it 4 years into the Great Depression. Since this Greater Depression will be worse and happen more quickly, I think it should happen 2-4 years into this downturn. The downturn started in 2007, so somewhere between 2010 and 2011. I predict 2010 because Obama will have figured out by then that the stimulus will not work and the Greater Depression will have deteriorated to the point where foreigners will no longer buy USTs after losing confidence that the US FIRE economy will ever come back.

Thoughts?

See Ka-Poom Theory is a Rhyme not a Repeat of History, Sept. 2006

[BadJuju]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Ah, the wonders of being 22 and having absolutely no net worth to devalue. :p

[c1ue]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Ah, the wonders of being 22 and having absolutely no net worth to devalue. :p

BJ,

I wouldn't be too sanguine about that.

Law of 72: rate of return divided into 72 equals years needed to double investment.

Law of Retirement: 15 times desired future retirement income divided by 2 exp (years worked divided by results of Law of 72)

Starting out with 10 or 15 years of low to zero returns generally means losing 8x to 16x of future assets.

So each $1 you are unable to save or retain due to higher inflation now, means $8 or $16 of future money not achievable

[Boerg]

Re: bailout endgame: will treasurys crash due to Fed monetization?

Peter Schiff is an idiot. Listen to him at your own peril.

This is a typical ad hominem fallacy.

[jtabeb]

Re: bailout endgame: will treasurys crash due to Fed monetization?

BJ,

I wouldn't be too sanguine about that.

Law of 72: rate of return divided into 72 equals years needed to double investment.

Law of Retirement: 15 times desired future retirement income divided by 2 exp (years worked divided by results of Law of 72)

Starting out with 10 or 15 years of low to zero returns generally means losing 8x to 16x of future assets.

So each $1 you are unable to save or retain due to higher inflation now, means $8 or $16 of future money not achievable

Who cares. With deflation all he has to do is save dollars and the appreciation of the principal in purchasing power terms will more than make up for the lack of nominal gains.