Hello Everyone!
I hope everyone is enjoying their weekend. I just wanted to share a couple of great reads that I picked up.
Prudent Bear's Martin Hutchinson makes a compelling argument for buying German debt over US Treasuries.
The second article is from Bloomberg. 30 year treasuries posted their largest weekly loss since the crash of 1987.
Quick Take:
As you can see in the second article, yields on the 30 year rose 43 basis points for the week as we get ready to sell our soul in treasuries in order to pay for these ridiculous bailouts.
Is this the beginning of a longer term trend where interest rates begin to soar because world demand for our debt is dropping off or is it just a one week blip?
Time will tell but it does raise my eyebrows. Remember we have seen this story before and it wasn't that long ago. Clinton came into office in the early '90's with a massive government spending program that included national healthcare. The bond market vigilantes came out of hiding shortly after and took rates significantly higher which forced Clinton to back off on his spending.
Now today we are in extraordinary times today so Obama will have much more leeway in terms of spending. However, there will be a point at which the bond market says "enough is enough".
Lets keep an eye on the bond market as Obama's economic stimulus gets prepared to take its first run through Congress. If the bond market doesn't like how its being spent, we could see yields rise and interest rates soar.
2 comments:
Jeff I agree with ur concerns on our overdone bailouts, but I wonder if the bond market will disappoint you if ur expecting them to react prudently. One of the many differences between now & 1993 is that the entire global finance system is on life-support and thus not only has bond market psychology been shell-shocked and battered...but the number of 'good' options/alternatives has shrunk while the bar for labeling something as 'good options' has dropped to near floor height. The proposed round of bailouts & stimulus may simply not have a healthy & aware & functionally cognizant global bond market to react sagaciously and prudently to it. They may only give a dazed-man’s blank stare by then, esp. if by then Britain has shifted closer to a sovereign default while the US has picked up 1 million more jobless.
AVl
SO true.
Perhaps we are down to oil and gold as safe havens?
Its pretty scary when you have zero options that are nearly 100% safe.
If an alternative quality "safe haven" is ever found treasuries will get slaughtered. I think most countries hate buying our debt considering we created this whole mess.
Post a Comment