Thursday, December 10, 2009

Inflationary Fears Creep Back into the Market

Despite golds recent plunge, today's auction tells you that the bond market remains extremely worried about inflation.

Today's 30 year bond auction was a complete disaster:


My Take:

Folks, I can't even begin to describe how ugly this is. Before I get into this, let me preface this by saying that we could see a short term higher move in the dollar as a result of global fears around sovereign defaults forces capital into the US.

This would then possibly trigger a huge short covering rally of the US Dollar as a result of an over crowded short dollar trade. Many may interpret this to be very deflationary. I just don't see it longer term. In my eyes, the trend for the US dollar and our economy is heading only one way: DOWN!

The 30 year bond auction confirmed that the bond market sees nothing but further printing and dollar devaluation. The world's FCB's are basically telling you that they don't want to hold any long term investments in the US as long as our government continues to print. This eventually is going to force interest rates to move significantly higher in order to attract demand.

BTC

As you can see above, the BTC was a measly 2.448. CNBC's Rick Santelli gave this auction a big fat "F".

It's pretty simple folks:

The bond market is scared to death of inflation. I mean who wants to hold a 30 year bond at 4.5% when inflation could rise 10% a year as we power up the printing presses?

You must also assume that the bond market presumably expects the US to continue to spend themselves into oblivion. IMO, it's becomes increasingly obvious that we cannot eliminate all of our debt without printing out of it.

Today's auction was very ominous: If we cannot sell our debt the jig is up. In my eyes, this was warning shot across the bow from the bond market.

Take a look at Jim Rogers appearance on CNBC today. His investment thesis continues to be focused around inflation:





Disclosure: No new holdings at the time of publishing.

24 comments:

getyourselfconnected said...

Jeff,
I am so glad you posted on this, bonds are a weak point for me!

I think the 30 year sale was bad, but the short term sales (10yr or less) were excellent. While I cannot fathom why a buyer thinks a 10 year horizon of printing is a good buy, but a 30 year window is not so hot, but then I am not a higher thinker.

How do inflation expectations fall in here? I am not too sure. the 1-3 years sales say no inflation, the 10 year says maybe a little, and the 30 today said maybe plenty! I thought bond guys were smart? That is a weird progression.

For christmas I want a secret decoder ring (think the orphan annie ring in "A Christmas Story") which will make some sense of all this.

Thanks for the great post and great to read you again this week!

Jeff said...

Get

Thanks. Investors are piling in on the short end of the bond curve. Investors don't mind holding 1 year and 3's because the inflation risk/potential for losses is minimal. The fear of buying long bonds is inflation. If u buy a 30 at 4+% and inflation rises at 10% annually you are losing 5+% a year on your money in a bond that you must hold long term. This would be an investment disaster if inflation pops. .

getyourselfconnected said...

Jeff,
the only things more puzzling than the bond market are the Steelers and the Patriots whom both suck! One and done.

I am sorry to disagree, but something else is afoot here, not just inflation expectations.

My 2 cents

Jeff said...

I agree bud.
Lots of fear as well. No one wants to invest in anything that's long term right now.

Anonymous said...

The Euro is about 60% of what the Dollar is measured against right? And i read that Europe have even more problems. So maybe the Dollar can strengthen because of that?

Thanks for a god blog!
Johan

Anonymous said...

thanks for the update jeff; keep 'em coming!

jeff said...

Johan and anon

Thanks!

Good point on the euro. I am starting to wonder if this is a race to the bottom for all currencies.

Who knows, paper currencies in general could be at risk.

Scary times!

getyourselfconnected said...

Jeff,
Steelers and Patriots both suck on defense; ever think you or I would write that line? Scary times indeed!

jeff said...

Get

I can't even begin to talk about the game yesterday.

Pathetic! No playoffs for the Steelers. they don't even deserve one.

Perhaps we may see a changing of the guard this year? Chargers? Bengals?

Robert Hammer said...

Great post. I'm a deflationist myself. The debt we have needs to be paid down or forgiven, both result in deflation.

Here is a great little article everyone might find interesting about the corrupt monetary system, the Federal Reserve, and the Constitution. Just the quotes alone are worth the read. Take from it what you will, but the founding fathers warned us about this.

http://absolute-investments.blogspot.com/2009/11/dont-fear-speaking-out-against.html

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flipdippy said...

Jeff-

Have you seen what's going on in Perry Hall lately?

Holy foreclosures batman...all of a sudden out of the woods, there are a shittoon of short sales and foreclosures.

Is there a way to find out if they are people strategically walking away or not?

jeff said...

Flip

Not surprised.

The economy is totally unravelling as you know:)

Bond yields are soaring as the world runs away from our debt.

I am will have a post up but not probably until the weekend.

Another crazy work week before the holidays

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housingtimebombfan said...

you have gotten busier, i have and many others i know. friends are getting back into jobs, you may be right 5 yrs from now and the next few years count and u have been wrong since march!!

jeff said...

LOL

Housing

Yes I have been busy and also getting ready to move.

I try to read em like I see em. Sometimes I am right other times I am wrong.

Haven't been short in awhile other than treasuries with mixed results.

Was right on GLD and SLV and got caught short in March.

Tough game when the government games the market with various stimulus.

I should be back after the holidays although it might be spotty because I might be moving.

getyourselfconnected said...

Merry Christmas Jeff!

Jeff said...

Get

YOu too buddy.

Happy New Year as well.

I should have this place back up running next month.

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