Comments on: Last week’s move in the Treasury market …

By: gillies

gillies — Mon, 23 Mar 2009 21:44:09 +0000

cedric regula : “The DOW was 600 in the ’70s.”

what were you smoking ? i seem to remember the dow at 150. maybe there is, somewhere, a googlable chart ? ?

By: vbrief.com

vbrief.com — Mon, 23 Mar 2009 11:54:37 +0000

History in the making……..

When financial historians get around to writing the history of the great crisis of 2008, they will no doubt focus on the collapse of the market for securitized mortgages….

By: DJC

DJC — Mon, 23 Mar 2009 11:14:12 +0000

Wu Xiaoling, deputy governor of the central bank and former chief of the State Administration of Foreign Exchanges (SAFE), “The best way to minimize [further] risk is to scale down the size of the foreign currency reserves.” According to Wu, other ways the government can reduce the heavy burden of the reserves is by “setting up a [yuan] equity investment fund, or expanding trade and foreign investment”.

One sector for development clearly targeted by Beijing’s diversification campaign is its strategic petroleum reserves (SPR). As early as January 2009, Zhang Guobao, head of the NEA and vice-minister of the National Development Reform Commission, wrote an article in the People’s Daily saying, “The country [China] should take advantage of falling global energy prices to increase its oil reserves”.

In a national energy conference in early February, the NEA also announced that China will build eight new strategic SPR bases on top of the current four by 2011, and increase China’s strategic crude capacity to 281 million barrels from 103 million.

http://www.atimes.com/atimes/China_Business/KC24Cb01.html

By: Indian Investor

Indian Investor — Mon, 23 Mar 2009 05:57:49 +0000

It’s been nice to see a textbook bear market coming alive in real life. The equity market hit its speedbreaker pattern, forming dead cat bounces and all. People got bolder and didn’t subscribe as much to the Treasury Bonds, the bond market was ruptured. The Treasury/Fed establishment got concerned and did a massive retaliation on the king financiers with Central Bank monetization. Now the king financiers are running scared, not willing to crash the bond prices anymore. Because of the monetization, gold prices should go up for some more time. Then the textbook says all will be quiet. Government bond prices stop rising, the gold prices stabilize and a steady improvement in equity indices should ensue.
The only alarm bells I hear are from the black swan postulation that China will change their Treasuries for Euros massively.I can clearly see China is bound with golden chains to peg RMB to the dollar, till such time they’re confident about the domestic market jobs to replace the US export sector.
I’m not sure exactly how they can balance structural bearishness on the dollar with the employment compulsions and what the full impact of strengthening EUR against USD is. This point is worth thinking about,it shouldn’t matter if the dollar weakens but imports of neccessities like crude and commodities should be sustainable in the medium term for the US economy to recover.

By: yoda

yoda — Mon, 23 Mar 2009 03:03:56 +0000

“how will the Fed gracefully withdraw liquidity without tanking the treasury?”

well, it will tank Treasuy. ok, no show to see, move along.

By: curious

curious — Mon, 23 Mar 2009 02:32:32 +0000

i don’t think it’s good to inflate our way out of the problem.

alot of seniors have some savings left, they’ve already be burned on the 401K, to wipe out cash holdings would be immoral.

not everyone has the talents as some on this board to hedge themselves through the in’s and out’s of hyperinflation……

remember we live in a country where more people know the name Brad Pitt vs. how many states are in our nation.

By: cmc313

cmc313 — Sun, 22 Mar 2009 23:21:32 +0000

Dear esteemed colleagues:
It seems to me inflation is the “least” painful way to solve our debt problem since our debts are priced in the dollar. Think of this example — the central bank doubles the money supply in a closed economic system. This should drive price levels, wages, etc. up 100%, but the debt remains unchanged. So creditors gets burned while debtors win. So the US can get away with impunity if ECB also starts QE as all major currencies should then hold relative value vs. each other.
Regarding deflation vs inflation in the near term, does anyone here know what happened in the late 40s and early 50s when the Fed eventually refused to buy Treasury at fixed low rates? Wonder what happened to GDP and inflation after the Truman accord was put into practice. I think there is a parallel here — at some point the Fed will need to withdraw liquidity by issuing notes. But then who in the right mind would want to buy 10 yr treasury bonds at sub-3% yield? Bond vigilente should then demand very high long rates as US deficits will remain substantial for a long time. How will Treasury finance our deficit at that time? In short, how will the Fed gracefully withdraw liquidity without tanking the treasury?

By: Cedric Regula

Cedric Regula — Sun, 22 Mar 2009 22:33:34 +0000

Anyone who thinks inflation will fix the economy is smoking something.

We tried inflation in the ’70s, and the only good things about the ’70s was the music, the parties, mini skirts, and being too young to have to worry about working for a living.

I also get the sense that inflation advocates think any kind of inflation is good inflation, and also that food and energy inflation is a sort that we shouldn’t worry about(unless they go down, which causes the Fed to scream DEFLATION and crank up the printing press).

Rising input costs in a weak pricing environment causes margin pressure. The DOW was 600 in the ’70s.

Inflation eats into consumer discretionary income.

If you have a fixed rate mortgage, your cost is fixed. If we re-ignite inflation expectations, interest rates on everything will go up, including the public debt, which is now mostly short term debt.

By: Fullcarry

Fullcarry — Sun, 22 Mar 2009 21:49:08 +0000

You might want to remove Dr. Hamilton from the list most concerned about deflation: http://is.gd/ostl

By: Cedric Regula

Cedric Regula — Sun, 22 Mar 2009 21:04:00 +0000

Don LD

Bernanke was asked during his 60 minutes interview why he didn’t save Lehman. He said it was because the Fed is not allowed to make loans without taking collateral.

Mull that one around a minute. No collateral at Lehman. That’s what we call a bank?

Lehman was funding it’s 30:1 leverage trading in non-collateral by heavy dipping into the 24 hour commercial repo market.

When people started realizing that their 1% money market funds are being used this way, the money markets froze up. Came as a shock to me too. I never knew I owned a 1% yield hedge fund! So now the USG guarantees them. Problem solved.