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Someone in the EU is throwing the pennies in front of the steamroller.
Well its easier to catch falling knives with a flattened set of fingers!
http://www.cnbc.com/id/39097299
And 4 you catch the man
http://www.youtube.com/watch?v=lPpUFBVSyWs
?
Garbage, the only reason Treasuries are 'liquid' is because central banks buy them outright or loan against them.
One day people will realise that the dollar, euro, pound etc is just the 'more marketable' form of the treasury bond, bill, note. Which is to say it is the same thing.
'Selling' your bond for a 'profit' means you are rolling over the obligation of the government.
One day.....
Hey. At least I agree with your understanding of the bond/currency relation. Currency is a bearer bond that pays no interest. In the past it has been redeemable for a fixed ammout of metal and such. Now the decision as to what it is redeemable for is market-based.
The only way I can understand why the things people hate- Treasuries- are so desired is because the liquidity of the market makes them the only cash market where you can drop and pull effectively unlimited amounts of capital with vritually no transactions cost. And the intrest rate reduces carry. I'll say it again... nobody thinks Treasuries have Fort Knox fundamentals.
He is saying exaclty the same.
Not to mention that in a margin account treasuries give you the maximum buying power of any security.
Just to clarify...
Gov securities take the least (or no) haircut while say HY paper has taken up to a 40% haircut. If you want to buy cheap risk on margin, this makes Treasuries beautiful creatures, yes?
What does it matter? When you sell you get given the bond straight back since the dollar is the obligation of the issuer, being the 'more marketable' form of the bond.
One day....probably won't be Monday.
It matters because people want them. This is classic don't fight the tape. One day they may make dollar redeemable for a fixed amount of metal or such again.
Credit money (is that the right name?) means labor markets don't have bear the brunt of adjustment. It makes financing cheaper so that technological advance makes good phase transitions to better living. Insufficient controls made leverage system threatening.
riiiiiiiiiiiiiiiiiight
This is denial of reality. Look at what the long bond did in late 2008 and early 2009. Then look at t-bills... the interest rate was negative for a time.
Hey Tyler, time for an article on China raising rates after CPI hit 3.5%?
"Long Greek short German". What if Greece defaults and rolls in the drachma? how big of a loss would that be?
"Bureaucrats with a deep line of taxpayer's credit to distort reality"
I just have to say: What a line!
Greek civil servants are now the masters of the private sector as they make more money and have more benefits while producing nothing. Something has got to give.
Why is it that in most governments public employees can not be fired? the answer is simple, long time ago when you could fire them, every time the government changed, almost everyone was fired only to be replaced by the new government friends and relatives.
At some point, parliamentary members or other officials decided that it was in the interest of both parties (two major ones) that rather than total replacement to just keep adding and adding and only replace key high positions.
However, the early days, salaries for government workers were very low and only the meek and poor in spirit wanted them. As the years went by and they unionized, the demands for support of re-election came at a price. (Higher salaries and more benefits) on and on to today's reality.
Government workers, work less, make more, have more benefits and the system is at its elastic yield point at which plastic deformation occurs and the process is irreversible. Something has got to give.
Love ZH and most ZHedgers
US civil servants are now the masters of the private sector as they make more money and have more benefits while producing nothing.
There, I fixed it for you...
Indeed. My last paragraph was meant to imply that the same applies universally including the US. But I guess it is not clear enough.
Unless you had lived through the transformation of the Greek culture since the early 80's, it is hard to explain how much damage has been done. Most Americans want to work. They can't find a job but that doesn't negate the fact that they still want to work. On the other hand, about 2 generations of Greeks have been completely destroyed. It is a truly sad situation.
EPIC FAIL
When the dominos start to roll it will be everybody for him self
*
Government workers, work less, make more, have more benefits and the system is at its elastic yield point at which plastic deformation occurs and the process is irreversible. Something has got to give.
Not true when the government is no longer controlled by the people.
Can you name 1 Government in modern history(since Julius Cesar) that was controlled by the people ? And even if 'people' could control the government I am not sure I would want that either
Note on Monday : long 10 year Greek bonds, short 10 year German government bonds. For the fun of it let´s say long SIN: GR0124028623 and short ISIN:DE0001135291.
Here's more financial Sudoku. You have to hedge SEK/EUR for it.
Sweden doesn't play games with banks... they nationalize 'em if it all goes down. Buy Swede bond spot forwards. Germany will instead play the zombie love game with their banks. Sell bund through futures.
Good piece, especially these two points:
"Treasuries are not a flight to quality at all. But when debt reduction is the prevailing wind, what really matters is liquidity."
Short-term Treasuries are practically cash equivalents. For the marginal buyers, medium- and longer-term Treasuries are short-term bets (<6 months) on no recovery and QE, and if that doesn't work out they can be sold quicker at less loss than other kinds of debt.
"Liquidity policies are designed to obscure insolvency and illiquidity."
This is a similar point to the one I'm making talking about delayed deleveraging and the latent debt burden. The weight of >200% of GDP in private sector debt is being held off the economy's shoulders by near-zero rates. To recover, the economy doesn't just need to get through the debts that are so bad they can't be refinanced even in optimal liquidity conditions, it needs to strengthen enough to be able to bear the weight of the latent debt burden as rates rise. We needed more deleveraging in 2008-2009 than we got, and so we're stuck in this mud.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
Tom:
I read your blogpost. I agree that we are pretty much at the endgame of wealth redistribution through fiscal and montary policies (your Keynesianism). As much as I hate what Chimerica is doing, it is largely a symptom, not the problem. You nailed the problem: private sector debt reduction. The game will not last, but Mother Nature has its own cures: time and shared sacrifice.
I'm not convinced that this implies a deflationary dollar collapse nor a hyperinflationary debt jubilee in "core" nations. The periphery is toast.
jm-
any new information in that assessment?
TPMB been trying to make it better, (well, advise ptb to help in that direction) but, well, ... not so much.
maybe DDT would keep more alive, maybe certain practices ... ?
- Ned
By "periphery" I mean countries that must absorb a disproportionate amount of sacrifice vis-a-vis their creditors.
It is frankly not Greece's choice whether they stay in the EU or otherwise. Once the dust settles with respect continental money center banks, Greece will face their future.
This is just an example, and I believe in decoupling to some extent. Just as some people emerge from recessions much wealthier and some emerge much poorer, so it is with nations.
Tom - I read your blog post. Great insights. In the conclusion, the blog says:
"At that point, the Fed could choose to increase QE and also monetize the rolling-over of maturing federal debt, which would spur hyperinflation and fiscal collapse. Or, the Fed could call off QE, forcing the government to default and sharply cut spending."
If the government is forced to default, what would it default on? Can you give some examples? And in anticipation of government default, are there any investments to ride out the storm?
Brilliant, absolutely brilliant.
I dont know if many people will read the whole thing but its one of the best I have read here.
Wow. I owe you a bong hit.
Here's how smart the Fed is. The rest of the article is well worth a read.
http://www.sitkapacific.com/files/Sitka_Pacific_Capital_Management_July_...
Sadly though, the Fed has the biggest guns and all the liquidity bullets. How smart they are (or not) has become irrelevant. I will refrain from posting Arnie and his mini gun again to visualise the statement, but here's another classic that occurred to me...
http://www.youtube.com/watch?v=uDLQg8ZKBS8
1:09 into the clip.
I highly recommend the Sitka Capital newsletters. They are chock full of good stuff.
You can subscribe for free and they come out every month or two.
Thank you for the brilliant analysis that US Treasuries are a flight to liquidity rather than to quality.
I've been wondering for a while about money market funds - it's hard to stop brokers investing idle cash in them - but really they represent the worst of all possible investments. Zero yield plus potential illiquidity in a market meltdown.
Maybe I'll hold idle cash in T Bond ETFs from now on!
As it is, I suspect the bond bubble is nothing more than retail taking greater term risk and credit risk because money market returns are so low. MMMFs returns will stay low because banks are pouring idle cash in money markets (in addition to reserves).
I did some market intel when there was talk of the Fed not paying interest on reserves. If that did happen, high likelihood tier 1 banks would pour so much money in MMMFs that the return would become even more of a joke.
Ultimately ZIRP will thin out MMMFs. This creates its own problems via roll risk.
Roll risk indeed!
There's nowhere else to put the crap they stuff into broker's money market funds.
So, friends, don't be lazy, fight the inertia, don't be stuck in money market funds when the music stops.
Updated DOW weekly chart:
http://stockmarket618.wordpress.com
Thank u, i found this for a long time.
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