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Jim Rogers Joins "Team Gross", Will Short Treasurys If Rise Continues; Does "Not See Who Will Buy With The Fed Gone"
On one hand we have Goldman (and various other pundits) telling us there may be a small blip at most in Treasurys when the Fed stops buying bonds. On the other, as has been much discussed, we have the world's biggest bond manager disagreeing. Now he gets some popular company. Jim Rogers, formerly of the Quantum Fund, who traditionally comments more on the commodity space has chimed in and pledged his allegiance to Team Gross. In a release to Reuters Insider Rogers said: "If the bond goes up another 3 or 4 points, I for one am going to sell it short." He also said what we have been saying since about October of last year: "I mean the market is just going to give up. Once (the Fed) ... stops
buying bonds I'm not sure who's left to buy bonds at that point." The right question is who are Primary Dealers going to flip their bonds to, especially once the marginal increase in excess reserves ends.
From Reuters:
Leading investor Jim Rogers said on Thursday he plans to short U.S. Treasury bonds if their price rises much higher.
"If the bond goes up another 3 or 4 points, I for one am going to sell it short," he told Reuters Insider in an interview from Singapore, where he is based.
Rogers was not specific about which duration bonds he was referring to, beyond mentioning 30-year paper in a comment about what he sees as a coming sell off.
"I just think at some point along the line, people are going to realise it's absurd to lend money to the United States government for 30 years in U.S. dollars at 3 or 4 or 5 or 6 percent interest," he said.
"I mean the market is just going to give up. Once (the Fed) ... stops buying bonds I'm not sure who's left to buy bonds at that point."
The Federal Reserve's asset-purchasing quantitative easing programme is due to end in June.
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Bonds = Bombs
+ missiles
It would be really nice to know what Goldman's prop position is in US Treasuries now. If they say only a blimp, I wonder how short they are?
Fed stops buying. bonds drop. "the boys on the street" all short 'em. cover and go long just before QE3 announced because rates went too high. okay i get it now.
who buys their shorts? pension funds and endowments? aren't they "the boys" too?
their retail customers, widow, orphans, Iceland, i.e. the usual suspects.
Its easy, once the FED can't monetize anymore, it will tell the TBTF banks to step in and buy treasuries at 4%, and at the same time the FED will sell CDS to the banks insuring them from increases in interest rates.
Essentially it means the FED will still be buying the bonds since they are the ones effectively taking on the risk.
It will keep the game going for another several months. But then when rates finally do go up, the FED will have massive losses and no way to pay it off besides printing more, which will cause rates to go up farther, which will force the FED to print more to pay off the banks, which will cause rates to go up farther, etc. Thats my prediction for the end game at least.
Well... they ain't gonna buy at these rates. That's for sure.
OH GAWD!!!! More reasons to go LONG bonds!!!!!!!!!!!!!!!!!!
You're neither interesting nor funny.
Still stuck on stupid, eh leo.
all of us who have been around for a while recognize Leo's expertise and constant contributions in terms of pension policies and underfunding problems, but we viewed with much skepticism his claims circa 2009 that employment hires in the 300K/month range were due any minute. The question, then as now, is what would be the driver of all of this hiring. The answer that is "there is none." There still is none. The hiring that is done represents mere miniscule quantum fluctuations up and down, with absolutely no driver behind it for continous growth. If the trillions had to be spent, we should have at least blown all that financial sector support money on some tangible things, like infrastructure, or maybe an energy Manhattan project, and downsized this whole ridiculous and parasitical "financial services sector," but our political leaders, bought and paid for by the TBTFs, instead bought nothing for all of this debt and money printing other than a secure future for the plutocrats.
As for the bonds, the PDs will not buy them if there is no overt or covert guarantee to acquire them from a deep pocket. There is only one deep pocket at rates that do not cause the ponzi severe jeopardy, and that is the Money Printer himself. The issue is how long can monetization continue - how long can the Emperor stand naked with no one calling out the distinct lack of garments.
lololol now thats funny milli
Why would you go long US bonds when you can make 20% in 2 years on greek bonds, right Leo? Non-defaultable, non-dillutible greek bonds!!!111
If the ECB monetizes and changes the European tax code on Gold they could be good buys.
Never underestimate the Rothschilds.
Only there is no such thing as a European tax code. Never underestimate information over paranoia
There is no tax on gold transactions withen the Euro area.
That was a stipulation for joining the Euro.
The Rothschilds can however have a word in the ear of local exchequers to raise the price of capital gains tax if they so wish.
is the fed able to move its debt up and down the curve?
QE2 forced bonholders out of bonds and into risk assets. Cessation of QE2 should therefore accomplish the opposite. I'm not buying 30-years but I certainly don't mind insuring against a steep sell-off in risk assets.
www.liquidinvestor.blogspot.com
assuming the fed can continue to issue at the same interest rate for the foreseeable future.
Who's left to sell bonds? Brokerage firms and the tin-foil hat crowd are united in their hatred for bonds.
Do you classify FRN's as a risk asset?
I agree, but I'm shorting risks. Wouldn't be caught dead near US bonds.
Exactly.
Another round of QE and inflation gets to point Joe Six Pack stops watching Dancing With The Stars. Better start a war.
The FED buying was kicking the can down the road of default. They just ran into a dead end. Prep!
Those short end Treasuries on the Fed's balance sheet are maturing at the rate of $750 billion per year sayeth Jim Rickards. "Perpetual QE" is with us and will keep interest rates low for an indeterminate time. The Bernank is cleverer than we may think, though the rope that holds the safe hanging over our heads smells funny. Could it be burning? Do bears poo in the woods? Does Obama play dice with the voters? Will shit happen?
Amerika needs an enemy...stat
I don't know about this 'Team Gross'.
There's an interesting article from your friend at Marketskeptics.com on one of the PIMCO
commodity 'funds'.
I have a question... are TIPS in the same boat as standard treasuries?
Before buying TIPS you might want to review how the government "calculates" inflation
I know its bullshit but the question is more in terms of if treasuries burn do TIPS burn right along with them or do they have some flame retardant in the context of the current situation? Reason im asking is my 401k scam which my employer insists on depositing money into regardless of what I tell them is about 50% in TIPS and i'll take it out if they're not resistant to a treasuries crash.
I think it depends how things plays out. Should interest rates goes up bond holders have two problems. First newly issued bonds with maturity close to the one they hold will pay a bigger coupon and the value of future coupons (and notional) will be worth less today (with 0% interest rate $100 today is worth $100 in 1 years time, timing is not important, but with 10% interest rate $100 today being worth $110 in one year which is the same as $100 in one years time is worth roughly $100 / (1 + 10%) = $90.9 today - suddenly the timing of payments matter and hence long bonds are impacted more than short bonds).
Your TIPS will be impacted by the fall in value of future payments should higher interest rates materialise but you will be compensated for potential increase in inflation. So the question is if you expect inflation (as calculated by the entity paying you) to increase more than interest rates, if so you should be fine. The risk is that inflation doesn't really materialise and rates goes up (this is likely what FED is hoping for?) in which case TIPS really will behave a lot like treasuries.
So the question is if you believe FED will seriously lose control of the situation AND admit it by reflecting it in the inflation numbers? Hmmm...
Obvious both inflation and interest rates can in theory go both up and down and you should form your own opinion about the likelihood of the various outcomes.
I'm joining 'Team Gross' too - so it's 'Team Gross' vs 'Team Amerika' - it's like a WWF final
All the people who are smart enough to realize that the US has 0% chance of becoming insolvent will
Sometimes I wonder how some of these clowns became billionaires. I get it, Jimmy is rich and all, but ahem, did they have to stop the auction process when QE1 ended? Of course not. Will they when QE2 ends, of course not. In fact, factually and empirically, what did rates do when QE1 ended? Oh yea, they collapsed LOL...
We are farther along in the game.
ROTHSCHILDS FINISH OFF GADDAFI
http://www.youtube.com/watch?v=rgdn0bNsMkQThat assumes the Fed will ever stop--which it won't. They will still be buying right up until the second the last member is dragged into the street by an angry mob and literally torn limb from limb.
Can I have the leg?
Just watch for the change in policy - Santelli said it perfectly this morning when he asked of there was any correlation between the DXY and gold,oil, and the E/S...with tongue firmly planted in cheek. One thing is now quite obvious: The financial advisors are confusing the hyper-reflation bubble as being a "new bull market" but let's see how their ROR's stack up in real terms with a 15% inflation rate.
Never underestimate the replacement power of equities within an inflationary spiral...
thats my man...keep fighting to the last drop!
The Fed has already said that it will reinvest the cash flows from their investments back into the market so is QE ending, but not really. They aren't planning on reducing their balance sheet which is really what is important and if you look at last year when QE1 ended, bonds rallied HARD as money that left the market had to find a new home somewhere. As for Gross being short bonds now, that only makes him an even bigger buyer when he feels the time is right. Gundlach is buying bonds and that guy has been as good as anyone - pretty much ever - when it comes to fixed income.
I don't see the reasoning.
Don't treasuries become more attractive when the FED stops manipulating them? Isn't this just sour grapes?
What if the FEDs have like a previous article here on ZH been selling puts on longer dated treasuries through the member banks like JP or Goldman and effectively taken a one-sided bet akin to what AIG did with CDS on CDOs and MBSs? If you look on the FEDs balance sheet under other assets you see a substantail growth recently in a category where derivative holdings gets classified. In which case the trick by the FEDS is to cause people to take the short side and an ensuing squeeze.
I think its definitely possible scenario that results in minimal short-term profit from shorting treasuries but not effective enough to take the steam out of the stock/PM markets by any means. Stock market values send prosperity signals to the people risking that is a big downside to growth.
The Fed may have been independant at one time, but that is no longer the case. The Fed and the politicans in Washington DC are now totally dependant on each other for their survival. Ben can't just walk away from the table and he knows it. Whether or not QE ends in June is irrelivant. If it does, it will just be started up again in July. The politicans won't stand for it.
Almost fee sorry for the dumb saps who have bought houses recently. There isn't a single thing out there which lends itself to stability...LOL...don't let the door hit you on the ass on the way out!
iinthesky, TIPS won't selloff as much as regular T-notes but will likely decline. This decline will reflect any rise in real (inflation adjusted rates) plus perhaps some adjustment for flawed inflation adjustment. With real rates this low the selloff could be significant. All this assumes the Fed steps away from the market. Remember they pinned rates from 1942 through 1951 to monetize the WW2 debt. The economy is slowing again right now so I'm not confident there won't be QE3. Look for them to call it something else.
New money is the stuff of legends
is there an ETF that is short treasuries.
TBT, but it's inefficient and gets reset every day. I pocketed a 50% gain when rates dropped after the last financial crisis, but I should have made a lot more.
So, "not TBT" then. Interesting.
No, I didn't say that. Profits can be had if interest rates rise, but your profits won't be proportionately as high as they theoretically should be if TBT was a perfect proxy for rising yields on 20+ Treasuries. Reading comprehension: a lost art.
anyone who shorts anything of 5 year or longer maturity at this point is going to make a $ gain. the question is, what is $ worth? this is a trader's bet, not a long term holder.
Rumblefish, TBT is double short the 20 year plus T-bond and TBF is just short the 20 year plus T-bond. TBT is messy as it's a derivative contract that resets daily and has option premium drag involved. Best used for trading short for a few days at most.
+1, lots of slippage in TBT.