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Scotiabank's Haselmann: "The 30 Year Will Trade With A One Handle In 2015"
From Scotiabank's Guy Haselmann, who for the past 2 years has been spot on accurate with his predictions which way bonds will trade.
Skeleton Key
The key for global markets in 2015 could likely center on the level of the US dollar (USD) and the speed of its ascent. The DXY dollar index has risen 13% in the past 6 months to the highest level since 2005 and appears to be breaking out from a multi-decade channel. It might be in the early stages of a powerful up-trend, further supported by economic fundamentals and central bank policy divergences. History has plenty of examples of prodigious consequences resulting from a strong dollar, particularly for emerging markets.
As the world’s reserve currency, the USD interconnects countries, influences global trade, and sways markets. The level of the USD materially impacts the decisions of investors, issuers, and budgeters. Globalization and technological advances have made the global economy more interconnected than at any point in history. The post-2008 quasi-coordination now appears to be fracturing into ‘everyone for itself’ policy; in such, potent capital shifts have emerged.
Dramatic exchange rate movements have taken place during the last six months, which are spilling over into various markets. Higher levels of volatility should generally be anticipated in 2015. Elevated volatility means less leverage will be required or desired. Large dollar carry trades will likely be pared, causing a feedback loop that benefits safe assets like the USD and Treasuries over riskier assets.
The relative strength of the US economy will be USD supportive regardless of whether the Fed hikes rates or not. A Fed rate hike in the next two quarters would simply increase the speed of the dollar rally and the speed of the Treasury yield curve flattening. Either way, the Fed will not be able to do much to stop the USD from appreciating. Nonetheless, it will be interesting to see what the Fed will do should headline inflation fall to, say, 0%, while core stays near 2%. To date, FOMC members have called the anticipated drop transitory and a benefit to the consumer.
GDP growth in the US could be as strong today as it is going to get. Global levels of indebtedness are enormous. Collapsing ‘velocity of money’ is a symptom of extreme indebtedness. Fed policies have encouraged cheap issuance to spur growth today, but growing debt levels borrows from future growth.
However, since US debt levels are trumped by those in Europe, Japan, and many other countries, the USD looks good on a relative basis. The shale revolution in the US (despite plunging oil prices) is shrinking the US current account deficit; thus, also acting to support the USD. On the other hand, a stronger dollar will hurt US competitiveness and exports over time.
Over the past six years of the Fed’s zero interest rate policy, many countries and foreign corporations were also able to issue cheap debt in USD. An appreciating dollar increases those liabilities. Countries like China who have quasi-tied their currency to the USD, become less competitive with key trading partners (Japan). Furthermore, any country dependent on commodity exports receives less revenue. Global headwinds are significant.
The bottom line is that a stronger dollar is deflationary. QE provides market liquidity and can serve to temporarily boost asset prices, but it does little to create jobs or inflation. The biggest hurdle is too much debt, not the need for more cheap money. QE may also have sizable unintended consequences through rampant market speculation, herd-like investor behavior, and the creation of asset bubbles. Those potential ramifications have yet to be realized.
The best investments or trades usually entail envisioning markets going to previously unforeseen levels and tying it to a coherent story line. Given the simple scenario outlined above, investors should become open minded to the potential for long-dated Treasuries continuing to rally. I can envision the 10-year note trading to a new low yield (below 1.38%) and even below 1%. I expect the yield curve to flatten viciously this year. I remain a bond bull and believe the 30-year yield will trade with a ‘one handle’ (i.e.; below 2%) in 2015. I could even be right for different reasons.
“How did I get lost, what’s the final cost? Could you please help me find the key?” – Black Stone Cherry
Regards and Happy New Year,
Guy
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Yeah, babiecakes! MrsK needs a new pair of stilettos! Get along little dogies, get along!
Depression and Deflation make for fine bond partners.
Yieeeeha!
Now just gimme the gold side of the trade and Daddy'll be a happy puppydog
Maybe dead bond partners.
There's only one way to artificially suppress interest rates...and that's to artificially overpay for the bond itself.
Okay...the FED has control of that, so I guess they can do it if they want.
but if the FED is artificially overpaying for the bond doesn't that just incentivize every existing holder of that product to liquidate at the artificially inflated prices?
....then what?
...we may as well just start paying government debt with printed money and end the scharade that scalps the 99% to support Manhattan and all their parties.
2015? It may trade with a 1 handle this week! Knock oil down to $46 and you can count on it.
"There's only one way to artificially suppress interest rates...and that's to artificially overpay for the bond itself. "
WRONG.
Derivatives: INTEREST RATE SWAPS or SWAPTIONS.
The FED sells them. ...& only to WHO The FED wants to sell them to.
The Treasury Market has been TIERED.
A Treasury with an associated Rate/Duration Interest Rate Swaption will have a very different YIELD than a Treasury without an associated Rate/Duration Interest Rate Swaption.
QE and Market Rigging take many forms.
Ah yes, tiered markets. Do you really think Joe 6-pack deserves a real market?
"we may as well just start paying government debt with printed money"
ROTFLMAO
"Fuckem'.... Fuckem all."
Efam.
Efamol.
Thanks Guy.
You're welcome. Let me know when you get enough.
The Ray Charles trade up 4% just today. SP has its work cut out for it playin Ketchup.
Now Yellin? Yellin? wWhat, you ain't Yellin yet?
"Bull market corrections" can easily be confused with a panic.
1998 had more than a few...
I could even be right for different reasons.
Zero..that is where we are heading. Point your compass toward due south and get ready for some nasty penguin sex.
Kowalski! Outstanding work.
Lol quote of the day
Draghi is going to fire the EU QE bazooka soon.
Then China will follow with more. Then the FED will raise rates 0.25%, crash equities, do some QE, go back to ZIRP.
This insanity could go on for a very long time.
This insanity could go on for a very long time.
We can only hope. I can not even imagine the ugliness of the next bottom. Bring back the bullshit and lies would be the rallying cries.
Would agree if I thought TPTB would suffer along with me. But I will find no comfort in being gang raped again.
And they do all of that with outsetting off the derivative landmines... Doubtful. I really dont think they have a good handle on where they are buried. A 49.xx close on Oil may expose some.....
= depression
oops
Of course long yields go down - just as short yields will go up. There's no other option. Isn't the Fed already "all in?" Aren't debts already unpayable at current levels? This slow motion train wreck is as easy to predict as the sun coming up. It was written in stone the same minute the Fed started monetizing the debt in the first place. You don't just wake up and back your way out of a liquidity trap. The liquidity trap must play out, and we know exactly how it works.
Jim Willie says lots of hedge funds borrowing short and investing long which means if short term yields rise and long term drops they get their ass handed to them (as I understand it, I was never really confident I understood bonds) and perhaps start a bond crisis by selling to get out from underneath their bad bets.
Yup. Then throw in the derivitive payouts which will be on top of CDS payoffs when Greece defaults. This house of cards is coming down.
and what is wrong with a negative yield? If nothing, what is wrong with a more negative yield.....? etc etc
Shit on toast!
Plunge Protection Team (PPT) making sure the nightly news can't report DOW -300 points.
DOW -200 and change more acceptable.
In Finance news today, the dow closed off the lows. Traders commented that it was due to rebalancing portfolios for the new year. Next, after the break. meet Skippy, the one legged dog who pleasures himself with a toaster.
heheheheheheeh
I think it's funny that people still believe the Fed is going to raise rates.
Sorry sir, the moose outside should have told you so.
"I think it's funny that people still believe the Fed is going to raise rates. "
Yeah. Me too.
Fucking gallows humor.
You gotta laugh at something if you don't wanna go off the deep end...
Oh no! PPT failed!
BTFD!
Kevin was doing lines off a hooker at 3:56.
Whoopsie, did I do that?
Where's Scotty or that Kirk feller? Here I see an RT article, that people in India have discovered info on 7000 y.o ancient space travel.
http://rt.com/news/219851-india-science-congress-gems/
Well, if we do blow ourselves up (again?), thanks to the sociopaths in DC, maybe mankind will rise again in 7000 years and re-discover our modern marvels. Except that by then, there won't be any petroleum left to build the kind of societies we have today.
I do hope we make First Contact with intelligent life up there, 'cause there's so little of if down here. Even here, there are days when you just have to shake your head.
No way the 30 year trades at 1% unless the Fed owns 80% of outstanding and therefore gold is at $9000 / oz. Ok .. so there is a way...
The U.S. dollar shouldn’t be the world’s reserve currency. Triffin’s dilemma is real. There should be no reserve currency.
Quote from link:
http://www.pieria.co.uk/articles/global_rebalancing__the_bancor
“As such, while the US once ran great trade surpluses, it is now the country running huge trade deficits. Since Bretton Woods, the United States has become the world’s consumer of last resort. In many ways, this has been a free lunch — dollars have been widely desired, and countries have been prepared to trade their production for green pieces of paper”
The free lunch means that we (U.S.) export money in trade for imported goods. Domestic economy then becomes unbalanced in preference for foreign goods.
The U.S. military industrial security complex has learned that U.S. reserve currency helps their sector. Returning overseas dollars cycle into buying a debt instrument (T-Bill). This money is not destroyed upon buying said TBill, but instead is re-spent by Government. The debt instrument goes onto the books and starts to grow mathematically with usury. The dollars then cycle out of TBill and vector into Military Industrial Security Complex. Or, those returning deficit dollars may instead channel into the unemployed, thus creating a captured voting base of dependents.
Countries that return their dollars to buy U.S. debt, rather than buying U.S. main-street goods, soon find themselves surrounded by U.S. military bases. There are some 800 U.S. overseas military bases.
Keynes Bancor was a good idea then, and still is today. The Bancor value can be related to common commodities, such as a Cow or Beans or possibly even common services. This will help anchor all sovereign currencies with a reference point. There are automatic circuit breakers such as Clearing Union reserve fund built into the Bancor plan - which prevents Mercantilism. The opposite of Mercantilism is “debtor” reserve currency power, now held by U.S. Only the U.S. has debtor power, and it would be stripped away by a Bancor system.
If foreign countries don’t want to be surrounded by U.S. military, and if U.S. main-street labor wants jobs, then both groups have common cause. We should seriously look at tossing reserve system idea onto the ash heap of history.
MEFOBILLS
An absolute recipe for disaster is for any person to loan Amerika any money at all over 30 years at a 1% handle. In 30 years do you think gold will be lower than it is now or higher? After taxes and government run Cntrl-P, that $1,000 you lent Emperor Goebbels and his cronies will be worth about $1100 in 2044; oh yea, I'm sure purchasing power of the Dollar will be just fine 30 years hence. Are you fucking kidding me? Unless you have completely lost your mind, lending them money at this rate is financial suicide.
www.traderzoo.mobi
A tad off topic but George Adamski was writing about spacecraft, missiles, nuclear and energy weapons back in the late 50's based on readings of the Bhagavad Gita and other indian classics, in his book 'Flying Saucers Have Landed' More interestingly I'm getting reports of 'triangular airborne vehicles that hover effortlessly and disappear in a flash. These repiorts refer to sightings in the Frobisher Bay area of NWT and come from two separate sources, both private communications. Question is: are these off-world in origin - no not traders posting on here - or has some agency like the Fed diiscovered anti-gravity, i.e in addition to conjuring money out of thin air without the requisite lamp and genie? Just asking.........
TR3-B
And no, that's not the old British sports car
From a nexas 6. You got some really nice toys. Get a gen 3 night vision and look up one clear night. Hell a gen 1 work s pretty good
Plan for tomorrow, it opens down half a percent or so, and then turns around and does a Jackie Gleason "to the Moon Alice" oil closes over $52, and recovers approximately todays losses.... thats my call, if the pattern holds.