Guest Post: Are Treasuries The Worst Investment In The World?

Tyler Durden's picture

Submitted by John Aziz of Azizonomics,

I admit the headline is a little sensationalistic, but after Wednesday’s WTF bond auction, I feel like slapping the market around the face with a rotten fish. Now certainly there are plenty of penny stocks headed to greater losses far sooner. And certainly, lots of people have made good profits on Treasuries by buying them and flipping them to a greater fool or a central bank. On the other hand, so did many during the NASDAQ bubble, or during the ’00s ABS bubble. Bubbles are profitable for some, and that’s why there have been so many throughout history. But once the money starts to dry up they become excruciatingly painful.

Treasury yields are just going lower:

After a 30-year bull market, you’d think that the financial media might have cottoned onto the idea that there is little scope left for real gains, either by holding bonds to maturity (inflation is outrunning yields) and even by flipping it off to a greater fool (or the greatest fool of all — the central bank).

In theory, there are no limits to how low rates could go. In theory, nominal yields could go deeply negative, so long as there are buyers coming into the market ready to buy at a lower rate, and a push a profit to bond flippers. In reality, even Japan — a nation that has adopted desperate measures including forcing financial institutions to buy treasuries to keep rates depressed — has not managed to push nominal rates below zero. The scope for great profits from flipping bonds seems to be evaporating. And in any case, the latter case of flipping bonds to a greater fool or the central bank balance sheet is a classic characteristic of a bubble. The inherent value in a bond is its yield; everything else is speculation.

In the classic bubble mentality, more and more financial media — hastened on by the prospect of deflation (something which the Fed is absolutely obsessed with preventing, and is prepared to print an unlimited amount of money to do so) — are calling Treasuries something that you can’t afford to not own.

The reality, though, is that even recent years treasuries have not really been a good investment. Bond prices may have gone up, but they’ve been eclipsed by a harder kind of asset — gold:

Indeed, the real bull market in bonds ended in the ’90s. It’s not just that bond bulls are running out of steam; next to gold bulls they have made a relative loss. Here’s what I call the gold-denominated real interest rate (or the “real real interest rate”) on the 10-year treasury — rates minus the percent change in the gold price:

While the bond flippers have done well (just as the NASDAQ-era bubble merchants did well flipping to a greater fool), whoever is holding bonds to maturity is gradually pouring purchasing power down the drain. And that is the problem; the only way that the bond flippers can get their pound of flesh is for the Fed to print a whole swathe of money and buy the flippers flip-offed bonds. And however depressed the economy is, printing money to absorb treasuries is hazardous to the currency, and irritating to the largest treasury holders — who America happens to import a lot of goods and oil from — who hold treasuries to maturity instead of flipping them off. A trade war between America and her creditors seems inevitable and the bond flippers on Wall Street may end up being dragged under the bus by such an event — perhaps getting paid off in a heavily devalued dollar and losing their shirt on a bond-flipping trade where they initially only stood to make a sliver of a percent gain on their stake (made even riskier by concentrated ZIRP leverage).

It is hard to really call the timing on the end of a bubble. People and events can always get more irrational. Japan has kept the Treasury ball (painfully) rolling for far longer than most of us expected (through market rigging as much as anything else). But this cannot end well.

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HAL 9000's picture

Yes. It's puzzling. I don't think I've ever seen anything quite like this before. I would recommend that we put the unit back in operation and let it fail. It should then be a simple matter to track down the cause. We can certainly afford to be out of communication for the short time it will take to replace it.

The Monkey's picture

Treasuries. 30 year JGBs reached somtehing like 1.7%, so to say the treasury rally is over may be a bit of an early call.

Long JGBs on the other hand might be a horrible investment. At some point, and it could be sooner than one might imagine with all that is going on with the world, the Yen will fall and rates will begin to rise.

bigdumbnugly's picture

no, treasuries aren't the worst.

i think those elvis commemorative plates might be though.

followed closely by beanie baby collections.

Max Fischer's picture

The worst investment? GOLD. Except for short term t-bills which no one buys looking for yield.

Gold stayed somewhere near $20 from the mid 1800's until the early 1930's. Had you taken $100 and bought gold, you would have gotten about 5oz. Those 5oz's would be worth approx $8000 today. Remove the Bush administration from the history books, and those 5oz's would have been worth $1500 just like they were in 1979.

Here's a chart of what that same $100 would have yielded had you invested it in 1928 into 3 month t-bills, or the 10yr, or a basket of equities and did nothing for the next 85 years, except allow all the gains or losses to compound. Gold did better than the 3 month (no surprise). Little better than the 10yr, and no where close to equities.

Going forward, if you gotta buy a metal, buy lithium. Larry Fink is. Do some homework and find out why.


Praetor's picture

Yeah funny thing that, those 5oz are still in existance, unlike 'equities' that just dissapear like a fart in the wind.

Only fools use the term INVESTMENT and GOLD in the same sentence.

So have you married Squeezy Fromme yet or is she the other half of your brain?

You have been judged a fool and a troll.


The Praetor


P.S I hope you do buy some lithium (not only for its bipolar pharmaceutical benefits) but so when you place it your pocket its burns your balls off.

Spitzer's picture

thats right. What he is saying is so fucking annoying because its bullshit.

He says buy equities. So lets assume he means the DOW for example. His bullshit theroy is false because it doesn't account for stocks that leave the index. His bullshit assumes that you sold every stock at the right time before it left an index and bought ones that just entered the index to infinity.

Max Fischer's picture



No.  It's not bullshit.  Just because it's an opinion that differs from the pad-locked echo chamber in the comments section here doesn't subtract from its merit.  Of course there's an endless array of variables which could be thrown into the mix, but as many as there are to the downside, there's an equal number to the upside.  Those numbers for equities are AVERAGES, nothing more and nothing less.  Who knows what you would have purchased and sold over the course of 85 years? It's an average.... some duds and some 100X baggers.

All in all, the return on equity averages out to be vastly more than the return on gold and that's without even mentioning dividends.  Had someone given me 5oz of gold or a basket of $100 worth of equities in 1928, the choice is obvious despite whatever variables you can conjure. Maybe during the Great Depression, a band of robbers stole your coins.  The possible variables are endless for both investments. 

Perhaps if you guys were more open to other opinions, y'all hillbillies wouldn't be so underwater in your maniacal silver purchases. 


Praetor's picture




Revert_Back_to_1792_Act's picture

Hi Praetor, there have been times in my life when I wish people would have said something to me.

Please consider this Bible verse.

"The Message" translation has it this way.


deez nutz's picture

Let me ask you Max: if everyone is buying silver, and they are, why is the price going down?


disabledvet's picture

perhaps some "silver ware" may be of interest to you then? i was just told the other day "nice silver call...too bad it was all wrong and you don't have any." yet i EAT with SILVER WARE.

Revert_Back_to_1792_Act's picture

Max..please go read this.

What does he say they will do if the price of Silver goes up.

Please go read that and then tell me.  Also tell me what you think about it?

That guy above shouldn't have called you a fool. 

Please just follow through this one little exercise w/ me.


Revert_Back_to_1792_Act's picture

If you are going back to 1928, you are looking at two completely different money systems.  The system changed in 1933 and then changed again in 1965 and again in 1971.

There was another change to the monetary system in 1982.  There have been many small changes in-between those.

When I say the system changed, I mean that the way the stocks were valued changed.  The unit for valuing the stocks (the dollar) changed.

  I don't think you are taking this into consideration.

The dollar was originally set up as both a weight and a measure of silver.  That fundamental unit did not really change until 1965.  From 1792 to 1965 the dollar was always the same amount of silver.

The other units used to 'regulate' the value of the dollar, the cent and the eagle, they changed in both size and composition.

How can you measure the value of the stocks if the stick you are using to measure is constantly changing length and weight?

How can you possibly know if your investment increased or decrased in relative value?


MeelionDollerBogus's picture

It's bullshit for the precise reasons given that you deny.

Right now the best you can do is go long DIA, SPY and hope for the best. If you're a little more clever but buy-and-hold you can write calls off the peaks.

If you're really smart you just buy Calls on the dips, by Puts on the peaks, buy a Strangle in the middle and use all paper profits to buy TANGIBLE assets you need like water, food, fuel, bullets, guns, filtering systems, gold, silver and so on.

The best YIELDING bond today I can think of is from Royal Silver. You pay cash, they return the cash in 2 years and they pay a dividend in SILVER BULLION ROUNDS in the mean time every single month for 24 months. That's a built-in hedge as you still get the cash back.

ReactionToClosedMinds's picture

so you think Larry Fink is a 'playaaah' .. is that it?  So why do 'homework' if that is your throw-in?  It never hurts to get advance notice of what Treasury or the Fed need as he controls one of the biggest purses .... naaaah .. that can't happen in crony capitalist free USA?  That only happend in Ukraine or Russia ... or Chicago ....

Uber Vandal's picture

In regards to the $100 and buying gold then, you could have bought 40 1848 $2.50 quarter eagle gold coins marked CAL on the back, for they were made of California gold from the Philadelphia Mint then, and kept them in a box for the next 164 years, and an heir could have them graded at a minimum of MS60 with a value of $75,000 per coin today.

$75,000 X 40 = $3,000,000.

If they graded MS65, you would have $195,000 per coin, for a total of $7,800,000

Or, you could have purchased 5 1927 D Double Eagles for that $100 from the Denver Mint in 1927 (One year before your 1928 point in time) and kept them in a box for the next 85 years, and if they graded MS65, you would have $1,812,500 per coin, or $9,062,500 for your $100 investment.

So, indeed, gold is poor investment.


Civic Honda

Marco's picture

Or you could have bought a Picasso ... what's the point of mixing collectablility with gold prices other than being disingengious?

disabledvet's picture

because when i buy a Picasso "everyone tells me it's worthless" at the time of purchase. With gold...even in "1927" (when gold was still considered money because "that was the way it had been during the Morgan years") was considered very valuable. Not now..."it's all about the flim-flam man" and "how to use the media to obliterate the American people and their economy." That's what makes Zero Hedge a fundamentally honest place. "The goal for the bad guys is always the same: steal zee gold." And whatever else those that care not for work let alone labor itself can get their hands on of course. I say break their phucking necks first. Only a fool doesn't consider gold an asset class. It is the ULTIMATE asset class because "it is an asset unto itself." If you find the people "attached to it" a "little weird" well...take a look at anybody with money. "You don't go there to find normalcy"...although surprisingly...sometimes you really do.

Marco's picture

The goal for the bad guy is always land and the power to keep it and derive rent from it.

andrewp111's picture

There are lots of things that have gone up tremendously in value on a timescale greater than the human lifetime. So?

HardAssets's picture

Max F - - I'll assume youre making a sincere inquiry into this subject rather than just taking some kind of stand, or trying to confuse people. For thousands of years, gold has been recognized as being money. Unlike paper money (invented a thousand years ago in China) gold could not easily be created - or printed - thus it maintained its value over time. Gold maintained its value for such a long time in American history, because it was defined that way. The US dollar was defined as approximately1/20th of an ounce of gold. The fact that gold remained the way it was defined, should be no surprise and definitely not a cause for alarm. We would be no more concerned that 1 foot rulers remained 12 inches long from the mid 1800s to early 1930s either. They were defined to be so. This defined stability is a desireable characteristic for one's monetary store of value, and for your measuring tools.

Its difficult to comment on the link to the chart you gave. It says that its based on 'raw data' which means it isn't real data so it hasnt been adjusted for inflation. In addition, they don't define how they came up with the equities figures. Did they use the S&P500, DOW, or cherry pick particular stocks ?  There's no way to know from what youve provided. And how can you just 'eliminate the Bush years' when making your case ?   Hmmmm.

I'm invested in gold now, but am not married to it. Like any investment, there are times & conditions that favor it and other times and conditions that do not. IMO now is a good time. Gold has appreciated well over the last decade.

Lithium may be a good investment, I havent looked into it deeply. I've heard  that some people were suggesting that it be introduced into municipal drinking water supplies to calm people. This sounds way out there (but websearch the topic). If this were to actually happen, I wouldnt want to profit from such a despicable act.

americanspirit's picture

El Paso Texas has high (natural, not introduced) concentrations of lithium in its water as well as one of the lowest rates of mental illness in the country - in spite of the fact that people are living in El Paso, which would drive me crazy for sure. However the lithium argument seems to fall apart when you consider the levels of insanity in Juarez, just across the mud flats from El Paso, and drinking from the same aquifer.

In fact a lot of West Texas has high lithium ( and arsenic) concentrations in the groundwater, and people out there do have a mighty relaxed way of speaking. Just don't scuff their cowboy boots or make fun of A&M.

MeelionDollerBogus's picture

No more idiot statement - even compared to MillionDollarBonus_ - was ever made, Maxi-pad.

Gold is the most solid investment of all human history for it is always money, always useful, always rare and never rots nor can it be printed or declared into existence, legitimacy or the ruination of the same.

Regulated price of gold to 20 or 35 didn't last and couldn't last. The world tried to force gold to bend in a way it can not and gold bent the world aorund instead and rose in price as economies collapsed - then as now.

Nothing has changed. Gold, land, silver, food, bullets are the only real investment assets. Everything else is just paper-shuffling and broken deals.

emersonreturn's picture

mf you suggest buying lithium, but if the economy stalls will people be inclined to buy electric cars and itoys?  mightn't lithium end up a little like tech's copper?

ToNYC's picture

ZIRP destroys the stored value of money as a tool to acquire and rest one's self on money's utility to earn money per se.

The FED, should it be allowed to continue in its terminal path of conage destruction, will make you beg for New Money that works. The Old Green stuff is broken and higher interest rates later will never be possible for the Green species. There is only one mathematics that proves this inevitability.

OpenThePodBayDoorHAL's picture

I'm afraid I can't let you jeopardize the mission, Dave

fonzannoon's picture

If the fed really wanted to avoid deflation they would literally send everyone a check. Why add trillion after trillion into the banking system that continually stays plugged up there, unless there are other intentions?

tjfxh's picture

Except that's fiscal, and the Fed is not permitted to usurp the fiscal power of Congress without Congress expressly delegating it.

wee-weed up's picture

Big whoop! Obama usurps the power of Congress every day! Thinks nothing of it!

icanhasbailout's picture

the Fed is a literal institution of the usurpation of the powers of Congress

Elvis is Alive's picture

<If the fed really wanted to avoid deflation they would literally send everyone a check.>

Great idea! Too bad it is illegal.

As for money printing, if that is always the answer for deflation, we should never have it. However, if people are worried about not having jobs and are seeing prices fall on everything, why would they spend it?

The inherent assumption is that the public is just going to spend any dollar the fed gives them on an Iphone. However, if the public sat on their money or paid down debt, it would do nothing to the inflation rate.

What the fed has tried to do is curb real estate deflation by creating inflation with an increased money supply, ZIRP, QE and QE2 ETC. Thing is that the fed can't target where the inflation is going to come from. What is ironic and why the fed's policy has been a totally failure is that they have inflation where they don't want it (oil and copper) and not where they do (wages and real estate).

That you have idiots like Krugman pounding the table for more money which IMO would just mean higher oil and copper prices. That would lower real take home pay for most people and higher oil prices mean fewer not more jobs. The Saudi shieks should be thanking Uncle Ben and Krugman as QE has been quite a boon for the Saudis.

The flaw in these projections is that people's needs (i.e. demand) goes down as they age, and the true cause of deflation is decreased demand. The notion that more money equals more demand isn't true.

Marco's picture

We will never have it again in the same situation as the great depression ... no matter how bought and paid for, politicians would do the same thing as FDR in the same situation, which is devaluation.

Unfortunately we aren't in the same situation of the great depression. TPTB got hugely burned by the solution FDR came up with (gold confiscation was the means to a cause ... he took gold from everybody up to and including the fucking federal banks because it was the only way to truly inflate away debt under a gold standard). So after they foresaw real growth stalling again they decided to manoeuvre the US into a trade deficit, a no win situation where by the time the results of debt overhang became obvious the solution FDR came up with became almost impossible and they could rely on politicians to just steam on ahead to oblivion (ie. neo-feudalism).

The ZH wish of austerity, deregulation and small government is coming ... and it's all as planned.

i-dog's picture


"deregulation and small government is coming"

LOL ... Arrant nonsense!!!!!!!

There is absolutely no evidence, nor even a hint, of reduced regulation on its way ... quite the opposite! (hint: recent laws are now running to thousands of pages).

There is absolutely no evidence, nor even a hint, of smaller government on its way ... quite the opposite! (hint: not only is the EU desperately fighting to survive, but also to expand - with financial help from the Bernank, to boot!).

The only "small government" on the horizon is a single central government -- ruled from the back room by a hidden Politburo.

Marco's picture

The collapse isn't here yet, when there is nothing left to steal through government then and only then will it be reduced.

As long as the rich get richer and the poor get poorer government is allowed to get big ... on debt.

The Monkey's picture

Here is the rub. The Fed hasn't really devalued much; but, looking backward policies worldwide nearly guarantee a deep bear market. The only question is whether it begins before additional large scale asset purchases, or after.

If I were the Fed, I would want to send a message to fiscal authorities that they need to chip in (let markets correct now). However, with the election coming right up, the Fed may act before markets correct, proving the front runners right.

Congress does not have the will to act before the elections.

Think about what a top this might create. If the Fed goes balls out and we were to get another split congress, we may get ubber high prices in the face of deteriorating demand fundamentals. This is the same condition that set-up the giant top in 1929. Fed went balls out in 1928 when growth slowed, speculators piled in, the world economy continued to slow.

S&P is now 100% off it's lows and a little over 5% off it's cyclical highs. Should the Fed go balls out soon, it may set up a once in a generation short following the election, assuming security prices continue to climb.

The Monkey's picture

Good post. Open market purchases do levitate asset prices for a time. Higher prices for commodities serve as an incentives for producers to ramp output and consumers to seek alternatives or greater efficiency.

But, if commodity producers and their supply chain are running full tilt based on price signals and an inventory build, there is hell to pay later when it becomes apparent their is a glut.

So far, markets have periodically corrected, ensuring supply & demand signals do not get too out of kilter - however, with Europe contracting and China in a funk, increasingly the only thing holding up commodity prices is the greater fool.

If the Fed runs large-scale open ended QE near the top, they will bury important signals from the marketplace. We could get an even bigger glut. We could end up delaying fiscal action.

The central banks have been so active, that they now have a ponzi scheme to protect. They have effectively guaranteed returns on risk (at least speculators see it that way) and they have promised price stability. But, the underlying economy did not play ball.

As a result, we have a growing bubble on our hands.

MeelionDollerBogus's picture

The Fed can open the lending window to whomever is chosen. It's not illegal but it's not going to happen.

The true cause of deflation is an excess of goods vs money supply, it is not age and it is not demand and it is not population.

cranky-old-geezer's picture



Because the role of the Fed is to steal all the wealth from the economy and give it to the banks. 

We're just 4 years into it.   Be patient.  It takes a while to loot the nation dry without anyone figuring it out.

nmewn's picture

In the land of the blind, the one eyed man is king.

francis_sawyer's picture

In the land of the one eyed snake... [vote for king here]...

Biosci's picture

...I am applying for an exit visa.

Amish Hacker's picture

"We are all in the gutter, but some of us are looking at the stars."  O. Wilde 

tjfxh's picture

It's a risk off signal. Rising gold prices and flight to tsys signals that a lot of big money is hedging against deflation. 

MeelionDollerBogus's picture

Means no such thing. Cash and bonds, treasuries, are risk assets.

The truth is that bonds are the most liquid collateral being multiplied into existence using all tricks of margin including London rehypothecation.

That means negative yields are only a small additional cost to borrowing and trading.

tjfxh's picture

There is no risk-free financial asset. Every financial asset has corresponing liability. With govts the question is the degree to which there is solvency risk, devaluation risk and interest rate risk wrt to the entity whose liability it is. The risk of the US govt becoming insolvent is nil, since it the issuer of its currency and the liability is denominated in USD. The risk is inflation domestically and devaluation externally, and the market is discounting these risks hugely, which is an indicator of deflationary expectations both for the US and the ROW.

AUD's picture

Inflation is illiquidity, is insolvency.

Just because the US debt bubble can be inflated further doesn't mean it is solvent.

tjfxh's picture

You need to reveiw your definition, unless you want to redefine current use in economics and finance.

AUD's picture

You need know what you are talking about. Try Melchior Palyi's Liquidity from 1936. You'll find it on the 'net.