Wednesday, December 10, 2008

A Bad Time For Poor Feedback

Yeah tax receipts are evaporating, but don't tell that to investors all over the globe piling into US assets.

Back in the heyday of the real estate bubble - 2002-2006 - everyone who bought a house was thinking, since they made $$$$ before the ink dried, that they should have bought MORE house or MORE houses.

In fact, that's what a lot of people did. They bought a condo in Florida or Las Vegas, watched its value skyrocket, and then they anteed up for another piece of property. When the gig was up, they were, of course, stuck with a whole bunch of property in a declining market. [Like my landlord with his four underwater homes!]

These people, call them greedy if you like, were essentially hoodwinked by short-term price action. Their *instant success* faked them out and impelled them to press their luck.

The same drama is playing out for the US Treasury and Federal Reserve. In an ideal world, or in a ceteris paribus model, when our government increases its liabilities, its currency would take a hit; as would its bonds.

BUT, in the last few innings of this *bailout*, as the government nationalized trillions of dollars of liabilities in the banking system, T- Bills, T-Bonds and the US Dollar, have done nothing but ascend in price - quite dramatically I might add. Today the closing yield on the 30 year bond was 3.09%.

I submit that this most untimely of price swings has made Congress, Wall Street, and investors all over the globe deaf, dumb, and blind to the impending reality of full scale financial collapse.

Everyone is piling into our debt and our currency at the precise moment they should be bailing.

I hypothesize that if T-bonds got whacked every time Big Government nationalized a company (BSC, AIG, FNM, FRE, C, GM,...) then Congress might very well have let the free market function, and let these dogs die quickly.

So, IMNSHO, this upward price action in Treasuries couldn't have come at a worse time as it's emboldened the clowns to elevate their meddling.

And, at this point, I think we've sunk well past the point of no return. Prayers are our only hope.

Pray that the Treasury market never gaps down 20% as it very well could.


Funny Circus Bears said...

There will soon come a time to be short T's.

Anonymous said...

Regarding the strength of the dollar, I think it is a resounding affirmation that USD is still the world's favorite currency. A global flight to quality, if you will. As emerging markets and others crash and credit becomes tight in their local economy, to me, it appears that it a hedge against their currency becoming the turkish lira.