Thursday, January 1, 2009

Treasury Bonds--the next bubble?

I'm short longer-maturity T-Bonds. It's the last bubble, and bond holders are going to get crushed. I don't know if it's tomorrow, next month, or next year, but tying up your money for 30 years, and getting 2.6% for the privilege is going to prove problematic. It pisses me off that the Fed and Treasury can act unconstitutionally with no oversight, saddling us taxpayers with trillions of toxic debt. WTF? Having said that, I gotta do what I gotta do to protect myself.

Keynes is dead: the Fed thinks they can control the economy. All they've done is create one bubble after another--all unintended. Monetary easing created a tech bubble, at which point, Greenspan declared irrational exuberance and popped the bubble. He then did an emergency reflating to avoid a deep recession, and thus created a real estate bubble. Then he raised interest rates 17 times, popping that bubble. And now they are reflating like there is no tomorrow, deploying quantitative easing to try to save the world economy (bailing out broken industries), but in the process, creating a Treasury note bubble. The Treasury is printing so many dollars they are outsourcing to the Swiss the printing process--they've run out of domestic capacity! This will be the last time helicopter Ben and machine gun Hank will be able to hoodwink foreign investors. When investors flee in droves away from what they thought was safety (US government IOU's), they will flock to other vehicles, whether it's high-grade equities or the currencies of last resort: gold, silver, and the yen. Or their mattress, which will prove problematic when deflation turns into hyperinflation. Interest rates will soar, as investors (many of them foreign sovereign funds) will demand higher rates of return. Think 1970's...

Investors will continue to lose fortunes watching CNBC and Fox News. They report facts ex post facto. Debating whether GM should be bailed out or not is banal. The money has already been made or lost a year ago, before the 90% plunge in GM's share price. That's why buy and hold doesn't work. Our central banks are manipulating the markets with each intervention. It'll only drag out the inevitable recession. Japan did the same thing. Their Nikkei stock index in 1990 was 39,000. Today, in 2008, it stands at 9,000. And our credit default swap problems are orders of magnitude bigger and worse. Stop the bail outs. Let 'em fail. Quit trying to give good money from competent people (taxpayers) to incompetent people (GM and the UAW). The incompetents will just piss it all away again.

And with the public focused on equities, they will always lose. Hint: they should be following indicators from two much bigger markets--fixed-income and forex, watching their capital flows. Central bank interference is causing different asset classes to move parabolically up and down. They're debasing the US Dollar in the process, and sending most of us to the poorhouse.

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