Nov 19 2009

Investors expecting the worst

(10 am. – promoted by ek hornbeck)

  Maybe you remember news stories like this from last December, when it seemed the entire world’s economic system was about to break down.

 Dec. 9 (Bloomberg) — Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

 Negative yields essentially mean that you are paying the government to loan it money. It’s a flight to safety at any cost. Last December was the first time it had happened since the Great Depression.

  It happened again today.

 (Dow Jones)–Demand for the three-month Treasury bill is ramping up as investors seeking safety heading into the end of the year stock up on the safest possible securities at a time when Treasury bills are in short supply.

…

 Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the Lehman Brothers bankruptcy. The decline now isn’t driven by the same sorts of fears though – it’s more about a scarce supply of T-bills amid strong demand for safe assets given the hazy economic outlook.

 Scarce supply? Do they think we are morons? The Federal Government is issuing debt like it grows on trees. There is enormous mountains of treasury debt out there in the financial world because of America’s unprecedented deficits.

  It was only two days ago that a Federal Reserve bank president had this to say.

 Fisher told a group of bankers and business executives that he was surprised at how low rates have remained despite what he termed a “significant” increase in debt issuance.

 Does the WSJ think we didn’t notice? Perhaps they think we also didn’t notice that gold, the other safe haven investment that people run to when they expect a financial collapse, was hitting new all-time records.

  To put it simply, while the financial media keeps feeding us happy-talk about an economic recovery, the big money, the smart money, Da Boyz on Wall Street are running to safe havens.

11 comments

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    • gjohnsit on November 19, 2009 at 23:04
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    gold and silver coins only please

    • Inky99 on November 19, 2009 at 23:12
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    Why has the stock market been on such a rally?   All indicators seem to be, to me, that things are bad, will continue to be bad, and are going to get worse.

    I’ve been of the opinion that this has been just a HUGE sucker rally.

    Yet ….. what exactly is keeping it afloat?   If what you say is true about the “smart money”, why is there so much dumb money?  

    I’ve really been baffled by this for the last few months.

    It seems to weird that the dollar could be crashing, the price of gold could be skyrocketing, and yet the Dow continues to rise in a robust fashion.

    Just looking for your opinion on this.   🙂

    I’m just waiting for the market to come crashing down any day.  Thought it would happen in October, but it didn’t.

  3. I’m sorry … did the WSJ just say

    Treasury bills are in short supply

    Is that your final answer? Bzzzz…. we’re sorry but please enjoy these lovely parting gifts. Enjoying playing at home with the Screw Up the Nation home version.  

  4. is you’ll see a big sell off after the first of the year so investors can grab their gains but don’t have to pay taxes on them for another fifteen months.

    BTW gjohnsit, did you see Roubini’s article on the new market bubble?

    So the combined effect of the Fed policy of a zero Fed funds rate, quantitative easing and massive purchase of long-term debt instruments is seemingly making the world safe – for now – for the mother of all carry trades and mother of all highly leveraged global asset bubbles.

    While this policy feeds the global asset bubble it is also feeding a new US asset bubble. Easy money, quantitative easing, credit easing and massive inflows of capital into the US via an accumulation of forex reserves by foreign central banks makes US fiscal deficits easier to fund and feeds the US equity and credit bubble. Finally, a weak dollar is good for US equities as it may lead to higher growth and makes the foreign currency profits of US corporations abroad greater in dollar terms.

    Here’s the kicker:

    But one day this bubble will burst, leading to the biggest co-ordinated asset bust ever: if factors lead the dollar to reverse and suddenly appreciate – as was seen in previous reversals, such as the yen-funded carry trade – the leveraged carry trade will have to be suddenly closed as investors cover their dollar shorts. A stampede will occur as closing long leveraged risky asset positions across all asset classes funded by dollar shorts triggers a co-ordinated collapse of all those risky assets – equities, commodities, emerging market asset classes and credit instruments.

  5. We got some rough roads ahead, methinks.

  6. Let’s discuss who benefits from seigniorage…

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