Sorry to take so long to reply. I agree that to date the spread increase has been due to the reduction in short term rates as long term rates have not moved much. However the trend here is what I consider important. I believe that we are very close to seeing much larger spreads due to both falling short term rates AND rising long term rates. The falling short term rates are easy to predict as the current deflationary environment will cause the CBs to reduce rates further. The long term rates are more difficult to predict. Take a look at the monthly charts for $UST20Y. The MACD does not support the decreasing price movement (ie: divergence … since MACD is rising while price is falling as shown by the falling 50MMA and 200MMA). This tells me that we are VERY close to rising long term treasury yields. What could be the fundamental explanation for this? The increased liquidity provided by the world CBs (espacially the Fed) since Aug 07 will lead to inflation in the not too distant future. The Fed has tried to sterilize its liquidity injections as much as possible but recently ran out of Treasuries to sell so it had to get the Treasury Dept to sell new trasuries directly to the public and increase its deposit at the Fed. This will be extremely price inflationary. Just a matter of time. Another fundamental reason for rising future long term treasury rates is that creditor countries will reduce their purchases of long term treasuries at a time when the US has increasing need for debt due to all the bailouts and to pay for the coming fiscal stimulus promised by Obama. The current asset deflationary period should not last too long … maybe only 2 years or less. General prices will likely follow asset prices with a lag of several months so we should see falling or constant CPI changes for a few months followed by renewed and increased CPI inflation within 2 years. This should be commodity and precious metals bullish.
You mean there are fewer than 1000 Americans with social security cards…?
Do you know what an order of magnitude is?
Hedge funds to be 'decimated' by financial crisis
http://www.abc.net.au/news/stories/2008/11/14/2419653.htm?section=justin
Billionaire investor George Soros says hedge funds will be decimated by the financial crisis.
Managers of the world’s biggest hedge funds have been forced to
defend their massive wealth as the investigation into the cause of the
global financial crisis continues.
Mr Soros has told a congressional hearing in the United States that
hedge funds were part of the problem but excessive regulation could do
more harm than good.
"It has to be recognised that hedge funds were the integral part of the bubble which has now burst," he said.
"But the bubble has now burst, and hedge funds will be decimated. I
would guess that the amount of money they manage will shrink between 50
and 75 per cent."
Hedge fund managers have not asked for a Government bailout.
Damthematrix:
And, lightl heartidly I’d say: If they wen’t privatly held he’d be shorting them!
Yes but which system is the least competent at producing growth based on historical records? That’s the system you all should be rooting for.
[quote=cmartenson]
Paulson Shifts Focus of Rescue to Consumer Lending
Nov. 12 (Bloomberg) – U.S. Treasury Secretary Henry Paulson plans to use the second half of the $700 billion financial rescue program to help relieve pressures on consumer credit, scrapping an effort to buy devalued mortgage assets.
Illiquidity in this sector is raising the cost and reducing the availability of car loans, student loans and credit cards,'' Paulson said today in a speech at the Treasury in Washington.This is creating a heavy burden on the American people and reducing the number of jobs in our economy.‘’
[/quote] It appears that the offering of easy money is reaching far beyond our imaginations! SOOO... Here it is folks, the official application for debt relief funding from the FED. Take your time to read through the information, then fill in the blanks with whatever BS crap you you can think of, and take a shot at your piece of the $700mil Bailout! http://www.ustreas.gov/press/releases/reports/applicationguidelines.pdf Don't forget to pass on your successes for the rest of us. PS. Hey Chris, funding for the Crash Course?!
Sounds great,
I suggest everyone go and get as much money as you can, because sooner or later we are all going to be credit delinquent, so we might as well party like the bankers do. Let’s have our own summit at Chris’s house in a few months. We can call it the CM4 summit or something. We can all bar-b-q with our credit dollars, share gardening secrets and shoot guns into the air celebrating our money. BYOB.
Froggy,
Your original post mentioned a time period starting with the AIG bailout. I only wanted to note that the large spreads were due mostly to falling short term rates and didn’t imply much for longer term trends. Certainly, the vast increase in money can make a strong case for future inflation(that’s preaching to the CM choir), as the destruction of credit makes a case for deflation(preaching to the Mish choir). This is not an easy decision for me. The jump to a 200 month (16 year) moving average in this rapidly changing environment is too long for me to use with any confidence in protecting myself or my money. Just knowing where I’m headed doesn’t keep me on the correct side of a trade or investment given the depth (shallowness?) of my resources and the time frame those resource limits impose. You said 2 years or less, but what gives you confidence in that number? Anyway, two years is an eternity given current volatility.
As an aside, with regard to tech analysis, eg divergence in the MACD technical "study" (avoiding the term "indicator"):
I have found that in most cases you can make divergences appear and disappear depending upon your choice of time frame and period of the study, so I don’t give that as much weight. I am using divergence here to mean lower lows in the data series ($UST20Y in this case) and higher lows in the study (MACD), not the current direction of the data series or study movement.
My focus is on the long term monthly charts precicely for the reason that short term movements are so volatile. I think that anyone who trades in these markets short term will get burned. If you believe as I do that the spreads that I mentioned in my first post above indicate that the long term spreads ($UST20Y:$UST3M) have broken out to the upside then a likely scenario is for the short term rates to continue to fall while long term rates start to increase. The reasons that I have to believe this are lagely fundamental but the technical charts also paint the same picture. For both fundamental and technical reasons I cannot believe that the deflation will be short lived. Two years is likely to be way too short but most people can’t fathom that. I actually believe that we will have an extended period of BOTH inflation and defaltion. I call this indeflation (inflation plus deflation and everyone is arguing about which is correct … thus a play on the word indecision as well). I think that financial assets will continue to delever (so asset price deflation) but essentials like food, energy, precious metals will see price inflation. So how to play this if my analysis is correct? I personally am long precious metals and oil & natural gas. I also hold a significant amount of cash (non-USD as I am Canadian). I plan to short long term treasuries soon using a bear treasury ETF which will also provide a short on the USD at the same time since I plan to break my no margin rule and margin the funds for this purpose in a USD account. I am placing my bets now and will just sit tight and ride it out. I think that I am as well hedged as I can possibly be. If I see some opportunity I may deploy some of my cash but very reluctantly. I think that preserving capital is the key in this environment. In this markets the pigs will truly get slaughtered … or if you prefer … the sheeple will get sheared. I am focusing on trying to not get greedy. Survival is my objective.