Here's the argument:
T-Bill yields are lowest in 50 years.
Yields have gone into parabolic sell-off.
Prices can't go much higher.
FED has debased by an enormous sum (~8 Trillion Dollars).
Once Banks recover and lend, inflation returns.
Bernacke's promise of "sanitized debt" and restricted credit - once inflation hits - means way higher interest rates. Can't go much lower than 1%!!
If the FED proves itself useless, once again, we go into 70's-era inflation - some 20%+ - and bonds undergo a wicked sell-off.
If the 2nd scenario plays out, the ultimate remedy is jacked rates - and Volker just got appointed! Timing couldn't be better.
Some interesting asides:
US Budget Deficit is largest ever - 1 to 2 TRILLION Dollars for 2009.
http://www.bloomberg.com/apps/news?pid=20601109&sid=anUDEEEP1_M0&refer=home
The Federal Reserve is the largest US Debt Holder/Buyer - owns some 52% of all US Debt! (inflationary).
China and Japan - two largest US Debt buyers (own some 10% of US Debt) - are undergoing recession. (weaker T-Bill Demand)
Further, global Dollar appreciation and falling US consumption has made forced Chinese buying of US Debt, less necessary.
Balance sheets of Oil Exporters are collapsing. And most foreign public and private debt buyers are undergoing recession and $$$ loss.
The implication of a Global Recession and unprecedented US Deficit - less foreign cash to buy more US T-Bills, that ultimately get monetized by the FED = long term inflationary, that only gets arrested by higher interest rates once banks clear.
Further:
US Banks selling T-Bills and going short is the canary in the coal mine.
FED intends to buy US T-Bills from Banks. Could be ploy to take worthless bonds off Banks under the guise of "saving the whales".
Notable successful investors short US Debt - Jimmy Rogers, Peter Schiff, Marc Faber, Hugh Hendry?
Moral of the Story: Once Banks lend again and deflation slows - assuming we don't flounder around like Japan did for 10+ years (and we won't) - inflation returns, and Bernacke then fucks the Common Man with jacked rates to contain (after the Banks are saved).
When that happens, Bonds sell-off, big-time.
This is a long-term play.
Deflation could last well into 2010. Probably end with 12 to 24 months, then inflation, then bond sell-off.
My 3 cents
T-Bill yields are lowest in 50 years.
Yields have gone into parabolic sell-off.
Prices can't go much higher.
FED has debased by an enormous sum (~8 Trillion Dollars).
Once Banks recover and lend, inflation returns.
Bernacke's promise of "sanitized debt" and restricted credit - once inflation hits - means way higher interest rates. Can't go much lower than 1%!!
If the FED proves itself useless, once again, we go into 70's-era inflation - some 20%+ - and bonds undergo a wicked sell-off.
If the 2nd scenario plays out, the ultimate remedy is jacked rates - and Volker just got appointed! Timing couldn't be better.
Some interesting asides:
US Budget Deficit is largest ever - 1 to 2 TRILLION Dollars for 2009.
http://www.bloomberg.com/apps/news?pid=20601109&sid=anUDEEEP1_M0&refer=home
The Federal Reserve is the largest US Debt Holder/Buyer - owns some 52% of all US Debt! (inflationary).
China and Japan - two largest US Debt buyers (own some 10% of US Debt) - are undergoing recession. (weaker T-Bill Demand)
Further, global Dollar appreciation and falling US consumption has made forced Chinese buying of US Debt, less necessary.
Balance sheets of Oil Exporters are collapsing. And most foreign public and private debt buyers are undergoing recession and $$$ loss.
The implication of a Global Recession and unprecedented US Deficit - less foreign cash to buy more US T-Bills, that ultimately get monetized by the FED = long term inflationary, that only gets arrested by higher interest rates once banks clear.
Further:
US Banks selling T-Bills and going short is the canary in the coal mine.
FED intends to buy US T-Bills from Banks. Could be ploy to take worthless bonds off Banks under the guise of "saving the whales".
Notable successful investors short US Debt - Jimmy Rogers, Peter Schiff, Marc Faber, Hugh Hendry?
Moral of the Story: Once Banks lend again and deflation slows - assuming we don't flounder around like Japan did for 10+ years (and we won't) - inflation returns, and Bernacke then fucks the Common Man with jacked rates to contain (after the Banks are saved).
When that happens, Bonds sell-off, big-time.
This is a long-term play.
Deflation could last well into 2010. Probably end with 12 to 24 months, then inflation, then bond sell-off.
My 3 cents