Who buys the "Long term deflationary spiral"?

[scriabinop23]

Quote from Cutten:

People used similar logic to short JGBs in the early to mid 90s, and got their asses handed to them. 10 years after, the yield was *lower* and eventually hit 0.5% in the early 2000s.

Ditto with US treasuries. If you shorted them in 1932 at the depths of the depression (compared to now, only 6 months or so into recession), you *lost money*. Treasury yields made their low in 1941-42, more than a decade after the start of the Great Depression.

The short treasuries trade is by no means the one-way bet that you seem to think. Not only might you not be right, you could be on the wrong end of a once in a generation bubble. Work out the implied futures price for a 30 year bond yield of 1% - that's how much you have at risk with this trade.

I agree with this. short treasuries makes sense on the level I point out, but following Japan's lead, there's no reason we've just not reset to a new price floor. Japan did not experience a capital flight, nor are we (at present). If we have enough savings internally to support our debt loads (which was Japan's situation), there is no reason treasury prices can't stay here and go higher. The whole capital flight + treasury crash theory is based on an assumption (possibly flawed) that we need foreign capital to sustain our debt needs. At present, this has been true, but elimination of our consumption imbalances (and export of dollars) while simultaneously printing more money could have the effect of basically redirecting that same capital to buy treasuries (versus foreign assets) with the correct set of government policies.

Regardless, now is not the time to short treasuries simply because we already know the Fed has announced they will be buying debt with printed money. Better idea to let the programs begin en masse and see where the market goes.

Interesting points about deflation in real terms against inflation in nominal terms concerning hyperinflation.

 

[thriftybob]

Quote from scriabinop23:

Not one person has given a decent argument for a long term deflation so far. Should I be surprised?

I think the Fed and Government will make every attempt to do everything possible to avoid a long term deflation.

The only thing worse than owing $11 trillion with another $50 trillion of promises and getting caught in a deflationary spiral would be printing enough to put us into a hyperinflationary spiral.

 

[zboy2854A]

Quote from thriftybob:

I think the Fed and Government will make every attempt to do everything possible to avoid a long term deflation.

The only thing worse than owing $11 trillion with another $50 trillion of promises and getting caught in a deflationary spiral would be printing enough to put us into a hyperinflationary spiral.

This is true, unfortunately the government and Fed have shown clearly that they have no regard for "future" consequences, only the "here and now". If there's anything we can count on from them, it's overcorrection.

 

[fearless9]

Quote from scriabinop23:

Not one person has given a decent argument for a long term deflation so far. Should I be surprised?

You should learn to trust your own judgment rather than leaning upon others.

regards
f9

 

[ipatent]

Quote from thriftybob:

The only thing worse than owing $11 trillion with another $50 trillion of promises and getting caught in a deflationary spiral would be printing enough to put us into a hyperinflationary spiral.

Would it really be worse? This no doubt is what the policymakers are debating right now.

With deflation if you are leveraged you die. The people who control our society are choking on leverage. They need nominal growth in dollar terms to get themselves wiggle room. This means hyperinflation may be preferable to them over deflation.

 

[scriabinop23]

Quote from fearless9:

You should learn to trust your own judgment rather than leaning upon others.

regards
f9

My judgment isn't the issue. Just looking for views I haven't considered - but with substance. Even the argument of the exhausted consumer needs context - ie what are disposable income #s versus existing average credit load. Throwing around big numbers without context (that most people do that argue the deflationary spiral will continue), ie "The US consumer is tapped out with 1.5T of credit card debt" is not really an affective argument held alone. These issues are all too complex.. I'm already positioned, regardless..

 

[Cutten]

Quote from scriabinop23:

I agree with this. short treasuries makes sense on the level I point out, but following Japan's lead, there's no reason we've just not reset to a new price floor. Japan did not experience a capital flight, nor are we (at present). If we have enough savings internally to support our debt loads (which was Japan's situation), there is no reason treasury prices can't stay here and go higher. The whole capital flight + treasury crash theory is based on an assumption (possibly flawed) that we need foreign capital to sustain our debt needs. At present, this has been true, but elimination of our consumption imbalances (and export of dollars) while simultaneously printing more money could have the effect of basically redirecting that same capital to buy treasuries (versus foreign assets) with the correct set of government policies.

Regardless, now is not the time to short treasuries simply because we already know the Fed has announced they will be buying debt with printed money. Better idea to let the programs begin en masse and see where the market goes.

Interesting points about deflation in real terms against inflation in nominal terms concerning hyperinflation.

Yeah, the Fed buying long bonds is another reason this could be a tricky trade. I don't dispute that bonds are overvalued at these levels. But then so were stocks in 1998 and 1998, when shorting would have been very painful.

In my experience, valuation-driven trades also need some kind of catalyst to kick start a new trend against the overvaluation (e.g. the expiry of tech stock lockups in spring 2000; or Japan consumer prices finally going positive year on year in the early 2000s, causing JGBs to crash). Without that kind of catalyst, things can stay expensive for a long time.

 

[krazykarl]

Quote from Fractals 'R Us:

If the banks all of a sudden started lending would not the cork be out of the inflation bottle?

The banks(big ones) aren't lending because they can't securitize any of the loans they make right now, hence their profit/risk analysis is very unfavorable. They need to get the securitization market going again.

 

[seriousNews]

i see many humans are scared, you are mainly reflecting how your planet feels, i stole her soul some time ago, no one saw this coming. She is trying to shake you off, hoping that i will free her soul

many years ago i realized it is not worth taking revenge in the physical world, you can't achieve much in your lifetime, and you usually get caught before you have taken revenge on all the people you want to, not many people have power in levels other than the physical world and those who do can't do much with it, plus no one believes you, that is actually the best thing about it, it is a great time to be in, you come out and tell people that you are robbing their souls and they just look the other way, seeing such i am certain i have come at the right times

my efforts are paying off many times, those who bring suffering to mankind will prosper and those who try to set forth justice will be punished

if you believed what you just read you are an idiot, i was f_kin joking

 

[zboy2854A]

Quote from seriousNews:

i see many humans are scared, you are mainly reflecting how your planet feels, i stole her soul some time ago, no one saw this coming. She is trying to shake you off, hoping that i will free her soul

many years ago i realized it is not worth taking revenge in the physical world, you can't achieve much in your lifetime, and you usually get caught before you have taken revenge on all the people you want to, not many people have power in levels other than the physical world and those who do can't do much with it, plus no one believes you, that is actually the best thing about it, it is a great time to be in, you come out and tell people that you are robbing their souls and they just look the other way, seeing such i am certain i have come at the right times

my efforts are paying off many times, those who bring suffering to mankind will prosper and those who try to set forth justice will be punished

if you believed what you just read you are an idiot, i was f_kin joking