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- The Yield Curve and Investor Sentiment (Part III) [view article]
- I.O.U.S.A. [view article]
- The Real Secret to Fractional Banking [view article]
- The Yield Curve and Investor Sentiment (Part II) [view article]
- Credit Spreads Continue to Get Worse [view article]
- Wednesday Outlook: Low Volume Storm? [view article]
- The Yield Curve and Investor Sentiment (Part I) [view article]
- The Return of Extreme Bullishness? [view article]
- War in Georgia: How Markets May Feel the Effects [view article]
- High Yield Credit Spreads at Post Bear Stearns High [view article]
- Why I'm Against Fixed Income ETFs [view article]
- Fixed Income: Little Value in Treasuries, Preferred Financials Yielding 8% [view article]
loading ...Recent IEF Articles
- The Yield Curve and Investor Sentiment (Part III)
- Thursday Outlook: Grab Your Paintbrush
- Corporate / Treasury Credit Spreads: How the Markets Are Pricing Risk
- The Yield Curve and Investor Sentiment (Part II)
- The Real Secret to Fractional Banking
- Wednesday Outlook: Low Volume Storm?
- Credit Spreads Continue to Get Worse
- The Yield Curve and Investor Sentiment (Part I)
- Tuesday Outlook: Pre-Labor Day Malaise
- The Return of Extreme Bullishness?
- Full List of Articles »
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The Yield Curve and Investor Sentiment (Part III) [view article]
Thanks for the info and the video. ReplyI.O.U.S.A. [view article]
You know something is seriously wrong when no one can answer the simple question:QUESTION: Where will the money come from to merely pay the INTERST on $53 Trillion of (one-simple-idea.com/Di...) nation-wide debt , much less the money to reduce the current PRINCIPAL debt of $53 Trillion, when that money does not already exist? Especially when now, (one-simple-idea.com/Di...) 80% of the U.S. population owns only 17% (or less) of all wealth, and 1% owns 40% of all wealth (up by 20% from 20% in year 1976); a wealth disparity gap that has never been worse since the Great Depression.
At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect (one-simple-idea.com/Co...), . . . , at least until that finally becomes too painful (one-simple-idea.com/Ne...).
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) as a result of these 10 abuses (one-simple-idea.com/Di...) and these 17 deteriorating economic conditions (one-simple-idea.com/Ne...) ?
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The Real Secret to Fractional Banking [view article]
Sorry, I meant half a trillion, not half a billion. (Approximately, of course). ReplyThe Real Secret to Fractional Banking [view article]
No, the Fed isn't keeping rates low to reduce treasury borrowing costs. It is simply supporting the banks, which have been in trouble since last July.As for funds and their directives, they are not require to hold treasuries as opposed to other relatively safe forms of debt (e.g. agencies or very highly rated corporates). People willingly hold them because their credit spreads will not widen and they are therefore expected to do well in the short term, whereas other issuers can see their yields increase and prices fall.
But the biggest thing keeping treasuries "on special" right now, is the way they help banks meet their Basel II capital adequacy requirements. Basically, all banks are required by international agreements to keep the size of their balance sheets within certain limits, compared to their equity capital. But those limits are much more elastic for high quality credits. Basically a bank doesn't need to reserve at all against a treasury bond, while it needs to reserve 8% against a corporate bond.
Since they lost a lot of capital recently in bad mortgage loans, they can meet their requirements only by either raising new capital, or shifting, net, from corporates to treasuries. The Fed has made that easier in the short run by selling half a billion in treasuries to banks, while accepting mortgage collateral in its place. Check the portion of treasuries on the Fed's balance sheet last year and this year... Reply
The Yield Curve and Investor Sentiment (Part III) [view article]
Your attempt to correlate the curve to sentiment is not new or very useful since the exceptions are so numerous and well known. In general the things driving bond values are the liquidity differential between treasuries and investment grade bonds, and the short end is pushed around by the lack of markets for commercial paper, and bank credit facilities. Knowing that I think putting much faith in the choices made by investors is nonsense. In a fully function market in more normal times your speculations might be worth considering. As it is now you are just playing word games. ReplyThe Real Secret to Fractional Banking [view article]
I am not an expert in finance nor a graduate in any of connected disciplines, but some comments here baffle me by basic ignorance.JasonC already addressed most of points I wanted to add, but I still want to summarise:
1) no, you cannot just take a 3% loan and do nothing with it even if inflation is 10%. You will still have to earn at least nominal 3% somewhere to be able to repay. So nomilal yield does matter
2) gold can go down when iflation is high.
These are 2 sure comments, and one more a bit speculative:
3) I suspect much of investment into treasuries is due to funds (such as pension) funds who must have a certain % of their money invested in high quality debt, so they do it even when their managers wouldn't personally buy any for themselves. This pressures the yields artificially as does politics - I think one of the reason the Fed sticks to a low rate is exactly for the state to be able to borrow at low cost.
Do people here agree to this one? Reply
The Yield Curve and Investor Sentiment (Part II) [view article]
The yield curve has been contracting since mid March. There is a danger of inverting. ReplyThe Real Secret to Fractional Banking [view article]
Let's repeat the trend follower's catechism, shall we?Why would anyone own anything declining in price? Obvious anything declining in price is not paying you but costing you, yet you tie up capital in it. It should be sold instantly because it is declining in price. Anything declining in price is worth zero if not less.
Anything rising in price is sure to continue rising in price at least as fast as it just did. If you can borrow anything at rates below the rate it is rising, then just add enough leverage and your net worth will increase as fast as you desire. Anything rising in price higher than prevailing loan interest rates is therefore worth infinity. It should be bought instantly on the highest possible leverage.
There. Fixed it. That is all the thought there is in this silly screed. And the flaw is?
What the asset did over the last year has essentially nothing to do with what it will do over the next year. And in particular, the more is went up last year the more overvalued it is becoming, and the more it went down the more undervalued it is becoming - perhaps. Even that - the level trader's view - isn't remotely certain because the real future long run average price of anything changes all the time and is not known.
Here is the next thing wrong with it - one can sell, all cannot. Every asset is owned, and at all times, and precisely once. Assets owned with leverage require someone else passing on owning that asset at its current price, in favor of a fixed debt claim against the holder who uses leverage. Assets shorted have an extra long who took the other side of the trade, on top of all the existing longs. The aggregate return realized by all investors will be the return of every asset times its quantity, and all the trading in existence can't move it one iota.
Why are treasuries so bid? Because they have no credit losses and every other bond market item does, at present. Meanwhile every equity claim stands junior to others that are already distressed. Banks are also bidding for treasuries because they have zero Basel II reserve requirements, while riskier assets require regulatory capital against them. Said capital is scarce because they lost lots of their equity on bad real estate loans etc.
If you think rates are insanely low you should go take out a big loan, regardless of terms, against a valuable real asset. Oh, guess what the real estate bubble *was*? Too many people having exactly that brainstorm at once, ignoring the little question of the actual price paid. No Virginia, the house is not certain to always be worth much more than the piece of paper written against it. Something the despised piece of paper with its little nominal 6% yield is worth so much more than the big honking real house, that the holder of said paper will come kick you out of said house. No, leveraged debt to finance supposedly appreciating real assets is not a guaranteed way to get rich quick off the feckless make-believe of the fiat money system. Those who thought so are now called "bankrupts" and "renters"... Reply
The Yield Curve and Investor Sentiment (Part II) [view article]
Where does normal begin and end?Where does steep begin? Reply
Credit Spreads Continue to Get Worse [view article]
How much does the current spread exceed that which existed at the Bear Sterns debacle? ReplyWednesday Outlook: Low Volume Storm? [view article]
David, did you ever figure out how the 2:1 double shorts work in IYR/FXI etc?I would appreciate your thoughts.
Thanks for your research and great graphs. John Reply
Credit Spreads Continue to Get Worse [view article]
Is this spread data available in charts online? If so, where? ReplyThe Real Secret to Fractional Banking [view article]
really interesting article -in your future extensions of the subject, i'd also like your thoughts on the idea that inflation eventually usually leads to deflation
and how that might explain why some people feel it's worth having some $ in longer term bonds
it seems that the two forces, inflation and deflation, are both extremely active on different asset classes right now
and monetarily, credit is being reduced/destroyed, a deflationary trend; while food and energy, til recently, were skyrocketing
might one be lagging the other?
i myself am not predicting anything, but obviously concerned enough to be trying to watch what's happening, including interesting articles such as yours
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Wednesday Outlook: Low Volume Storm? [view article]
w/deflation, bonds would be good, at least for awhile - good info on your charts, as usual :-)thanks! Reply
The Yield Curve and Investor Sentiment (Part II) [view article]
The link below shows how stock markets have responded to variations in bond yields ...creating-wealth.blogsp...
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