Brief update from prior post. The apparently pending deal announced today between the IAEA and Iran on nuclear cooperation/inspections and concomitant turnaround intra-day and drop in the price of oil "should" make traders think that more growth is coming. It's understandable that gold and silver would drop on a diminution of tensions, but "Doctor Copper" and platinum "should" be up, not down hard. As suggested, palladium has held up the best of the four precious metals I focus on, but this is a surprise in the tape action. Thus I've gotten out of the trade at a minimal loss because, as stated multiple times, my major thesis is in line with the general trend of ECRI and John Hussman that U.S. growth is truly challenged. I'm not an economic forecaster, so I don't make or "approve of" (or disagree with) recession calls, but I continue to be perplexed (and more) at the complacency within the U.S. that a recession just won't happen this year.
For some reason, the ag commodities have turned sharply lower intra-day as well. Their price "should" be boosted if the cost of fuel falls. But Treasuries haven't traded up. So when things that should correlate do not, then I don't want to be the guy at the poker table who's the sucker b/c he's the only one who doesn't know who the sucker is.
Note I'm still positive on palladium, but I also don't want to be distracted from my major investing themes. The fundamental problem with all these ETFs is that the investor/speculator ends up paying the storage costs that should accrue within the industry. To that extent the entire industry is skewed toward the industry and against investors. (What's new?)
More broadly, since I'm a fan of ECRI, my investment posture is to fear more economic weakness than I think the average investor expects in the U.S., which broadly leads to a pro-bond/anti-commodity set of longer-term positions for now. This is the opposite of what I described was my posture in the summer of 2010 into spring 2011, for those who haven't followed me over the months. Everything changes. Anyone interested in that history can look at my post Changing On a Paradigm from early May, last year. This article also has links back to my pro-inflation hedge articles from about September 2010.
Showing posts with label Interest rates. Show all posts
Showing posts with label Interest rates. Show all posts
Tuesday, May 22, 2012
Thursday, July 8, 2010
Do Falling Bond Rates Stimulate the Economy?
The bond market remains the only game in town when it comes to stimulating the U.S. economy.
-David Rosenberg, Breakfast with Dave today
Yes, interest rates on Treasuries have fallen. So what does this mean? The next time I or a bank buys a newly issued Treasury, we will receive less income each year on our purchase, and that same principal has been transferred from my pocket or the bank to be spent not by me and not loaned by the bank, but rather to be spent by the government. The only certainty is my or the bank's lower income from said bond purchase. How is that stimulatory?
Yes, lower interest rates make home purchases more affordable to the buyer, but those same lower rates are reflected in higher selling prices, so that's more or less a wash; and it is the sated housing market and resultant sluggish new home sales and resale pace that itself allows the current multi-decade low mortgage rates to even exist.
So, granted that Dr. Rosenberg is at the top of his profession and I am not an economist at all, I would question this statement.
Right now, on the Japa-Grecian scale, the U. S. is trending Japanese. There is no debt rollover problem this week. But this is a duality. The U. S. is rolling over massive amounts of Treasury securities. The conventional wisdom is that the bond/CDS vigilantes will move pokily along from Spain currently to Portugal and maybe the U. K., and eventually make their way to the U. S. should current budgetary and economic trends continue.
Thus I have been lightening up on a bond-heavy portfolio which was put in place beginning in summer 2007. The powers that be are going to stimulate if necessary. You can count on it, just as you can count on a doctor to do everything he/she knows to keep a patient alive and healthy absent a "do not resuscitate" order. So either the pace of economic activity picks up sooner rather than later, or the authorities will do something that in their view prevents another Depression/brings growth back.
As stated here, there was growth in the spring, but the latest statistics show it waning.
Treasuries are for traders or very long-term holders now; stocks remain for gamblers and the stock market is probably truly a stock-picker's market for the long haul specifically given that wheat and chaff are tending to move together on a day-to-day basis; cash is trash; and precious metals are having their typical seasonal summer weakness. I expect that unless and until the Federal Government gets serious about fiscal discipline, the ballooning debt obligations will induce more and more Americans to hedge their bets with ownership of precious metals, just as they did in the 1970's.
Copyright (C) Long Lake LLC 2010
-David Rosenberg, Breakfast with Dave today
Yes, interest rates on Treasuries have fallen. So what does this mean? The next time I or a bank buys a newly issued Treasury, we will receive less income each year on our purchase, and that same principal has been transferred from my pocket or the bank to be spent not by me and not loaned by the bank, but rather to be spent by the government. The only certainty is my or the bank's lower income from said bond purchase. How is that stimulatory?
Yes, lower interest rates make home purchases more affordable to the buyer, but those same lower rates are reflected in higher selling prices, so that's more or less a wash; and it is the sated housing market and resultant sluggish new home sales and resale pace that itself allows the current multi-decade low mortgage rates to even exist.
So, granted that Dr. Rosenberg is at the top of his profession and I am not an economist at all, I would question this statement.
Right now, on the Japa-Grecian scale, the U. S. is trending Japanese. There is no debt rollover problem this week. But this is a duality. The U. S. is rolling over massive amounts of Treasury securities. The conventional wisdom is that the bond/CDS vigilantes will move pokily along from Spain currently to Portugal and maybe the U. K., and eventually make their way to the U. S. should current budgetary and economic trends continue.
Thus I have been lightening up on a bond-heavy portfolio which was put in place beginning in summer 2007. The powers that be are going to stimulate if necessary. You can count on it, just as you can count on a doctor to do everything he/she knows to keep a patient alive and healthy absent a "do not resuscitate" order. So either the pace of economic activity picks up sooner rather than later, or the authorities will do something that in their view prevents another Depression/brings growth back.
As stated here, there was growth in the spring, but the latest statistics show it waning.
Treasuries are for traders or very long-term holders now; stocks remain for gamblers and the stock market is probably truly a stock-picker's market for the long haul specifically given that wheat and chaff are tending to move together on a day-to-day basis; cash is trash; and precious metals are having their typical seasonal summer weakness. I expect that unless and until the Federal Government gets serious about fiscal discipline, the ballooning debt obligations will induce more and more Americans to hedge their bets with ownership of precious metals, just as they did in the 1970's.
Copyright (C) Long Lake LLC 2010
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