Volatility Central. Wait Until Next Week...

[DrStool]

When posting clips from other boards, or any third party material, it's best to post just a short snippet, say one or two paragraphs, and a link to the post. Otherwise, there are copyright infringement issues.

 

Tanks!

[DrStool]

People keep misinterpreting a temporary excess of cash as a sign that the bond market is signaling a weak economy deflation when this is not the case at all. The bond market went up because the Treasury poured $130 billion in cash into the market in the last 2-3 weeks. Too much cash chasing too little paper.

 

That is temporary. Bond yields are going to start ratcheting up again when the Treasury becomes a net borrower again in a very short time. See Steve Northwood's excellent article on the Wall Street Examiner, link at left.

 

Also the idea that a 3% real interest rate is "normal" is not true. There is no "normal" real interest rate. It has swung wildly throughout history. It's like saying there's a fair value for stocks.

[Hiding Bear]

Here's a post from mannfm11 over at the prudentbear board:

 

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I disagree that the bond market is telling us some thing important.

 

In the short run, bond rates have been pulled down by very favorable personal income tax flows in April. Individuals probably paid about $40 billion more than they did in the same month last year, and the net federal budget surplus for April will around $40 billion too. Later in the year, budget deficits will return and it will be hard to push down for long as interest rates rise.

 

In the longer term, the heavy bond purchases that have been made by foreign central banks to invest accumulated US$s has continued for four years. FCBs have bought the entire amount of net new Treasury bond issues over that period, and they are mostly insenstive to price.

 

The benefits of the FCB purchases will eventually be outweighed by the mal-investment caused by low bond rates, which help to over reduce mortgage rates for the housing market.

 

He is right about the carry trade being a problem. Also he is right that eventually the credit bubble can not expand beyond a certain level of debt and debt repayment - but we don't know what that level is maybe until we've reached it. Until then, monetary inflation will win over monetary deflation.

 

Hopefully AG will still be around to get the blame when the credit bubble bursts.

[Hiding Bear]

Here's a post from mannfm11 over at the prudentbear board:

 

The bond market is telling us something contrary to short term rates. I was looking and the 30 year rate has dropped roughly 1% since Greenie started raising rates. Inflation/deflation, who knows for sure, but these guys are saying something different than the public expects.

 

First of all, the real rate of interest is supposed to be inflation plus 3%. If you put this o

This is the deflation or low inflation side of the equation.?

Thus, I can only make two ideas out of this. Either we are facing low inflation, deflation or the players in this market are looking at the lesser of several evils.?

 

Thus are we looking at a view of the inflationary/deflationary future or are we looking at a selection of the lesser of evils.?

 

If I wasn't a guy thinking we are going to deflate and selling goods and services at a profit is going to get difficult, I wouldn't bring this topic up.? .

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The global economy is slowing, witness our economy, Germany's and that of Japan; the bubble in several countries in RE is peaking; commodities have stopped soaring;

the equity markets are schizoid.

 

BARE hASS said all along he thought DEFLATION would get the upper hand. Rogers' commodities fund has given him real PAWZ, BUTT(_)_) in March, heer, HRFF said he wondered if we weren't at a MAJOR CREST/PEAK of some sort and if THEN was the point in time when most assets (all widely watched ones stox, bondz, commodities, gold, the dollar - the lot) might begin to implode simultaneously in earnest. Underlying this question is the DEFLATION thesis. HRFF has viewed the past 5 years or sew as a rear guard action by the Establishment to fend off deflation by flooding the system with liquidity, one doomed to fail, and that, like termites DEflation has been eroding the superstructure and INFLATION the facade (including the huge surge in Rogers' commodities funds' price) But it's awfully hard to argue with RESULTZ, and, b'gosh, b'golly, Rogers, alone, has 'em. And he's FURmly in the INFLATION camp.

 

FUR those results since inception in 1998 vis-a-vis the major indicies, see:

http://www.rogersrawmaterials.com

<{POST_SNAPBACK}>

 

BARE hASS !

 

Rogers never says in his latest book that commodities will go straight up. Infact, he implies there will be some very big corrections along the way. I don;t get the impression he sees general deflation coming any time soon.

 

While I don't think the Fed will avoid the negative economic deflation, like a bursting housing bubble, it may still avoid montetary deflation if it starts printing money fast (i.e. monetizing Treasury bills by open market purchases) Very fast.

 

PS What does Igor have to say about this subject?

[fxfox]

fxfox - if you out there in Euro land - Why has the Euro constitution got everyone worried about the Euro?  Since the euro was around before the Constitution anyway.

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this "euro goes down because of french maybe doesnt approve the European Constitution" is wishi washi. Just like CNBS saying when oil goes down and stocks up "cheaper oil is good for stocks", when oil goes down and stocks too then they say "falling oil price is a sign for despression, therefore stocks also go down"

 

in fact the Masstricht Treaty of 1992 was much more important for the EU than this "Constitution".

 

Euro will go down because it goes down. The reason for it changes over the time. Since the euro started to move up from the lows in 2000/2001 there have been at least a dozen of explanations why it is the case. Sometiems it were US stocks did fall, than it were rate cuts in the US, then it was the US twin deficits, then it was 9/11, then it was........... and so on.

 

The dollar will go up, that means euro down. Dollar Index will go thru 85.50 and that means: No more cheesesteak for Doc for the rest of his life.

[Guest]

Got gold? No deflation possible/allowed!

 

From Russell tonight:

How about this for starters? For the week ended April 18, M-3, the broad money supply increased by a staggering $53.6 billion! I've never seen a figure like this before. Am I the only one reporting on the money supply? Hello out there, hey, they're flooding the system with liquidity -- again.

[Dr Bob Poodit]

Why assume there is a message in the bond rate? Stocks weren't discounting anything in 2000. Nor were they discounting anything in 2002 when stocks bottomed in a panic and then shot straight up. Why is the bond market now any different?

 

The rocket scientist at the big business schools are just now discovering that the efficient market hypothesis is a load. To all those from academia who read these boards: Ever seen a commercial for momentum investing? How can momentum investing possibly discount anything? And, while were on the subject, which techniques have gained favor in the hedged fund and mutual fund communities? Hint: Its not deep value investing.

 

Sometimes markets just stop functioning as they should. For the stock and bond markets this occurs more frequently than not. Sometimes when you see a 10yr bond yielding 4%, and you can see inflation all around you rising at a rate greater than 4%, the bond market is just pricing assets incorrectly. All that is being discounted is the future fleecing of the bagholders.

[Hiding Bear]

fxfox - if you out there in Euro land - Why has the Euro constitution got everyone worried about the Euro?? Since the euro was around before the Constitution anyway.

<{POST_SNAPBACK}>

 

this "euro goes down because of french maybe doesnt approve the European Constitution" is wishi washi. Just like CNBS saying when oil goes down and stocks up "cheaper oil is good for stocks", when oil goes down and stocks too then they say "falling oil price is a sign for despression, therefore stocks also go down"

 

in fact the Masstricht Treaty of 1992 was much more important for the EU than this "Constitution".

 

Euro will go down because it goes down. The reason for it changes over the time. Since the euro started to move up from the lows in 2000/2001 there have been at least a dozen of explanations why it is the case. Sometiems it were US stocks did fall, than it were rate cuts in the US, then it was the US twin deficits, then it was 9/11, then it was........... and so on.

 

The dollar will go up, that means euro down. Dollar Index will go thru 85.50 and that means: No more cheesesteak for Doc for the rest of his life.

<{POST_SNAPBACK}>

 

Thanks , kind of what I thought - I would have to get up at 4 AM if I wanted to find out things by watching the Euro version of CNBS!

[Hiding Bear]

Got gold? No deflation possible/allowed!

 

From Russell tonight:

How about this for starters? For the week ended April 18, M-3, the broad money supply increased by a staggering $53.6 billion! I've never seen a figure like this before. Am I the only one reporting on the money supply? Hello out there, hey, they're flooding the system with liquidity -- again.

<{POST_SNAPBACK}>

 

I really hate to disagree with Russell, but keep in mind that April tax payments for the whole economy are $500 billion.

 

Let's take another look at this in three weeks, I think it will look a lot different then.

[The brown one]

Is this a conundrum or don't I understand something.

 

Chart of the NL 10-year rate.Seems to have broken down through previous lows.

 

Second chart is the 30-year gummit bond and the previous high is not matched by today's low in rate on the 10-year(which it was at the previous high).

 

Does this mean that the yield curve here is getting steeper once again and has stopped flattening.And if so what does that mean?

 

http://www.tostrams.nl/grafieken/NL10yield2.gif

[fxfox]

Why assume there is a message in the bond rate? Stocks weren't discounting anything in 2000. Nor were they discounting anything in 2002 when stocks bottomed in a panic and then shot straight up. Why is the bond market now any different?

 

The rocket scientist at the big business schools are just now discovering that the efficient market hypothesis is a load. To all those from academia who read these boards: Ever seen a commercial for momentum investing? How can momentum investing possibly discount anything? And, while were on the subject, which techniques have gained favor in the hedged fund and mutual fund communities? Hint: Its not deep value investing.

 

Sometimes markets just stop functioning as they should. For the stock and bond markets this occurs more frequently than not. Sometimes when you see a 10yr bond yielding 4%,  and you can see inflation all around you rising at a rate greater than 4%, the bond market is just pricing assets incorrectly. All that is being discounted is the future fleecing of the bagholders.

<{POST_SNAPBACK}>

 

I agree Dr Boob, ahem Bob.

 

Those Harvard pussies have quite the track record: First they ruin LTCM and then they come around with this efficient market crap.

There are good, well managed firms, but there stocks have a PE of say 5 FOR YEARS, nobody picks them up, everyone hunts PE 50 stocks which dont move either. Or imagine those PE 50 stocks start to drop hard, but the PE 5 one stays flat, or moves slighty up, how hogh will be the opportunity costs then?

 

Wussies!

[astral mike]

Got gold? No deflation possible/allowed!

 

From Russell tonight:

How about this for starters? For the week ended April 18, M-3, the broad money supply increased by a staggering $53.6 billion! I've never seen a figure like this before. Am I the only one reporting on the money supply? Hello out there, hey, they're flooding the system with liquidity -- again.

<{POST_SNAPBACK}>

 

I really hate to disagree with Russell, but keep in mind that April tax payments for the whole economy are $500 billion.

 

Let's take another look at this in three weeks, I think it will look a lot different then.

<{POST_SNAPBACK}>

 

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can you plz give a link to that $500 Billion tax payments in April?

 

"The Treasury has collected $130 billion in payments from individuals to settle their 2004 tax bills. "

 

http://wallstreetexaminer.com/index.php?itemid=797

 

-----------------------------------

 

that equates to approx $11 Billion in Apiril (ie $130B/12)

 

where is the extra $489 Billion in April coming from exactly?

[DrStool]

astral-

 

we have people.

 

:lol:

[astral mike]

astral-

 

we have people.

 

:lol:

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yeah, sure you do. yet china has much more!!!

 

 

lets see those figures add up first.

[astral mike]

perhaps "Hiding Bear" meant to suggest that annual (not april) tax payments for the whole ecomomy (individual+ corporations) was $500 Billon?

 

$500 Billion / 12 = $41.7Billion per month.

 

thats still a lot less than $53.6 billion (money supply in april).

 

infact i make that a 28.6% difference!

 

what am i missing here (apart from the oh so many indebted US citizens)?