Friday, April 10, 2009

More on bonds, and an alternative view

Antal E. Fekete is a professor of money and banking in San Francisco (such a beautiful place, too). He has a pet thesis about the bond market, which is that every time interest rates halve, effectively the capital value of (older) bonds doubles, to match the yield on new bonds.

So as long as we expect the government to try to stimulate the economy by lowering interest rates, there's a killing to be made in the bond market. Theoretically this could go on forever, even in a low-interest environment - the logic holds if rates go from 0.25% to 0.125% - provided the Treasury doesn't simply go straight to zero interest, of course.

Anyhow, his latest essay says that the monetary stimulus will simply be used to settle debts, since debt gets more and more burdensome in a deflationary depression; and settling debt instead of making and buying more stuff, continues to drive deflation. In this enviroment, few businesses will want to take on more debt (certain and fixed) in the hope of increasing their profits (far from certain, and very variable). On a national level, and following the ideas of Melchior Palyi, he now sees every extra dollar of debt as causing GDP to contract.

Therefore, valuations of most assets will continue to decline - except for bonds, which are now the focus for speculators. To this extent, he agrees with Marc Faber (cited in the previous post): we now have a bubble in government bonds.

But something will go bang. The real world shies from the inevitable conclusions of mathematical models. I think it will come as a crisis in foreigners' confidence in the dollar - there will be a reluctance to buy US Treasuries (we've already seen failed sales of government bonds in the UK recently, and when the next one succeeded, that's because it was a sale of index-linked bonds). Even now, the Chinese have switched from Agencies (debts of States and municipal organisations) to Federal debt, and within the latter, from longer-dated bonds to shorter-dated ones. If government debt was an aircraft, the Chinese would be the passenger insisting on a seat next the emergency exit near the tailplane.

To use a different analogy (one I've used before), drawn from the Lord of the Rings, the rally in the dollar and the flight to US Treasury debt seems to me like the retreat to the fortress of Helm's Deep: a last-ditch defence, doomed to be overwhelmed. Can we see a little figure about to save the day by dropping the Ring of Power into the lava in Mount Doom? We can hope; but you don't make survival plans based purely on optimism.

I therefore expect a transition from deflationary depression to inflationary depression, at some point. Perhaps a sort of 1974 stockmarket moment: an apparent turnaround, which when analysed can be shown to continue the real loss of value for some years. Only when national budgets are brought under strict control, will there be the environment for true growth. I don't see a willingness to tackle that, on either side the Atlantic, so disaster will have to be our teacher.


dearieme said...

He must get fed up with students scraping off the "t"s.

Sackerson said...

Naughty, Jeeryme. How's the Beaune?

dearieme said...

The hip Beaune's connected to the sigh Beaune.

dearieme said...

Sorry, that would have been more polished as:

The sip Beaune's connected to the sigh Beaune.

liwo said...

網路交友,av 女優,a圖a片,av383影音城,小高聊天室,台灣18成人,苗栗人聊天室,貼影區,正妹帶回家,18禁遊戲區,真情寫真,嘟嘟成人,台灣自拍,丁字褲美女寫真,1007視訊,裸體美女,玩弄旗袍美女遊戲,寫真集美女,777美女圖,真實自拍,台灣自拍,080聊天網,情色武俠,美腿工坊,影音部落格,aaa片免費看,0204成人片,ut女同聊天室,視訊辣妹,a片免費,人妻自拍,免費線上a片,上班族聊天室,18禁,熊貓貼圖區,aa片免費看,女優盒子,18禁區,ol美腿,777成人區,視訊美女,聊天室,自拍走光,a片試看,18禁卡通,美樂蒂情色網,台灣a片,

18禁漫畫,脫衣遊戲,免費a片觀賞,情色成人,丁字褲美女圖,視訊交友網,辣妹賓團,性愛自拍,小弟弟貼影片,潮吹影片,自拍圖貼,69成人,自拍網,線上看,家庭教師影片,免費a片線上看,正妹帶回家,聊天室入口,小莉影音像館,69成人,免費視訊辣妹,美女牆,小魔女免費影片,成人自拍,情色卡通,偷拍貼圖,線上影片,摸摸扣扣同學會聊天室,原住民聊天室,日本美女寫真集,情色聊天室,美女交友,情色成人,a片免費,影片分享,正妹日報,熊貓貼圖,美女寫真,無名強力正妹牆,性愛影片,0204 貼圖區,免費視訊辣妹脫衣秀,情色電影,兔女郎貼影區,自拍貼圖區,完美女人,熟女人影片,性愛自拍,1069交友,美眉成人排行榜,av女,本土自拍,美女桌布,

fgeegf said...

香港女星寫真,a片分享,美女色情裸體,台灣kiss情色貼圖,美腿圖,正妹,日本情色網,情色卡通下載,免費下載的做愛照片,線上a片免費看,tube影片,情色成人,ro 私服論壇,色情網,aaa片免費看短片分享區,日本人妻熟女自拍貼圖,蕃薯論壇,台灣網友自拍貼照,嘟嘟成人網,狂插漂亮美眉,8591論壇,女同志聊天室,人妻俱樂部網站,背包客棧論壇,成人性感內衣,看美女脫光光,黑澀會美眉無名,色咪咪貼影片,無碼a片,aa片免費看,免費線上觀看a片,做愛的圖片,色情漫畫,性感卡通美女圖片,香港a片,自拍,情色圖書館,plus 28 論壇,1007視訊,熟女自拍照,苗栗人聊天室,黑澀會美眉即時通,jp成人,色情,aaaaa片俱樂部,情侶歡愉用品,

okav成人影院,網友裸體自拍,交友ukiss,娘家影片,a片免費,黑澀會美眉即時通,人妻性交俱樂部,聊天室尋夢園,18禁,情色性感美女圖片,美女短片免費試看,3級女星寫真,情色短片論壇,摯愛中年聊天室,美腿貼圖,影音聊天,聊天室找一夜,g世代論壇,免費線上影片,淫蕩少女,火辣美眉自拍寫真貼圖,內衣寫真秀,美少女自拍,aa片免費看影片,麗的情色,gogo2sex,aooyy 成人玩具,台灣成人網,素人自拍,