Treasury bubble continued...
Just doing a little followup on my first Treasury Bubble post. So far things appear to be moving in the direction predicted and of particular interest are mortgages. Because the 30-year fixed rate is primarily tied to the 10 year bond yield, it is reasonable to assume that mortgage rates across the country fell dramatically. As we speak the 10 year yield is flirting with all time lows. When I saw all time lows, I am sort of shooting in the dark because I can't even find data that goes back that far. At some point in the 1950s the yield on the 10 year note was in the low 2s.
In fact as of this writing it is at 20.85, threatening to fall below 2. Could be a strong psychological number, but somehow I doubt it. (See chart below)
What does this mean?
Means a few things.
1) Investors have no faith in our economy. The bond market is SCREAMING deflation. People are willing to tie in their money for a paltry 2% for 10 years? Madness...
2) Someone at the government level is printing money. Lots of it.
3) Bond market is in a hyperbolic bubble.
4) If you have good credit, you seriously should consider locking in at a 30-year fixed rate.
A closer look.
I am sure some of you have noticed that the first point clashes with my inflation theory. Remember, inflation takes time to develop. In fact inflation can get underway well before the general economy feels or sees it's effects. However this closely ties in with the second point and something I delved in during the inflation discussion, the actual monetary supply is expanding dramatically. Eventually the US government will want to inflate their way out of these debt obligations. It is hard to say who is buying these bonds, could be the Fed or it could be international (less likely) - but either way, debasing the currency will be the easiest way to deal with these mountain of a responsibility.
From a technical standpoint, the bond market is in a good old fashioned bubble. In trader's jargon, I see a blow-off top forming. This is an almost vertical climb and can last for much longer than rationally plausible. It will all end the same way though. A giant burst. Once the bond market bursts (sometime in the next year) there will be a massive ripple effect and the first sign that inflation is coming.
Therefore in the next few months a 30-year fixed rate lock is well advised. Because in 2010 and beyond rates could reach double digit. My oh my.
Politics
On the political front, I am hearing news that our dear leader is planning a 1 trillion dollar stimulus package. This is the most absurd and asinine proposal YET. How about a 1 trillion dollar spending cut instead? The country is broke! Do you know another time when a bunch of Ivy League professors got together to cure the economy? It was 1933. They ushered in the biggest expansion of government this country has ever seen. Recovery happened 8 years later. Their cure was a monumental failure. History repeats itself...yet again...
In fact as of this writing it is at 20.85, threatening to fall below 2. Could be a strong psychological number, but somehow I doubt it. (See chart below)
What does this mean?
Means a few things.
1) Investors have no faith in our economy. The bond market is SCREAMING deflation. People are willing to tie in their money for a paltry 2% for 10 years? Madness...
2) Someone at the government level is printing money. Lots of it.
3) Bond market is in a hyperbolic bubble.
4) If you have good credit, you seriously should consider locking in at a 30-year fixed rate.
A closer look.
I am sure some of you have noticed that the first point clashes with my inflation theory. Remember, inflation takes time to develop. In fact inflation can get underway well before the general economy feels or sees it's effects. However this closely ties in with the second point and something I delved in during the inflation discussion, the actual monetary supply is expanding dramatically. Eventually the US government will want to inflate their way out of these debt obligations. It is hard to say who is buying these bonds, could be the Fed or it could be international (less likely) - but either way, debasing the currency will be the easiest way to deal with these mountain of a responsibility.
From a technical standpoint, the bond market is in a good old fashioned bubble. In trader's jargon, I see a blow-off top forming. This is an almost vertical climb and can last for much longer than rationally plausible. It will all end the same way though. A giant burst. Once the bond market bursts (sometime in the next year) there will be a massive ripple effect and the first sign that inflation is coming.
Therefore in the next few months a 30-year fixed rate lock is well advised. Because in 2010 and beyond rates could reach double digit. My oh my.
Politics
On the political front, I am hearing news that our dear leader is planning a 1 trillion dollar stimulus package. This is the most absurd and asinine proposal YET. How about a 1 trillion dollar spending cut instead? The country is broke! Do you know another time when a bunch of Ivy League professors got together to cure the economy? It was 1933. They ushered in the biggest expansion of government this country has ever seen. Recovery happened 8 years later. Their cure was a monumental failure. History repeats itself...yet again...
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