Home › Forums › Financial Markets/Economics › Is the bond market about to take off?
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bearishgurl.
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August 15, 2012 at 9:03 PM #20060August 15, 2012 at 9:34 PM #750360
no_such_reality
ParticipantIf you need to ask, you shouldn’t be buying bonds.
August 15, 2012 at 10:05 PM #750363paramount
ParticipantTBT (short bond etf) up significantly in 2 days…buy gold.
August 16, 2012 at 7:55 AM #750367moneymaker
ParticipantI realized as soon as I posted that the question was too general in nature. It depends on the term, when you get in and when you get out. However I am wondering what effect this may have on mortgage rates (won’t matter to me either as I just refi’d), and inflation in general. Perhaps it is a sign that we are about to join the Europeans.
August 16, 2012 at 7:51 PM #750420Participant[quote=moneymaker]I realized as soon as I posted that the question was too general in nature. It depends on the term, when you get in and when you get out. However I am wondering what effect this may have on mortgage rates (won’t matter to me either as I just refi’d), and inflation in general. Perhaps it is a sign that we are about to join the Europeans.[/quote]
Realistically were probably worse off than the eurozone, either way I say trade worthless monopoly money for real money (gold/silver).
August 16, 2012 at 9:27 PM #750423SD Realtor
ParticipantHere is an exercise for you…
Look at our annual deficit.
Look at our debt.
Look at how much our govt has to pay in interest alone on that accumulated debt (which has rapidly increased)
Now, what do you suppose will happen when (not if) the bond market does start to deteriorate?
Let’s just say for instance that ten year treasury yields go from where they are now to say 7% over the next decade?
What do you think that will mean for the interest payments our govt must make?
August 16, 2012 at 9:53 PM #750426ParticipantSDR: What’s to stop the feds from buying their own bonds?
Also, Bernanke has committed to low interest rates at least through 2014.
August 17, 2012 at 12:25 PM #750452ParticipantNothing is stopping that paramount.
In fact some people have argued that we have been monetizing our own debt for awhile now. Rich and others who are more educated in economics could answer better then I could.
I do believe that the end game to monetizing your own debt is hyper-inflation. Also when you are taking several hundred billion in interest payments, and monetizing that with trillions…
well that (in my humble opinion) would be pretty ugly.
August 17, 2012 at 12:57 PM #750456The-Shoveler
ParticipantI am fairly sure that the Fed is really trying to monetize the debt, (get somewhere between 6-8% inflation for 5-10 Years would just about do it)
I would not call that hyper inflation.I have lived through 8-10% inflation during the late 70’s early 80’s and not only lived to tell about it, I think I actually benefited in some ways (as a working adult I would add).
But 6-8% inflation would almost completely wipe out a lot of long duration bond holders (at Today’s interest rates).
August 17, 2012 at 1:16 PM #750457ParticipantI can tell you, living through the 70’s and 80’s inflation was a lot easier and more fun that living though the last 5-6 years of deflation.
August 17, 2012 at 2:11 PM #750461ParticipantI lived through that as well shoveler. There are a few major differences and they are basic yet fundamental.
From 1978 to 1981 we saw the 10 year treasury yield move from 8.15% to a little over 15%. That is fairly staggering.
Here is the key to that event. When that event happened, our country did not have 100s of billions of interest due annually.
Here is another key, our ten year yields now are well below 5%, in fact they are below 2%. Projected debt loads and interest payments are all done with current rate levels in mind.
Now if we take those two keys and apply them to the amount of debt we have today and our out of control deficit, it is game over.
The deflation we have now is the precursor to a much harsher future, way way harsher then the 70s and 80s if rates move quickly and we dont get our sht together. The only way out of the mess is that we RAISE TAX REVENUE AND SPEND WAY WAY LESS BEFORE AND keep a tight lid on the rate of increase for rates, or better yet duplicate the lost decade Japan has had. If we can duplicate that decade and rein in our debt to get out from under 9 digit interest payments then we will be fine.
Here is an old link from seeking alpha that is pretty good.
August 17, 2012 at 2:12 PM #750462ParticipantAnd yes bond holders would be wiped out. Anyone foolish enough to by bonds at a peak like this should be wiped out. However if there is going to be a lost decade… or two… then they will slug through it.
August 17, 2012 at 2:43 PM #750465ParticipantHmmm, If we have a lost Decade I would bet that California and several other states (including TX) will have declared BK before we get through it.
LA Budget will have been toast for several years, CalPERS will be demanding 50% or more of Tax revenues .
I guess damn if you do damned if you don’t, me I think they will have inflation while somehow only the Fed will buy the paper at the higher interest. Then the fed can pay the treasury (or just forgo interest payments), anyway that’s the way I see it going down.
August 17, 2012 at 3:21 PM #750466ParticipantYour theory falls apart when the interest payments have to be made to foreign entities.
California, TX, and many many municipalities are walking corpses and have been for years. In reality they all are bankrupt… it is simply a matter of defaulting then liquidating, then resetting to a different reality that the level of services provided, pensions, obligations etc simply will have to match revenue.
Eventually we will all learn that we have to live within our means. Either we learn it and implement it ourselves or eventually defaults will humble us as a nation. Maybe in a few years, maybe in 20 years.
It is a simple fact. You cannot spend more then you make. Eventually it all catches up. These trajectories are not sustainable at any level of taxation.
August 17, 2012 at 3:37 PM #750467flyer
Participant+1-SD Realtor. My sentiments exactly!
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