At what point will the Feds do something about the US$….

[Daniel]

Kewp,

They certainly swing a big stick. But the ECB’s got one, too, and they don’t hit very hard with theirs, either. I don’t have a chart handy, but I think the ECB’s rate has been around the 2% – 3% range for as long as I can remember. Hardly tight monetary policy, and, still, the euro is up 50% or so against the dollar. My argument is that fundamentals matter much more than rates over the long term. And those fundamentals showed the dollar being too strong for its own good at the end of the last decade. Remember that the last coordinated central bank intervention (Fed, ECB, Bank of Japan) was in support of the euro. Nobody’s making any noise yet to support the dollar, which shows that the central banks are much more comfortable with today’s exchange rates than to those of 2000.

[pemeliza]

“Then how come rates are so low today? In a nutshell, it’s very simple, really: you may not believe inflation is low, but the bond market clearly does.”

1.) Do you believe that the Chinese and Japanese government are buying treasuries (or holding the junk they have) becuase they believe inflation is low. I don’t.

2.) Cash is being horded in treasuries because of a flight to quality. Investors are making a decision to buy treasuries because they are concerned about losing principal in defaults are via stock market crash not because they think inflation is low. If they can drive
up the price in treasuries in the process more money for them.

3.) There is so much cash sitting around (hmmm wonder where it all comes from) looking for a safe place to be parked I’m surprised the t-bonds and t-bills are yielding any positive interest rate at all.

4.) Even if there were some bond vigilantes that believe that inflation is higher than what the current treasury market reflects do you honestly think they have a friggin prayer in the world of fighting forces 1-3 above? I sure as hech don’t. So instead of shorting treasuries they buy gold, commodities, other currencies and put shorts on the dollar.

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past. There are many other fundamental forces at work. The bond vigilantes are not dead they are just being heard through other channels.

[pemeliza]

“Then how come rates are so low today? In a nutshell, it’s very simple, really: you may not believe inflation is low, but the bond market clearly does.”

1.) Do you believe that the Chinese and Japanese government are buying treasuries (or holding the junk they have) becuase they believe inflation is low. I don’t.

2.) Cash is being horded in treasuries because of a flight to quality. Investors are making a decision to buy treasuries because they are concerned about losing principal in defaults are via stock market crash not because they think inflation is low. If they can drive
up the price in treasuries in the process more money for them.

3.) There is so much cash sitting around (hmmm wonder where it all comes from) looking for a safe place to be parked I’m surprised the t-bonds and t-bills are yielding any positive interest rate at all.

4.) Even if there were some bond vigilantes that believe that inflation is higher than what the current treasury market reflects do you honestly think they have a friggin prayer in the world of fighting forces 1-3 above? I sure as hech don’t. So instead of shorting treasuries they buy gold, commodities, other currencies and put shorts on the dollar.

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past. There are many other fundamental forces at work. The bond vigilantes are not dead they are just being heard through other channels.

[pemeliza]

“Then how come rates are so low today? In a nutshell, it’s very simple, really: you may not believe inflation is low, but the bond market clearly does.”

1.) Do you believe that the Chinese and Japanese government are buying treasuries (or holding the junk they have) becuase they believe inflation is low. I don’t.

2.) Cash is being horded in treasuries because of a flight to quality. Investors are making a decision to buy treasuries because they are concerned about losing principal in defaults are via stock market crash not because they think inflation is low. If they can drive
up the price in treasuries in the process more money for them.

3.) There is so much cash sitting around (hmmm wonder where it all comes from) looking for a safe place to be parked I’m surprised the t-bonds and t-bills are yielding any positive interest rate at all.

4.) Even if there were some bond vigilantes that believe that inflation is higher than what the current treasury market reflects do you honestly think they have a friggin prayer in the world of fighting forces 1-3 above? I sure as hech don’t. So instead of shorting treasuries they buy gold, commodities, other currencies and put shorts on the dollar.

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past. There are many other fundamental forces at work. The bond vigilantes are not dead they are just being heard through other channels.

[pemeliza]

“Then how come rates are so low today? In a nutshell, it’s very simple, really: you may not believe inflation is low, but the bond market clearly does.”

1.) Do you believe that the Chinese and Japanese government are buying treasuries (or holding the junk they have) becuase they believe inflation is low. I don’t.

2.) Cash is being horded in treasuries because of a flight to quality. Investors are making a decision to buy treasuries because they are concerned about losing principal in defaults are via stock market crash not because they think inflation is low. If they can drive
up the price in treasuries in the process more money for them.

3.) There is so much cash sitting around (hmmm wonder where it all comes from) looking for a safe place to be parked I’m surprised the t-bonds and t-bills are yielding any positive interest rate at all.

4.) Even if there were some bond vigilantes that believe that inflation is higher than what the current treasury market reflects do you honestly think they have a friggin prayer in the world of fighting forces 1-3 above? I sure as hech don’t. So instead of shorting treasuries they buy gold, commodities, other currencies and put shorts on the dollar.

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past. There are many other fundamental forces at work. The bond vigilantes are not dead they are just being heard through other channels.

[pemeliza]

“Then how come rates are so low today? In a nutshell, it’s very simple, really: you may not believe inflation is low, but the bond market clearly does.”

1.) Do you believe that the Chinese and Japanese government are buying treasuries (or holding the junk they have) becuase they believe inflation is low. I don’t.

2.) Cash is being horded in treasuries because of a flight to quality. Investors are making a decision to buy treasuries because they are concerned about losing principal in defaults are via stock market crash not because they think inflation is low. If they can drive
up the price in treasuries in the process more money for them.

3.) There is so much cash sitting around (hmmm wonder where it all comes from) looking for a safe place to be parked I’m surprised the t-bonds and t-bills are yielding any positive interest rate at all.

4.) Even if there were some bond vigilantes that believe that inflation is higher than what the current treasury market reflects do you honestly think they have a friggin prayer in the world of fighting forces 1-3 above? I sure as hech don’t. So instead of shorting treasuries they buy gold, commodities, other currencies and put shorts on the dollar.

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past. There are many other fundamental forces at work. The bond vigilantes are not dead they are just being heard through other channels.

[Eugene]

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past.

One note:

For the last two weeks, implied yields on TIPS maturing in Apr ’10 have been NEGATIVE. Meaning that nominal yields on 2-year treasuries are currently lower than expected CPI inflation over the same period of time.

[Eugene]

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past.

One note:

For the last two weeks, implied yields on TIPS maturing in Apr ’10 have been NEGATIVE. Meaning that nominal yields on 2-year treasuries are currently lower than expected CPI inflation over the same period of time.

[Eugene]

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past.

One note:

For the last two weeks, implied yields on TIPS maturing in Apr ’10 have been NEGATIVE. Meaning that nominal yields on 2-year treasuries are currently lower than expected CPI inflation over the same period of time.

[Eugene]

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past.

One note:

For the last two weeks, implied yields on TIPS maturing in Apr ’10 have been NEGATIVE. Meaning that nominal yields on 2-year treasuries are currently lower than expected CPI inflation over the same period of time.

[Eugene]

My point is that the treasury market (in particular) may not at all reflect current inflation expectations the way it may have in the past.

One note:

For the last two weeks, implied yields on TIPS maturing in Apr ’10 have been NEGATIVE. Meaning that nominal yields on 2-year treasuries are currently lower than expected CPI inflation over the same period of time.

[Deal Hunter]

Nothing to worry about. As long as the US Dollar is the world’s reserve currency, there won’t be a mass dumping of US treasuries. Us Americans will always dutifully pay our taxes – that’s why the “full faith and credit” of Americans is nothing to sneeze at.

Now, what we should be worrying about is any indication that oil will decouple from the US Dollar. If the world decides it wants to buy and sell oil with anything else, like Euro or Yuan, then it spells trouble of the US Dollar.

Still, I wouldn’t worry. You know what happened to the last guy who tried to sell his oil with Euro……… and you thought it was because he was responsible for 9/11. LOL.

[Deal Hunter]

Nothing to worry about. As long as the US Dollar is the world’s reserve currency, there won’t be a mass dumping of US treasuries. Us Americans will always dutifully pay our taxes – that’s why the “full faith and credit” of Americans is nothing to sneeze at.

Now, what we should be worrying about is any indication that oil will decouple from the US Dollar. If the world decides it wants to buy and sell oil with anything else, like Euro or Yuan, then it spells trouble of the US Dollar.

Still, I wouldn’t worry. You know what happened to the last guy who tried to sell his oil with Euro……… and you thought it was because he was responsible for 9/11. LOL.

[Deal Hunter]

Nothing to worry about. As long as the US Dollar is the world’s reserve currency, there won’t be a mass dumping of US treasuries. Us Americans will always dutifully pay our taxes – that’s why the “full faith and credit” of Americans is nothing to sneeze at.

Now, what we should be worrying about is any indication that oil will decouple from the US Dollar. If the world decides it wants to buy and sell oil with anything else, like Euro or Yuan, then it spells trouble of the US Dollar.

Still, I wouldn’t worry. You know what happened to the last guy who tried to sell his oil with Euro……… and you thought it was because he was responsible for 9/11. LOL.

[Deal Hunter]

Nothing to worry about. As long as the US Dollar is the world’s reserve currency, there won’t be a mass dumping of US treasuries. Us Americans will always dutifully pay our taxes – that’s why the “full faith and credit” of Americans is nothing to sneeze at.

Now, what we should be worrying about is any indication that oil will decouple from the US Dollar. If the world decides it wants to buy and sell oil with anything else, like Euro or Yuan, then it spells trouble of the US Dollar.

Still, I wouldn’t worry. You know what happened to the last guy who tried to sell his oil with Euro……… and you thought it was because he was responsible for 9/11. LOL.

[Author]

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