Re: [TNF] Bubble Everywhere

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- Barkley Rosser <rosserjb@xxxxxxx> wrote:
>    One of the reasons that the bond market is
> declining
> is because investors have gotten tired of the low
> yields
> from bonds and are moving back into stocks.

How about- bonds got overbought (as many times before
in this cycle) due to dynamic hedging, particularly
due to imbedded options in mtgs, and this time
compounded by simultaneous stories of 'unconventional
monetary policy etc.'  Either that or the economy
really is recovering and bonds will keep rising in
yield until the next cycle.

  So, it
> is not
> surprising at all that the stock markets are holding
> up as
> the bond markets are dipping.

Right, that's the recover story- Fed will raise rates
back from 'distress' levels to 'normal' levels quickly
as soon as the economy recovers for real.


>      Henry's warnings are cogent, however.  If
> rising interest
> rates in Japan pull Japanese money home, the dollar
> could
> really take a hit and all kinds of funny stuff could
> happen.

Doubt the boj is ready to let the yen get strong.

> Also, clearly the housing bubble is fragile as
> mortgage
> rates in the US have almost surely bottomed out.

True.

>      Why do we see references to "Bernanke stepping
> in
> to hold up the bond market.?"  The power on the Fed
> remains Alan Greenspan, not Bernanke.  Is this more
> Gang8 fantasies?

I vote yes.

Also, check out the plan we submitted to St. Croix
regarding the public housing authority at
www.mosler.org.  It should apply to most any public
housing around the world.

Warren

> Barkley Rosser
> ----- Original Message -----
> From: "Gary Santos" <evs@xxxxxxxxxxxx>
> To: <TheNewForum@xxxxxxxxxxxxxxx>; "EGroup PKT"
> <pkt@xxxxxxxxxxxxxxxx>
> Sent: Monday, July 07, 2003 12:44 PM
> Subject: Re: [TNF] Bubble Everywhere
>
>
> > The article below supplements what Henry just
> posted. I continue to wonder
> > if Bernanke is stepping in to hold up the bond
> market. Even as I write I
> am
> > surprised that the rally in the stock market world
> wide continues. Is the
> > liquidity coming from the bond market? The rally
> in the stock market is a
> > bet on the theory that inflation will increase
> real asset prices and as
> > liquidity is created from bond liquidation, more
> so if the Fed is
> supporting
> > the bond market at these lofty prices, the rally
> in the market will
> > continue. Nick, do you have yields on the 10-year
> note going back several
> > years? It would be great if you could post them in
> chart form.
> >
> > Money has nowhere of real substance to go to but
> the choice of the moment
> > are stock market bets. I would think money will
> eventually turn to the
> > currency markets and another wild ride will
> develop. I think this is what
> > Henry means when he said that all markets are now
> trading markets. Money
> > will flow from one market to another. I would
> think that gold will benefit
> > as a consequence.
> >
> > Any opinions out there?
> >
> > Gary Santos
> >
> >
> >
> > US Treasuries hammered for second day, Fed faulted
> > Thursday June 26, 4:37 pm ET
> > By Wayne Cole
> >
> >
> http://biz.yahoo.com/rf/030626/markets_bonds_6.html
> > (Adds late prices, comment)
> > NEW YORK, June 26 (Reuters) - Treasuries were
> hammered again on Thursday
> as
> > a massive corporate offering from GM tempted away
> investors still smarting
> > from what they saw as the Federal Reserve's
> half-hearted easing in
> monetary
> > policy.
> >
> > The benchmark 10-year note shed over a point in
> price for a second day
> > running while yields shot to six-week highs above
> 3.50 percent.
> >
> > Yields have risen over 30 basis points since the
> Fed delivered its quarter
> > percentage point cut in interest rates, so undoing
> much of the recent
> easing
> > in financial conditions.
> >
> > Meanwhile, such was the deluge of demand for
> General Motors Corp.'s
> > (NYSE:GM - News) bond issue that it was repeatedly
> raised in size until it
> > totaled $17 billion, making it the largest
> corporate bond sale in history.
> > As a result, investors dumped Treasuries both to
> make room for the
> > higher-yielding paper and to hedge against adverse
> movements in yields on
> > the deal.
> >
> > "It's been another wild day," said J.P. Marra,
> managing director of
> > government bond trading at Lehman Brothers. "The
> GM deal was a big part of
> > the down-move today. It's such a lot of paper and,
> what with investors
> being
> > upset with the Fed, it's been a double whammy."
> >
> > The market took further umbrage when minutes of
> the Fed's previous meeting
> > in May showed members played down the risk of
> deflation, so pushing out
> any
> > chance of it adopting unconventional measures such
> as buying longer-date
> > Treasuries.
> >
> > Marra feared further pain for bonds in the short
> term, but also felt
> yields
> > were nearing levels that would be attractive to
> many longer-term players.
> >
> > "The Fed disappointed a lot of people but at least
> it looks like keeping
> > rates around 1.0 percent for a long time to come.
> Now with the five-year
> > nearing 2.5 percent, it's starting to offer a
> compelling carry for
> > investors," said Marra.
> >
> > The five-year note (US5YT=RR) lost a hefty 19/32
> in price on Thursday, so
> > forcing its yield to 2.45 percent from 2.32
> percent on Thursday and a
> recent
> > record low near 2.00 percent.
> >
> > The carnage was widespread, with the two-year
> yield (US2YT=RR) leaping to
> > 1.40 percent from 1.29 percent and a trough of
> just 1.09 percent on
> > Wednesday.
> >
> > The 10-year note (US10YT=RR) sank a full point in
> price for a yield of
> 3.53
> > percent from 3.41 percent. The 30-year bond
> (US30YT=RR) collapsed 1-18/32,
> > taking its yield to 4.56 from 4.46 percent.
> >
> > MISUNDERSTOOD, AGAIN
> >
> > The spike in yields will likely see mortgage rates
> rise and could crimp
> the
> > rush of refinancing that has been supporting
> consumer incomes. It can also
> > become self-feeding since holders of mortgage debt
> will have less reason
> to
> > hedge against prepayment and may sell some of
> their Treasuries, so forcing
> > yields yet higher.
> >
> > That is an outcome analysts assume the Fed would
> want to avoid and there
> was
> > talk in the market that officials were perturbed
> by the jump in yields.
> >
> > "Apparently the Fed thinks it's been
> 'misunderstood' again," said one
> trader
> > at a primary dealer. "Well, if they just said what
> they mean instead of
> > obscuring it in central bank speak, we wouldn't
> have these problems."
> >
> > He suspected Fed board members would soon be
> offering calming words to the
> > market, trying to pull yields back down, and noted
> Chairman Alan Greenspan
> > would have a perfect opportunity to clarify their
> policy when he testifies
> > to the House in mid-July.
> >
> > Meantime, the market would be extra-sensitive to
> the flow of economic data
> > fearing that any signs of strength will reduce the
> chance of further
> policy
> > moves, conventional or otherwise.
> >
> > Thursday's numbers were too mixed to offer much of
> a guide. Weekly jobless
> > claims came in at a lower than expected 404,000,
> but first quarter gross
> > domestic product growth was revised down to 1.4
> percent from an already
> > sluggish 1.9 percent.
> >
> >
> > http://bonds.yahoo.com/rates.html
> > U.S. Treasury Bonds
> > Maturity Yield Yesterday Last Week Last Month
> > 3 Month 0.77 0.75 0.73 0.94
> > 6 Month 0.90 0.88 0.89 0.96
> > 2 Year 1.32 1.29 1.28 1.23
> > 5 Year 2.55 2.48 2.40 2.26
> > 10 Year 3.70 3.65 3.51 3.34
> > 30 Year 4.72 4.68 4.55 4.39
> >
> >
> >
> >
> > ----- Original Message -----
> > From: "Henry C.K. Liu" <hliu@xxxxxxxxxxxxxx>
> > To: <pkt@xxxxxxxxxxxxxxxx>;
> <a-list@xxxxxxxxxxxxxxxxxxx>;
> > <TheNewForum@xxxxxxxxxxxxxxx>
> > Sent: Monday, July 07, 2003 11:48 PM
> > Subject: [TNF] Bubble Everywhere
> >
> >
> > > The burst of the equity bubble produced the bond
> bubble and the housing
> > > bubble. As investors fleed the stock market,
> funds poured into bonds,
> > > bidding up prices and lowering effective
> long-term interest rates.  As
> > > the Fed lowered Fed Funds rate targets, low
> mortgage payments pushed up
> > > housing prices, producing a housing bubble.  The
> burst of the bond
> > > bubble will threaten the housing bubble, the
> bursting of which will
> > > exacerbate aggregate demand in construction, for
> labor, for home
> > > appliances and supplies, which will in turn
> affect corporate earning
> > > which will torpedo the current "recovery".  The
> collapse of the Japanese
> > > bond market will also force the Japanese to sell
> US Treasuries, adding
> > > to the problem.  The smart money is already
> borrowing short term,
> > > through the repo market and its related
> instruments, to invest in
> > > 10-year treasuries. Another debt bubble is
> building.
> > >
> > > Bubbles are now pathological.  Fund managers are
> all forced to respond
> > > to quarterly results.  Herd behavior is a given.
> The aim is to beat the
> > > market, not to invest in the market. S&P Fixed
> Income Committee has just
> > > recommended a cut back of 5% on 10-year bonds in
> fixed income
> > > portfolios, in response to falling bond prices.
> The 10-year bond is now
> > > a terminal instrument in that the rate advantage
> in the currenct
> > > deflationary period is not expected to
> compensate to the price fall due
> > > to eventual inflation over its 10-year life
> span.  Thus 10-year bonds
> > > are now a short-term trading instrument, not a
> long-term investment
> > > instrument.  In fact, if you do not follow the
> market daily, you have no
> > > business being in the market.  So long to the
> long term investor.  When
> > > all investments are short-term, it is a trader's
> market, turning the
> > > economy into a horse race.  The difference is
> that in a horse race, the
> > > betting odds on a horse do not affect its
> performance. That is not true
> > > in an economy driven by equity and credit
> prices.  The whole market can
> > > bet on the wrong sector and make it a winner in
> the next quarter, but it
> > > may finish last in the race.
> > >
> > > Wealth preservation is now a losing game.  Asset
> is becoming a
> > > liability.  Income is all.
> > >
> > >
> > > Henry C.K. Liu
> > >
> > >
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> > >
>
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=====
Warren Mosler, www.mosler.org
c/o James River Capital Corp
5007 Chandler's Wharf, Suite 201/202
Christiansted, USVI  00820
340-719-8813 office phone
340-719-8804 Fax
Primary email contact:  mosler@xxxxxxxxxxxxxx

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