Re: [TNF] Bubble Everywhere

["Barkley Rosser" <rosserjb@xxxxxxx>]

    Sounds reasonable on all fronts to me,
Warren.
Barkley
----- Original Message -----
From: "Warren Mosler" <mosler@xxxxxxxxxxxxxx>
To: <pkt@xxxxxxxxxxxxxxxx>
Sent: Monday, July 07, 2003 5:33 PM
Subject: Re: [TNF] Bubble Everywhere


>
> --- 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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> > > >
> >
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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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