Only a MARKET CRASH can save the Fed's plan?

[marshallbates]

There are two circumstances that will affect the demand for bonds. The first has to do with expected interest rates. If interest rates are expected to rise, bond prices are expected to fall. Falling bond prices represent a decrease in demand for bonds. Since interest rates are so low right now (and expected to go higher in the future), demand for bonds is weaker than it could be. The second circumstance has to do with, as you were saying, scaring us into bonds, a.k.a. "flight to quality".

[someday1971]

Good video. I did Not understand the basics of the US Bond market.

It is now 19th March 2010 and your video is a tad premature.

But markets crash/long term down move may still happen as the financial crisis in the USA worsens, rather than improves,

and the US govt. needs funds.

As at 19 March 2010 the US housing crisis is getting worse and it looks like the Major Markets have finally peaked and are ready to tank, thus driving speculation capital into Treasury bonds.

[flaskofcoffee]

Hi 'Someday'.

You are being kind to say that the vid is "a tad premature". Thanks for that. ;-)

I agree with your comments regarding the market, by the way.

Cheers.

[suzettespencer]

There is a flaw with your analysis. The Fed can print as much money as it wants and/or monetize the debt. They can do both, keep interest rates low & "buy" bonds. Hence the rally.

[flaskofcoffee]

Hi Suzette.

I think you have explained why the video now seems 'premature' in its timing, even though valid in its content. Thanks.

Monetizing debt to support bonds and keep interest rates low can clearly carry on for much longer than one imagines.

Japan is a good example of just how long a bond market can be propped up.

Thanks.

[bellybroom]

good video. but i dont believe investors are looking for safe havens at this point. more and more will be drawn back to the stock markets as profits start to return- and some sense of normality i.e. regular rally`s. the yanks are stuck with their debt- if i`m right, then what happens to bond yields and the dollar??

[flaskofcoffee]

Hi Bellybroom.

Almost one year on now and the stock market rally has, so far, continued.

I note that your comment was made 9 months ago. Good call.

[clearasvodka]

Yes, China has been buying up mining companies as well as agriculture interests in places like Brazil. China is also mining more and more of it's own gold. Look for a world currency in the coming years and a total collapse of the U.S. dollar.

[DeBodemBel]

thanks for keeping me thinking for an hour lol.

[flaskofcoffee]

Ditto. Thank you.

I'm working on a video about gold at the moment, but looking for a new twist to make it interesting as the subject of 'gold vs inflation' is well documented.

I guess we'll have a discussion about that too. ;-) Cheers.

[DeBodemBel]

I think all may even be documented.

But same goes here. As a trader I'm mostly interested in the influance of inflation speculation ruling the markets. Fair or intrinsic value vs marketpeak price. The market peak goldprices back in the eighties still have not been reached in real terms. Many people back then actually thought and feared prices would rise even further, allthough there was no mathematical explanation for that. Thanx for your posts. ! Thomas

[DeBodemBel]

....... thistime wordwide. With no (strong enough) external forces to help postpone the inevitable. Which is exactly. Well that still depends I think. but the mentioned mobile private capital will, at some point in the next 3 to 5 years, rapidly leave the bondmarkets, fleeing into hard stuff. Land, commodities, precious metals first.

I see no way "they" can prevent that by any means. But we are virtually all in it togeter. and thats "different this time".

[DeBodemBel]

But concering your original point. I agree that the bondmarket is critical. It's just that "allowing" the stockmarket to fall in favore of the bondmarket, will strenthen the deleveraging cycle. it destroys private balance sheets further. No I think they will print it. For a large part. The bondmarkets worldwide currently are considered "the last savehavens". So mobile investors are flocking. Savings will (are) soar(ing) further, looking for that safety. Japan scenario. more or less

[DeBodemBel]

The dollar will strengthen first before it will weaken. Dollar weakness will not emerge beacause of the budget deficits. Japan And Europe have even bigger ones. dollar weaness will emerge, as soon as the bond market collapses, and people flee to gold and commodities.

[flaskofcoffee]

I agree about the dollar for the time being, as I said in an earlier video on deflation - the deleveraging is far greater than the Fed's' money tree'.

I think, however, that the relationship of bond/dollar is not easy to put into cause/effect order - weak bond buying equals higher interest rates and stronger dollar (cheap bonds = higher yield)...weakening dollar equals less foreign bond buying.

As I said, I'm no expert, but the bond market is essential research, imo.

Thanks for your input.

[DeBodemBel]

Your right from a mathematical point of view. But the timing and chronology of things can differ in financial markets. For instance, the dollar does not always rise on the day the FED raises Interest rates. Perhaps competitors raised more. Or perhaps investors expected more. Simular sentiments can rule the bondmarkets.

I'ts very difficult for the dollar to collapse if most of its competitors ar simularly destroying their currencies.

Collapse against what then?

[DeBodemBel]

eventually you will be right. 2010/2011 I'm sure of tthat much. But the current bankprofits are rigged by accounting tricks. This is a part of the "bear market rally good news show", coordinated by... FED & Treasury.....trying to trick babyboomers into one last spending and investing spree

[flaskofcoffee]

BINGO! - I totally agree, and you put it nicely into a brief post. Many thanks.

Hard to see how a collapse caused by too much debt can be solved by... stimulating more debt.

[DeBodemBel]

Rising stock markets increases the chance that private investors wil take part in recapitalizing the banking system. That will automaticaly lead to less taxpayer baillouts than currently expected. thus less bond issues.

Therefore I beleive that untill the recapitalization is organised, the governent has an interest in getting confidence to a level where private investors will bare (a large part of) the 4000 billion that is needed for the banks.

[flaskofcoffee]

Thanks for that.

True - confidence building is also useful to the authorities, but a rising stock market would probably be because the dollar had weakened... which is bad for foreign bond investors.

As for the bailouts - nothing will stop them, as this not about sensible policy any more. Didn't the banks just declare profits, anyway? ;-) (Stress tests in May...ouch?)

Complicated issues; but I am convinced that the fate of the bond market is closely linked to the way this all pans out. Cheers.

[OPPI007]

Pfoei, the lesson is you cannot trust a indebted government.

What i see confirmed for my self is that because of the so called separation of powers we have a lot of silent agreements between those powers. So many that we fear a one world conspiracy, while perhaps in essence the situation is that everyone aware of the knowledge is benefiting and shuts up.

Could that be the simple explanation for that there seems to be a world order while instead we have are world wide in a short position?

[webozzy21]

Good talk, I always appreciate your insight, keep em coming Flask.

I've been buying USO and USL on the dips, we all know oil is going up in the long term so to me its a no-brainer.

[flaskofcoffee]

Thanks for the compliment. I wonder if DBO might be better for oil at the moment as contango continues to haunt USO. I changed over recently for that reason. I also wonder if the tankers of oil are being used to suppress the near term futures (sell a bit to inventory) and keep contango in place so that the owners of the stored oil can continue to sell futures on the stored oil and buy them back at near term. Dunno. But make a comparison of DBO to USO and see what you think. Thanks again.

[italianchappy]

Very interesting reasoning. It sounds extremely well put to me. If I get it right this also could imply they cannot inflate the debt away. Inflation seems a good way for getting rid off debt. But if inflation soars people get rid of low yielding bonds and these can't be made more attractive due to the huge amonunt of existing debt. Id est, you can't exit a deflation spiral simply lending money to spend it because the lended amount makes it impossible debt's service. You gotta let defaults happen

[italianchappy]

Not sure if I wrote is right. Just my first thoughts after listening to the vid.