Investors show that canned soup is safer than U.S. Bonds

June 8, 2009 by · Leave a Comment
Filed under: Opinion 

This is quite funny that traders and investors actually prices the risk of the U.S. Treasury defaulting on thier obligations higher than Campbell Soup doing the same.  With the amount of bonds being issued and the rising interest rates from the “Bong Vigilantes”, I have to agree that canned soup is safer at this point.  

I heard a hearing with Ben Bernanke in front of Congress this weekend and he was asked if foreign investors could not buy all the Treasuries we are going to issue this year, would he monetize that debt via open market purchases.  He said he would not, I am not sure how he is going to “not” do that unless we are going to raise taxes through the roof and seriously cut government spending.   I don’t see either happening soon so I would think the easy way out for the politically minded folks, is to just print the money and devalue the dollar.

News (Reuters):

No, we’re not talking about stocking a bunker for survival. This is talk about safe investments.

U.S. Treasuries, traditionally considered the safest of all investments because the debt is backed by full faith and credit of the U.S. government, is losing favor among derivatives traders to Campbell Soup Co, Microsoft Corp and Intel Corp as concerns over the government’s massive deficits and costly bailouts mount.

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Fed’s Yellen: Rise In Treasury, Mortgage Yields ‘Disconcerting’

June 5, 2009 by · Leave a Comment
Filed under: Opinion 

This is a very interesting article from the WSJ with San Francisco Fed’s bank President Janet Yellen.  In this article she is discussing the recent rise in interest & mortgage rates.  An official that is cited to that the recent purchases of Treasuries by the Federal Reserve would keep interest rates lower.   This is contrary to what is the market perception when this type of monetary policy to used.  

Usually foreign investors would purchase our bonds (Treasuries), that would be how we would finance our needs including budgets or in this case to drive down interest rates through these open market purchases. Our problem is that we have many more bonds that need to be sold than we have buyers ready to purchase them.  Instead we have embraced the extreme fiscal policy of quantitative easing which is essentially having the Federal Reserve buy our debt (bonds) which is basically buying it from ourselves through a third party (The Fed).  

The interesting part was how they would think that this would keep interest rates low,  investors are demanding more yield on this bonds because they know that we will have plans to issue many more than the market can absorb so that in fact means that we will keep practicing QE and basically print dollars to meet our needs.  You will get higher yields because the investors in the promises to pay, want compensation to accept the high likelihood that they will be paid back in devalued dollars in the future.

Some how they think this will not be inflationary.   It will be, you can’t load all these banks and other financial institutions will fresh cash and think that it will not be speculated into the economy when we have driven interest rates to the ground and are banking on a recovery.  When you have real rates of return this low with a inflation rate that is higher than the interest rate, you essentially “force” people to speculate so they can get a return that matches the rate of inflation.

If you can looked at all major indexes and focus on the resource equities, they are all up since the beginning of the year and that will equate into high prices as it moves downstream.   From all the monetary history I have read, inflation is a monetary event when you dramatically increase the money base (aka: print more dollars).  The market does not like what the future may hold so this is how the purchasers of bonds get their message across.

News (Wall Street Journal):

Federal Reserve Bank of San Francisco President Janet Yellen said if the increase in Treasury and mortgage yields is being fueled by rising inflation fears – worries she considers unfounded – it would be “disconcerting.”

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Chinese cautious on Treasury Notes

February 3, 2009 by · Leave a Comment
Filed under: Global News 

I wonder why, maybe because we are going to issue between 2-3 trillion dollars worth this year and we are still not sure if that is even going to solve the current credit & confidence problem?

News (Reuters):

China’s willingness to continue buying United States Treasury securities in large numbers will depend on its need to protect the value of its foreign investments, the Chinese premier, Wen Jiabao, said Saturday. He also said that a stable yuan is in everyone’s interests.

“Whether we will buy more U.S. Treasury bonds, and if so by how much — we should take that decision in accordance with China’s own need and also our aim to keep the security of our foreign reserves and the value of them,” Mr. Wen said.

His enigmatic remarks, made near the end of a visit to Europe, could raise new concerns about China’s commitment to continue purchasing United States government debt.