Sunday, July 17, 2016

How to Tell the Top in Bonds Is Getting Close!

When you see articles like this: "The Looming Shortage in Government Bonds".

That is toppy thinking. In fact, anytime you hear "shortage" you should beware of a price reversal coming. Shortage of natural gas, shortage of oil.

In the U.S. we have an debtor that has borrowed close to 100% of GDP already and planning to borrow a lot more to cover ponzi retirement and healthcare promises. The federal government is like an insolvent insurance company and if it didn't have nuclear weapons it would be in receivership alreadu.

Believe me, there isn't going to be a "shortage" of government empty promises.


CP said...


The legitimate purpose of public debt is to borrow money to build infrastructure improvements that have a positive net present value. However, a vast portion of federal expenditure now leaves nothing tangible, leaves no collateral. A treasury bond is a certificate that money has successfully been expended on section 8 housing, or on make-work military "jobs".

The lack of collateral makes these treasuries creatures of social mood. They are no more valuable than tulip bulbs or south sea shares. That makes them vulnerable to going down with stocks when social mood becomes more pessimistic.

If you synthesize the best parts of Falkenstein and Redleaf, you predict that the next crisis is going to come in the investment that is currently perceived as riskless enough for highly leveraged institutions like banks to buy. Right now, government bonds are accorded zero risk in calculating bank capital ratios. The idea that government bonds are riskless when governments are planning to flood the market and when the expenditures are consumed (building no collateral) may prove to be the latest extraordinary popular delusion.

High Plateau Drifter said...


What you Said!!!

eah said...

The lack of collateral makes these treasuries creatures of social mood.

To put it more succinctly: the "collateral" here is an "investor" in such a bond believes the government can continue to enslave people and use the coercive tax system to steal their money, with virtually no limit on that, even the amount of time it can/will continue.

That does not sound like a good 'investment' -- in particular, why would a majority non-white population want to tax itself and go into debt in order to cover SS and Medicare for a bunch of better off predominantly white baby boomers?

whydibuy said...

A full blown ranting and raving bear post about the fall of the U.S.
Get real.
The assets of the U.S. gov dwarf the debt and the cost to rebuild the U.S. infrastructure is many times its debt load. The U.S. has used its debt well and built a wonderful country.
This is just more silly bearishness. And a sign we are going to see a great rally throughout the rest of the year.