We flew back to Phoenix last night and are driving home to Walker this morning. Regular blogging to resume tomorrow.In the mean time how about a reader inspired debate?
Is the US treasury market a bubble (or anyone word that describes excess)?
The picture of Trixie, Pee Wee and Cappi was from before we left.
18 comments:
Nice bald spot! Are the markets causing it?
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Debt not owned by social security is a small percentage of gdp compared to many countries (Japan, Italy). Unfortunately, the US Government will be able to spend like drunken sailors for many years to come.
It is a very sad situation and likely to get bad in a different way instead of getting better.
Maybe I have been wrong for a long time. Maybe we are not turning Japanese. Maybe we are turning Italian.
Yes, I think the treasury market is currently in a bubble. My thoughts for some time now have been to buy in when yields hit 6% on the 10-year. That day will, no doubt, come; when is, of course, the question. Given the amount of liquidity that is and will be created to stimulate the economy, I believe inflation will be the problem in 1 to 3 years and that 6% yield on the 10-year, when it comes, may be for only for a short period of time as it goes on to 8%-10% or more; recall that Paul Volker is on Obama's team.
I only know the yields are too low to be of interest to me but I know little about TIPS. I know there are mutual funds for tips but perhaps the individual bond is a better buy. As I say, I don't know how to compare. I've bought some corporate bonds recently with maturities less than one year. They are investment grade but a little nervous since I can't be sure they can stay investment grade for a year. For 11 months I have over 10% YTM.
The article you sited a while ago from TheStreet.com laid out a pretty nice picture of why we are in a bubble. Fear is king right now, and along with his brother greed we get these nice bubbles. There is an ETF UST short out there...TBT or something.
I would say that the treasuries are overbought based on the low yield. However I would not call it a bubble because people can't buy on leverage - due to the low yields. All these johnny-come-latelys have really pushed up the value of my US debt holdings though!!
On the other hand gorging on treasuries is the same bet as buying into the housing bubble: that the US citizen will continue to be able to meet giant future obligations.
Dog blogging is good.
TBT is leveraged and not good for a long term hold. SHV is probably more of what you want, but the volume is pretty low
Oops, short doesn't mean shorting, it means short term. Duh!
As a retiree, I have a large position in laddered Treasuries & as they mature I've replaced them with discounted investment grade individual bonds. I opted for the JNJ,PG,etc. because I'd been reading (Tony Crescenzi, spelling?, on Real$, David Merkel on Aleph) that the most recent purchases of Treasuries are from companies having to adjust duration since the Treasury has made it known it will force mortgage rates down to stimulate demand, promote refi's. I am kicking myself for having bought 2 wks ago, TBT, a bet that bond prices will rise. To make me feel "stupider", this a.m. on Squawkbox, Bill Gross opined that mortgage rates will be forced as low as 5-4.5%. If he's right, Treasuries will stay overbought for some time. Anna
i don't think it is actually a bald spot. I have four cowlicks in my hair and that is one of them after a fresh cut.
Somewhat related since the biggie endowments don't use bonds much in their portfolios is the news here that Harvard is off 22% from July 1 to October 31 and most likely down even more in November:
http://www.thecrimson.com/article.aspx?ref=525669
They missed the one asset class doing anything this year in US Treasuries {and cash}. I guess I don't feel so bad now being down 18.6% for the year :-)
DE
The move in TLT (20 year treasury ETF)is very parabolic.
Relative to the SP500, the move seams very similar to oil earlier in the year.
TBT maybe a good hedge in the near future.
CA
Yes, I think Treasuries are in a bubble. Yields are unrealistically low. Everybody rushing to "quality" backed by the "full faith" of a government that spends like an alcoholic in a free bar.
Is it a bubble (driven by manic ignorance), or, the last "store of value"? A bubble is driven by over-pursuit of gain. Buying a 1 yr at .6 YTM is not pursuit of gain.
There isn't a reserve currency. The Euro doesn't have a bond market for liquidity. The BOE is a marginal player. China? Russia? The Yen is the only possibility?!
Gold gets sold off (Russia?). Commodities require leverage. Stocks deserve underweighting. Commercial Property is beginning to unravel.
Treasuries as a "store of value" may be ignorance; but, it is not greed.
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