U.S. Treasuries

The U.S. Treasury market is getting the stuffing knocked out of it.

TLT, the Barclay's 20 year Treasury Fund, is off nearly 15% since the beginning of April.  To put that in perspective, if you bought a 20 year bond on 4/1/09, it will take you nearly 5 years worth of interest to get break even.  A 15% decline, or increase, in stock prices is a "correction", but in Treasuries it is simply painful.

There are several issues here.  In my opinion, the supply of debt from the U.S. Treasury has begun to overwhelm the market, and the Fed has now become the buyer of last resort.  As this process unfolds, will the Fed be able to keep long rates down?  I doubt it, and if not, then fixed mortgage rates will rise.  The housing market cannot withstand this, so the Fed will have to redouble its efforts monetizing ever more of Treasury's offerings.

You know it is my opinion that this series of events is ineluctable.  The question is WHEN.

If this is going to unfold over the next year or 2, holding cash is going to be very bad for your health.  If not, then cash is probably a pretty good place to be in the short term.

The Treasury and Gold market will give us a pretty good indication, I would think.

BTW, the Obama budget made some pretty aggressive assumptions about the economy, and hence tax collections.  Well, those assumptions don't look so accurate at the moment.  Which could very well be why Treasuries are "sh*ting the bed" (that's technical trader speak for when a security is depreciating in value) at the moment.

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Anybody watching what is going on in Pakistan?  A nuclear armed nation with a significant Taliban movement is a recipe for disaster.  Even if the Taliban is unable to come to power in Pakistan, establishing another foothold in a region of the country would enable the Taliban to continue the fight, tweeking the nose of nuclear armed India, maintain pressure on the U.S. in Afghanistan...  Remember, these guys are in it for the long haul (they have been in a state of war since the Soviet invasion, circa 1979?), and likely feel they can outlast the political will in the West. 

Pakistan and North Korea are only the beginning of Obama's test.  I agree with reader "Coal Guy", this was not the time for an American president to try singing "Kumbaya" with the rest of the world, but that's what his constituencies wanted.

Chess should be a required study at every American Liberal Arts college.  

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The individual state government budgets in the U.S. are in horrific shape.  The vast majority of the states took their cue from California on how to handle unions, a budget, borrowing, etc... and California has been dominated by folks out of San Francisco City Hall.  Still, I am confident these folks will find a way to blame Ronald Reagan. 

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Funny, the American Left does not believe North Korea to be a threat - but Russia does.  

It would be very inconvenient for the folks that supported Obama as the "peace president", who would "bring our troops home" to actually have to make a decision to start a war of his ownership.  A nuclear war on the Korean peninsula would come about from a series of "errors", starting with NK challenging America in the first place.  Kim Jong-Il clearly does not have the same amount of respect (fear) for Obama as he had for GWB.  Some cerebrally challenged individual commented on my last post:

You are right, Jeffers. If we had elected our own psychopath to the White House, then all the other international psychopaths would have been much more impressed

when I suggested that McCain would have made the better commander in chief in these circumstances.  This is the kind of immature thinking - name calling - that suffices for abstract thought in some circles.  

Look, I am just a career analyst with OCD, so I can't help but go over this stuff again and again.  But at least I put SOME thought into it.

I have a son near draft age.  I am TERRIFIED that the unintended consequences of Obama's actions will produce more risk to young people in American than I would have been of the unintended consequences of McCain's actions.  Pretty simple, really.

"Blame". "Fault". Silly words AFTER a nuclear explosion has occurred. What matters is how a series of events led to, or prevented, a certain outcome. I have spent time in Hiroshima.  Every American should.  

It appears to me that, in the West, shouting over the opposition has replaced a sincere co-examination of the facts.

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On another note and of absolutely no consequence... to energy, that is.

I am nearly 50 years old, and have spent my career (if you can call it that) working in the financial services (disservices?) industry.  Until 5 years ago, I had little knowledge of how to work a simple hand tool effectively.  I was well-to-do enough to hire folks to fix my cars, repair my home, etc...  Then I stumbled upon the Prof. Deffeyes books and decided it would be best if I could actually do something useful myself.  

So, like every other guy in the midst of a mid-life crisis... I bought a farm in rural Tennessee (structural repairs to home and barns and fences).  And a tractor (mechanical repairs).  And a plow horse with harness (leather work).  And I grew crops, vegetable, and livestock (composting, working soil, saving seeds, planting fruit trees, vaccines for the live stock while terrified of needles), developed a wood-work shop of mostly hand tools (hand planning 8 foot rough cut oak got me in pretty good shape).

But, mostly, that kind of stuff is fun, right?  

So... recently my 8 year old pick-up truck developed holes in the roof, and rain was leaking into the cab.  I brought it to a body repair shop.  At first they wanted to replace the roof, which would have cost well over $1,000 (or $2,000, you know how that works).  When I pointed out that the truck was worth less than $6,000 and said I wanted the cheapest patch he could do... he replied $350 (before sales tax and any "problems" that arose with the job).

The Greg of 5 years ago wouldn't have blinked, and the job would have been his.  The new Greg asked his buddy for help (he has never done this, either) and with less than $50 in materials.... and less than 2 hours of my time... Viola!  We did it ourselves.

I wouldn't enter the job in the auto show, but that isn't the point, is it?

Today's quote:

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects. - Robert A. Heinlein (my personal hero, and author of my favorite book "Stranger in a Strange Land".)

Mentatt