Thursday, May 28, 2009

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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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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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

7 comments:

bureaucrat said...

Oil is up to $64 a barrel today. Damn Chinese.

Any working person hasn't got time to do all that, Mr. Heinlein. :) Some of my friends ask if I'm on Facebook or Myspace. No time to maintain an account, people. Get a job, Mr. Heinlein. Try keeping your house up -- that will eat into your schedule. You won't have spare time to "be an artist."

I would also say your kid has WAY more to worry about from the avalanche of global debt that has piled up for the last 30-some years, mostly in the U.S. The baby boomers, who have run this country since the 1980s, didn't seem to find it a problem accumulating it. I'm betting that it does become a problem. A big problem. Your son would be safer in the Army, as no nuclear war is going to happen for a very long time.

Anonymous said...

And the world is a more dangerous (danerouser?) place every day. While Obama was met by cheering throngs in Europe, someone in some government building in every country was looking east at the bears and cringing. Same goes in the far east. Japan just decided to get into the weapons business again. I'm sure some of that is for economic reasons, but I'd bet that there is a big component of fear in the mix.

Just what if Uncle Sam no longer has the intestinal fortitude to keep his promises? Our allies are watching Obama as closely as our enemies. They will change their policies and allegiances in their own best interest, too. It is not good to embolden our enemies. This is no time to alienate our friends.

I love to hear the stupid left talk about the US as the Great Oppressor. Perhaps they'd prefer to live in vassal state of Russia or China. Or starve in Cuba or North Korea. Or, perhaps, live in a place where their wife would earn a bullet in the brain for showing her ankle. They are so steeped in privilege they have no idea what they have or where it comes from. But, they are just blowing someone else's smoke. The real radical left that they parrot has its own agenda on how to fill any void left by a weak United States.

Regards,

Coal Guy

Anonymous said...

Obviously, Jeffers, you feel that anyone who disagrees with you is either stupid or immature. Likewise for anyone who voted for Obama.

A few questions...

1. How did Obama bring about the NK situation? These folks have been posturing for decades under all types of US administations. Oh and to credit Bushco- they did a good job in dealing with NK by using regional diplomacy.

2. McCain was denounced by many of his own past close associates as trigger-happy and a hothead. How would this improve the NK situation? There is a big difference between good national security policy and getting involved in unnecessary conflicts which deplete both the military and the US Treasury.

3. Obama never paraded as a flower power guy. He advocated extraction from the Iraq quagmire and employment of US forces in a smarter way.

As for those who voted for Obama, they are not all immature childless space-cases. Here are a few reasons people supported Obama....Oh I refer to "Bush" often and this is a reference to the entire Republican govt- not just to George himself.

*To start with- the rightwing Republicans screwed up the nation in every possible way. Maybe the Dems will screw it up just as bad but hopefully not.

*Bush totally screwed up in the ME. Quagmire in Iraq. No Israeli Palestinian progress. Inflamed the entire region. By many accounts, he was heavily influenced by extreme religious viewpoints- not a good reason to take the nation to war because of the Book of Revelations.

*Bush doubled the national debt during his tenure while his party claimed a high level of fiscal responbility. Obama hopefully would make some changes- tho it's looking like disaster2.

*Bush alienated every foreign govt in the world. Hopefully Obama would be able to establish better working relations with foreign leaders and restore some respect for the US.

*Bush openly trashed the US Constitution. Hopefully, Obama as a consitutional law prof would do better.

*Bushco trashed the fed regulatory organs ie putting industry hacks into leadership positions in order to create a free-for-all for corporate friends of the party. Hopefully Obama would get the industry hacks out and more balanced leadership back in. Some regulatory agencies do essential work. Some should be disbanded.

Oh- and the "hope" and "change" rhetoric from Obama. As for myself, these themes were the low point of the Obama campaign. I voted for him INSPITE of this type of silly rhetoric.

At this point, Obama is looking like a one-term president. His policies in every area are pretty disappointing. But glad to remove the right-wing republicans from office at any rate.

gaah

Anonymous said...

As a child of the elite, your son will never get drafted. Americans don't place the children of wealthy elites in harms way, at least in the military. It's just for working class prols and you left that behind.
The Taliban was educated and radicalized in the madrassas of Pakistan while the CIA was paying daddy to get the Russkies in the early '80's. No one ever thought what the kids might do.
The religious crazys have been looking at those nukes for a long time.
Americans aren't chess players. No attention span, no ability to delay gratification, no big picture thinking. It is always about the next quarter and what I can grab for myself. Especially the elites.
The US empire is going down. We ain't rich enough to police and control the whole world. How gracefully we manage the decline is another question.
Jay Hanson thinks it will end in nuclear resource wars that will finish things off pretty quickly.

A Quaker in a Strange Land said...

Excellent comments all. Thank you.

Bureaucrat:

I do have a "job" - self employed entrepreneur for most of my life. Never had a salary with the exception of my first job after college. Never had someone else pay my health insurance. Never had someone contribute to my retirement fund. Came from the ABSOLUTE BOTTOM OF THE WORKING CLASS. If it were not for a full scholarship, I would not have ever even seen a University. But at least I had a father at home and I never went hungry.

Dear Anon 8:26

My son a child of the elite??!! I am nothing more than another jerk shouting into the wind on the internet. I made a few bucks the very hard way, but nothing outrageous. I never took a company public kind of payday. I just ground it out for 30 years, saving and investing and doing without in order to provide for my family. I am grateful - AND deserving - of what little I have. Not that I would ever spend a dime on myself until all my kids are educated, have homes, and are started in life.

Gaah:

I do not feel that just ANYONE who disagrees with me is stupid or immature - just those that revert to insults rather than a co-examination of the facts.

And I thank you for your thoughtful comments. I will respond shortly, but right now I gotta finish the last coat of paint on my truck.

A Quaker in a Strange Land said...

Coal Guy:

You and I think too much alike for me to comment. I would only be flattering myself.

But keep it coming.

bureaucrat said...

I know your story well. I like to know who I'm listening to. And in my piece above, I was addressing Mr. Heinlein. :)