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| User Info | Higher Education Idiocy, Chris Dodd and The Bond Market in forum [Ticker] | ||||
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Genesis Posts: 71432 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/630-Hi....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-10-27 16:53:59
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Guyfawkes Posts: 352 Incept: 2008-09-19 Texas
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Will it be too late to repeal the TARP if the bond market dislocation occurs? And if it isn't, would the "political will" be there to do it? My fear is that once the 2-3K point drop occurs, Congress won't yank ANY funds away from the bankers, even though that amount of a drop would be the final nail in the coffin of the argument that "we have to do this OR ELSE".
---------- It's still "We, the People".....right?
2008-10-27 17:20:03
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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IF the bond market dislocation occurs you can kiss off half the federal budget. They will be able to choose which half, but not whether it occurs. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2008-10-27 17:21:17
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Cjworkman Posts: 5615 Incept: 2007-08-22 
Online
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Karl, If the bond market dislocates... even if they cut spending by 50%... which means poor people are ****ed... the resulting tankage of the economy and tax reciepts will plunge. Is it at all realistic to think the government can service existing debt? If the dislocation occurs... what is the best option for getting out of US currency? The Yen? ---------- Ben is going to create an equity bubble from excess liquidity that tops at 1200... and bottoms at 300. A bubble inside of bearish economic conditions, so that it never reaches new market highs and crashes far below the lows. - me
2008-10-27 17:30:18
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Karefree Posts: 1637 Incept: 2008-10-15
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Hi, I'm new here and have been reading for a couple weeks. Please be kind - this is my first post: Can someone actually define in layman's terms exactly what "bond market dislocation" actually means? If I missed a FAQ, so sorry...
2008-10-27 17:33:07
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1000ohms Posts: 7384 Incept: 2007-09-06
aka inflam Banned
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Welcome aboard Means if bond prices spike alot in a short time.... ---------- I make somewhat of a sport out of costing people their merchant accounts doing this. I recognize that small tickets are a problem but the solution isn't do violate the rules you voluntarily agreed to when you got your merchant account. - Genesis
2008-10-27 17:35:11
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Architect Posts: 780 Incept: 2007-07-11 
london UK
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Trying to find details of todays bond auction .. not in Bloomberg.. Any ideas?
2008-10-27 17:35:15
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Wisc-xc Posts: 4828 Incept: 2007-07-14
outside chicago
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Mish is still calling for secular lows in bond yields, especially on the long end:Quote:In regards to government bond yields: Yes, I know all about the massive amount of printing taking place. People send me a chart of it every day. Here it is. I like Mish a lot but on this one I think he's dead wrong.
2008-10-27 17:40:54
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Sierraboy Posts: 1329 Incept: 2007-06-26
San Diego, CA
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prices spike or prices crash? I think its crash, not spike. Yields spike, and cost to service debt spikes.
2008-10-27 17:42:02
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Cjworkman Posts: 5615 Incept: 2007-08-22
Online
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Kcohn, In the easist explanation possible. The US treasury issues bonds to fund itself. They come in 13 week to 30 year versions. We as a nation are in debt, this is because we have spent more than we save for many years. The Clinton administration was the last time there was a short span of a budget surplus. meaning the government was actually able to pay down some debt instead of creating more. A bond market dislocation will occur when foreign countries, who fund our indebtedness by buying treasury bonds, decide that they no longer think they will be paid. This is similar to if you were applying for a mortgage, then during the application process decided to buy a car, then the mortgage company decided that with the car payment, they don't think you'll be able to pay your mortgage so they reject your application. The US is dangerously close to having way to many cars and foreign countries may stop giving us a mortgage. If that happens, they sell all our treasury bonds on the open market trying to get whatever they can while there is still something there for them. This in turn creates a stampede. When bond prices fall (being sold) yields ramp. So it will dramatically raise the cost of both the government funding itself, because they (the government) will have to pay an interest rate similar to your credit card to fund itself. Consumer and corporate debt will also get much much more expensive. 30 year Mortgage rates up to 15% from 6%. If the government has to borrow at 10%.. then banks borrow at that rate as well.. therefore must charge an even higher rate in order to make money. Government would have to drastically cut spending or default. In the case of default.. the dollar becomes worhtless. ---------- Ben is going to create an equity bubble from excess liquidity that tops at 1200... and bottoms at 300. A bubble inside of bearish economic conditions, so that it never reaches new market highs and crashes far below the lows. - me
2008-10-27 17:46:40
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Patentleathershoes Posts: 7642 Incept: 2007-09-13
Looking forward to PB&J time!
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CJ: Excellent explanation.  Now over to Metrofax.
2008-10-27 17:54:04
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Meatpuddle Posts: 630 Incept: 2007-07-26
Madame Merriweather's Mudhut Malaysia
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Kcohn1963, this should clear things up. Granted this was from 6 months ago but was an instant youtube classic, and is still every bit applicable today. http://www.youtube.com/watch?v=TKa5vgZxV.... This would be like interest rates on the long end (mortgages, etc.) spiking up to 12% overnight. Not only can this happen, but this probably will happen once the tanking in the stock market is more or less done sometime in the next year (or week?) The problem is that the asshats at the Federal Reserve and Treasury are essentially crowding out all forms of private credit and funneling everyone into Treasuries. The more alphabet soup programs, endless rate-cutting, and various so-called bailouts that are performed, the more crowding out occurs. The stock market used to cheer every one of these asinine maneuvers, but not so much anymore, now that the short bus riders have figured out what crowding-out is and how it escalates in this type of environment. Once this process is complete, either by the Fed/Treasury simply running out of options or by a sudden realization that these policies are totally and insanely counterproductive, then the logical next step will be a bond market collapse, followed directly by GD2. Here's another good post on the subject, although you may or may not agree with the conspiracy theories: http://globaleconomicanalysis.blogspot.c.... ---------- "the idea that you're "entitled" to a 5 or 6 percent 30 year mortgage is horse****, and so is the housing prices that it has created." - Genesis
2008-10-27 17:59:13
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Jerm Posts: 58 Incept: 2008-10-10
Massachusetts
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Very nice ticker! I will be ordering a Market-Ticker shirt too. I would love to see Dodd come out and say he was wrong and reverse the TARP but as the highest paid of all of congress on the Fanny Freddy bandwagon it might cut into his future contribution fund. ---------- It's a good thing bagpipes don't smell -- Wilde
2008-10-27 18:00:37
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Karefree Posts: 1637 Incept: 2008-10-15
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Yes, thank you, CJ... great explanation!  okay, next dumb question: why would it be bad if our government was forced to stop their deficit spending? I guess this mechanism of a dislocation that "forces" them to stop and the immediacy of the event would be traumatic, but, ultimately, wouldn't it be good if the US stopped deficit spending? Last modified:
2008-10-27 18:36:23 by kcohn1963
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Mortgagefreakshow Posts: 1842 Incept: 2007-06-26
Northern NJ
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Awesome Ticker Karl. Would be great to get your design on a long sleeve shirt for the winter.
---------- "Someone has to do something, and it's incredibly pathetic it has to be us." Jerry Garcia
2008-10-27 18:04:17
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Djrichard Posts: 113 Incept: 2008-08-03 Raleigh, NC
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Quote:If that happens, they sell all our treasury bonds on the open market trying to get whatever they can while there is still something there for them. This in turn creates a stampede. But if countries sell US bonds then what are they rotating into? Their own bonds/currencies? I could see this in the case of entities undergoing margin calls in their own markets, but sovereign wealth funds/foreign central banks wouldn't have that issue. Quote:Government would have to drastically cut spending or default. In the case of default.. the dollar becomes worhtless. Wouldn't that work the other way around? If the goverment defaults, that will be a huge debt destruction event - wouldn't that deflate the dollar to the point where it would become incredibly expensive? I think the dollar becomes worthless when some other entity wrests control of the printing process from the Fed. This may happen when the government defaults, but I'm not sure that's a given. Just trying to connect the dots. Thanks! ---------- "99 percent of everything done in the world, good or bad, is done to pay a mortgage, so perhaps the world would be a better place if everyone rented" - Nick Naylor, Thank You For Smoking Last modified:
2008-10-27 18:06:11 by djrichard
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Wrldtrst Posts: 38 Incept: 2008-06-27 Chicago or Rio
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I went to candles a few years ago and kinda stayed with them. I had SPX 897ish as the support of this triangle so we are already below that. This thing is just begging to test the trendline that started in 1982. Have fun!
2008-10-27 18:13:43
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Jonw Posts: 4 Incept: 2008-06-15 Moab, UT
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As always...Great ticker Karl! One question...when you say: "treasury market dislocation" are you thinking a rapid decline into a "Mad Max" scenario or a long term, deep depression? I believe that there is so much lying from our government and deceptive trash passing as financial reporting who knows what can happen. Thanks in advance.
2008-10-27 18:15:51
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Kurtosis Posts: 1142 Incept: 2007-10-30
Honolulu
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Quote:Trying to find details of todays bond auction .. not in Bloomberg.. Any ideas? http://acrossthecurve.com/?p=1974 Quote:The interesting outcome in the Treasury market today was the result of the auction of $6 billion 4 year 6 month TIPS. For the uninitiated that stands for Treasury Inflation Protected Securities. The auction was rather sloppy as the auction tail was 14 basis points. (In bond market jargon the tail is the distance from the level at which bonds were trading on a when issued basis immediately prior to the auction, to where the Treasury was able to complete the sale. That long tail represents a lack of interest from clients and dealers who would normally underwrite the security.) Quote:The Clinton administration was the last time there was a short span of a budget surplus. meaning the government was actually able to pay down some debt instead of creating more. Not really, he just massaged the numbers by, iirc, categorizing Social Security funds as an asset rather than liability. Otherwise great explanation, just want to add one point. All interest rates throughout the entire economy are indexed off Treasury Bill/Bond/Note yields (and Libor too in some instances, I think). For example, 30yr home mortages are indexed off 30yr Treasury Notes. So if a bond market dislocation occurs, there is a selloff in bonds that results in falling bond prices and ramping yields (yield ~ bond fixed coupon interest rate / bond price) on Treasuries. But that also means that all other interest rates indexed to those yields rise as well. So all newly-originated fixed-rate debt and all adjustable rate debt (credit cards, personal credit lines, etc.) blows up. If anyone can remember the interest rate levels of the early 80s Volcker era, that's what we're heading for. I was only about 5yrs old then, but I've heard my dad complain about it, and have warned him he might see it twice in his lifetime. ---------- The Depression is already here, it's just not evenly distributed. Last modified:
2008-10-27 18:33:36 by kurtosis
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Eaglewwit Posts: 1890 Incept: 2007-11-30 SoCal
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If the bond market dislocates. We will immediately become a protectionist country. All bonds of foreign holders will be defaulted on, and the vast majority of federal spending will be for the military. I don't see any other option.
---------- "Not even I imagined we would see trillions of dollars being created and given to the culprits as a means of allegedly "saving" the system. This is not mere Keynesianism; it is Keynesianism on steroids and crystal meth."
2008-10-27 18:18:26
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Baldy Posts: 6555 Incept: 2008-05-16
Pittsburgh
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Could there be other reasons for our bonds to crash? Such as problems of a domestic nature in foreign holders' countries? EDIT: I realize the most pressing issue and most likely is our govt's inability to "ration" their spending...
---------- FY2011 Budget - Hist'l Tables (PDF 2.0 MB) http://www.whitehouse.gov/omb/budget/fy2011/assets/hist.pdf 1996-2011 budgets: http://www.gpoaccess.gov/usbudget/browse.html Last modified:
2008-10-27 18:21:24 by baldy
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Moonoverseattle Posts: 2776 Incept: 2008-02-02
MOTEL 6
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All bonds of foreign holders will be defaulted on which begs the question " how do we fund our govt?" ---------- A democracy cannot exist as a permanent form of government It can only exist until the voters discover that they can vote themselves largesse from the public treasury.
2008-10-27 18:26:56
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Kurtosis Posts: 1142 Incept: 2007-10-30
Honolulu
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Quote:why would it be bad if our government was forced to stop their deficit spending? I guess this mechanism of a dislocation that "forces" them to stop and the immediacy of the event would be traumatic, but, ultimately, wouldn't it be good if the US stopped deficit spending? It's desireable to reduce the govt debt and deficits to a more sustainable level, but in a more controlled way. Keep in mind the multiplier effect of government spending - govt stimulus spending tends to have an effect about 4x the nominal amount of the actual spending. That probably works in reverse as well, and if govt spending is abrubtly cut by 50% all at once due to a bond market dislocation, the economic consequences would be disasterous. Quote:Wouldn't that work the other way around? If the goverment defaults, that will be a huge debt destruction event - wouldn't that deflate the dollar to the point where it would become incredibly expensive? I think the dollar becomes worthless when some other entity wrests control of the printing process from the Fed. This may happen when the government defaults, but I'm not sure that's a given. The dollar is just a piece of paper unless you can exchange it for something of value. If it were formally backed by gold, other precious metals, or commodities, or something like that, then that would provide a guarantee that anyone in the world could exchange the dollar for something of value. Hence people would trust that worthless piece of paper as a store of value and medium of exchange. However, instead the dollar is backed by US Treasury bonds, the sovereign debt of the largest economy in the world. Anyone in the world can exchange the dollar for a US Treasury bill/bond/note, which pay a set interest rate and are directly backed by the economic tax base of the US. However, if the US Govt defaults on some or all of those bonds (likely only some, T-Bills would be the last to get defaulted on), the dollar partially loses its backing and the world loses its trust in that worthless little piece of paper since there's no longer a guarantee it can be exchanged for something of value. In that case, the world starts selling off dollars and Treasuries, looking for an alternative risk-free rate of return. ---------- The Depression is already here, it's just not evenly distributed.
2008-10-27 18:27:10
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Meatpuddle Posts: 630 Incept: 2007-07-26
Madame Merriweather's Mudhut Malaysia
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Quote:why would it be bad if our government was forced to stop their deficit spending? Without getting too tin-foil here, let's just say that we have a fractional reserve debt-based monetary system where money is literally loaned into existence. Credit is also debt, I'm sure you understand this. So in a peak credit environment where credit is starting to evaporate, it is absolutely DISASTROUS for the current system if the US were to discontinue deficit spending, and paradoxically disastrous (crowding-out) for them to continue deficit spending. There is no easy way out of this mess, the days for a relatively easy solution are long, long gone. But one path is much worse than the other, imho, and the better path would be to stop the insane crowding-out policies and let deflation happen on it's own accord. Here's a pretty good layman's blog on the subject: http://www.suddendebt.blogspot.com/ ---------- "the idea that you're "entitled" to a 5 or 6 percent 30 year mortgage is horse****, and so is the housing prices that it has created." - Genesis Last modified:
2008-10-27 18:29:09 by meatpuddle
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Kurtosis Posts: 1142 Incept: 2007-10-30
Honolulu
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Gen, isnt' there already a de facto global central bank, the BIS? What's the difference in what this guy is calling for?
---------- The Depression is already here, it's just not evenly distributed.
2008-10-27 18:29:40
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