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Monday, August 11, 2008

Bond Vigilantes, US Treasuries, US Dollar, Oil

Talk about being ahead of the curve…
I last brought this up in US Treasuries, US Dollars, Commodities.

Bond Vigilantes Who Gave Bush a Pass May Ambush Obama or McCain: “The bond vigilantes who've been missing in action under George W. Bush may be preparing for a return engagement once Barack Obama or John McCain takes office next year.

Investors and former policy makers predict that the same market forces that torpedoed President Bill Clinton's “putting people first” spending initiatives at the start of his presidency are gathering again at the prospect of McCain's tax cuts and Obama's health-care and education programs.

“Though times are different and a lot of the government spending is necessary, we're going to see rates rise in a saw- tooth pattern over the next few years,” says E. Craig Coats Jr., the head of Salomon Brothers' government securities desk when it was the world's biggest bond trader. Coats considers himself one of the original vigilantes, the bearish traders who drove up long-term interest rates, persuading Clinton to place deficit-reduction above fulfilling his spending promises.

That course-reversal prompted Clinton political adviser James Carville to observe at the time: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.”

Economists and traders say the prospects for increased government borrowing needed for either McCain or Obama to enact their proposals will again lead investors to shun Treasuries and push up interest rates. Ten-year yields are forecast to reach 4.63 percent by the end of 2009, according to a Bloomberg survey of 68 economists.”

I’ve warned of the Bond Vigilantes in the past…

Inflation, Rates and a Fed Out of Ammo
Fed Cuts Rates, Market Raises Rates
Fed Cuts and Rates Rise: Bond Vigilantes
The Bond Vigilantes are Back

Dollar Gain Signals Pain as Rally Prompts Exit From Bull Trade: “Just because the dollar posted its biggest gain against the Euro in almost eight years doesn't mean the U.S. currency won't continue to be plagued by the nation's slowing economy, widening budget and trade deficits and negative inflation-adjusted interest rates.

The 4 percent surge against the single European currency this month was enough to prompt Bank of America Corp. to tell its customers to exit trades betting on more gains. Morgan Stanley still forecasts the greenback will approach a record low by October as the U.S. housing slump and credit-market losses keep the Federal Reserve from raising interest rates this year.”

The guys are Morgan Stanley miss the point (or are talking their book). The Euro is overvalued and will collapse as the Euroland economy dives into a recession. The ECB is definitely done raising and will most probably end up cutting.

Like I keep saying, the Global Decoupling Theory is Garbage. With real estate prices collapsing in Ireland, Spain, Greece, and now Italy NO other outcome is possible.


Thai said...

So how do you expect emerging market currencies to perform?

Anonymous said...

not all EM is created equal.

Also depends on what goes with the USD rally.

most likely scenario is lower commodity prices as well which means you should be long Asia (versus EUR and GBP), and short Latam.

At these levels it is no longer attractive to be long CEE5.

Also long TRY. And short ZAR.

Anonymous said...

Looking back at the Walmart entry (I was out for a week) and middle class folks slumming it down the retail food chain. Heck, I've shopped at Goodwill/Salvation Army for years (and it is getting more crowded there/"higher class" folks). I'm glad there are people who do shop at Walmart, so I can get their castoffs for <10%. A couple weeks ago, I bought 3 various size bikes/helmets for nieces/nephews for <$25. The same day I went to Walmart to get a $3 tire tube for one and saw a family buying 3 new bikes about the same size as mine. I went back and priced them and figured they just spent ~$200+.

Do I need Goodwill, not really, but as long as there are people to shop at Walmart/malls, I'll find my gems at Goodwill. My wife/my lifestyle: about 75% equity in our Atlanta area house that we hope to be complete in about 2 yrs, a small condo in Atlanta, 3 10+ year old cars, and I love finding street throwaways, a $70 leaf blower/fixed burned wire, ~$50 wheel barrow just needed tire tube, a working $70+ shop vac, and a great cabinet/prep station for my grill.

I just love find stuff and don't feel at all uncomfortable shopping at Goodwill.

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