Wednesday, December 10, 2008

The Debts of the Spenders: 0% Interest Rates On Treasuries

What does it mean?

The government is refinancing. They sell the bonds at 0% and then can pay off longer term bonds at higher percents.

The gold and inflation bugs got it all wrong because they are effectively shorting the dollar, shorting Treasuries, and betting on inflation.


Deflation is here to stay for a bit longer.

The best time to short Treasuries is when interest rates approach 0% or go negative (depending on the term we are talking about) because there is literally no further room to go.

But in this kind of environment all you can do w/that trade is short term scalping. The longer term trade will be after the Fed cuts to .5%

I say after instead of before because we remain in a deflationary spiral for the short - medium term. Normally the rates would go back up. Especially w/all the money printing going on.

BUT, just look at the case of Japan for an ex of what didn't happen according to plan.

A lot of yen bond shorts got destroyed or made only marginal returns in the mid-90s to first part of the 21st century because the BOJ continues to keep rates below 1%.


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