Investors expecting the worst

Maybe you remember news stories like this from last December, when it seemed the entire world's economic system was about to break down.

Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

Negative yields essentially mean that you are paying the government to loan it money. It's a flight to safety at any cost. Last December was the first time it had happened since the Great Depression.

It happened again today.

(Dow Jones)--Demand for the three-month Treasury bill is ramping up as investors seeking safety heading into the end of the year stock up on the safest possible securities at a time when Treasury bills are in short supply.
Bill yields last fell below zero in late 2008 amid the financial market panic that was triggered by the Lehman Brothers bankruptcy. The decline now isn't driven by the same sorts of fears though - it's more about a scarce supply of T-bills amid strong demand for safe assets given the hazy economic outlook.

Scarce supply? Do they think we are morons? The Federal Government is issuing debt like it grows on trees. There is enormous mountains of treasury debt out there in the financial world because of America's unprecedented deficits.
It was only two days ago that a Federal Reserve bank president had this to say.

Fisher told a group of bankers and business executives that he was surprised at how low rates have remained despite what he termed a "significant" increase in debt issuance.

Does the WSJ think we didn't notice? Perhaps they think we also didn't notice that gold, the other safe haven investment that people run to when they expect a financial collapse, was hitting new all-time records.

To put it simply, while the financial media keeps feeding us happy-talk about an economic recovery, the big money, the smart money, Da Boyz on Wall Street are running to safe havens.

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There was a good article in FT today about

treasuries are today's "alternative asset". Richard Bernstein basically called out investors and said we haven't learned the lessons of the last two years. He says that investors should instead of criticizing Japan and China's investments in treasuries we should be emulating them. - Financial Information for the Rest of Us.


In all seriousness, why should we be buying U.S. debt when policy makers are not putting together policies to really grow/make strong the U.S. economy plus make sure later those T-bills are good?

What am I missing here (if nothing)?

Bernstein's point was that right now

treasury bonds are the only asset class with negative correlation to most other asset classes.

His main criticism is that investors continue to define asset allocation in terms of the number of assets classes in a portfolio rather than by the correlations between those assets:

Chinese and Japanese investors have notoriously large positions in Treasuries, and may be the only investors today with truly diversified portfolios. If global growth accelerates and their domestic economies perform well, Treasuries are likely to underperform (especially given the associated weakness in the dollar). But those countries’ improving domestic cash flows would probably make up for their investment shortfall in Treasuries. If their economies turn down, the odds are that Treasuries will perform well (and the dollar strengthen), counterbalancing weakening domestic cash flows.

It is remarkable that perhaps today’s best examples of diversified portfolios, namely those held by the Chinese and Japanese, are criticised by the remainder of the investing world.

Investors should be trying to emulate their Chinese and Japanese overweight positions in Treasuries. Instead, Wall Street is striving to get the Chinese and Japanese to “diversify” like everyone else. In my opinion, the Chinese and Japanese should ignore the advice and stick with their Treasuries. - Financial Information for the Rest of Us.

sure are

and a host of blogs are saying the smart money took their profits over the stock market bubble, seeing a lot of reports on this period being yet another bubble and ran.

But I still also point to oil speculation. We're ignoring that and it's not matching at all the laws of supply & demand, which are still down and frankly having a bunch of hedge funds, flash traders, GS, JPMorgan Chase manipulate the most critical commodity for the real U.S. economy is not ok.

Gold as save haven, sure, like what? I mean it's used in industrial production but it's just not as critical as oil is.

Also, check out, I just wrote up some key findings, of the latest China vicious cycle of they lend to us, keep their Yuan pegged and we go into debt.

The dollar devaluation plus their peg ....wouldn't surprise me that this is a major influence on the latest on T-bills.

It's like the vicious cycle has eaten it's young. It's like cronos on the U.S. economy.

Gold as safehaven

Gold as save haven, sure, like what? I mean it's used in industrial production but it's just not as critical as oil is.

Roman gold coins were used as money in western europe for hundreds of years after the fall of Rome. When Lehman went under people all over the world started buying gold coins faster than the world could mint them.
At a certain point you have to consider that maybe you don't understand gold. If you want to see a kindred soul, read this.

Gold has positive value. It has had positive value for nigh-on 6000 years. That must make it the longest-lasting bubble in human history.
I don’t want to argue with a 6000-year old bubble. It may well be good for another 6000 years.

The idea that gold is just another commodity is an idea that is only a few decades old. If you think of gold as a commodity then you will never understand the attraction. You will wonder why gold isn't the same value as granite or sandstone. And you will continue to miss out on the bull market.

oops, I'm ignoring this aspect

I'm talking about gold as a commodity as it affects the rest of the real economy and it's not the same as oil.

In terms of gold as a safe haven, I get it! I GOT it! I'm making money off of it! (I bought it a while ago because I believe it will go to above $1150/ounce!).

CR has more explanations

in a post that worries....

more on negative T-bills.

I'm not sure if that means I should worry more or worry less?

I'm not impressed

The reasons listed are:

a) a massive wall of liquidity just finding a safe home.
To which I reply: 1) that doesn't explain why it is purchasing a money-losing investment if the economy is good, 2) if there is that much extra money out there then shouldn't they be worried about inflation, instead of buying an investment that only makes sense in deflation?

b) it's window dressing for year-end.
To which I reply, how is a money-losing investment helping that? If there was a bunch of great investments out there in the stock market, or building factories, or whatever, wouldn't that be where the money would be going?

None of that bullsh*t makes any sense. Something is seriously wrong, and they are trying to sell you a line of crap. You don't have to be very smart to realize that.

good points midtowng

I think some graphs, analysis, data is in order on this one because relying on opinion in Bloomberg probably isn't too wise to try to figure out what's happening.

Dollar Libor rate hits record low

There's a good quote in this article.

"Flow information suggests central banks buying T-bills and short-term Treasury cash even at very low yield as cash is abundant," said BNP Paribas rate strategist Alessandro Tentori.

So a big part of the reason that short-term interest rates are being crushed is enormous demand by foreign central bankers who don't want our long-dated bonds. It's a matter of central bankers reducing dollar risk.

The big Four (Gov. Sachs,

The big Four (Gov. Sachs, JP, Wells & BofA) need a place to park their profits from their trading desks. My guess is they inflated this phony market long enough to rope in the retail investor. Now they are setting up to "turn off the lights"! Goodnight!

IMF sells another 10 tonnes of gold

More than half of their 403 tonnes of gold for sale is now taken, and it still hasn't hit the open market.

The International Monetary Fund said Wednesday it had sold 10 tonnes of gold to Sri Lanka's central bank for 375 million dollars, as part of a restructuring of IMF financial resources.
"The sale was conducted on the basis of market prices prevailing on" Monday, the IMF said in a statement.
Gold prices had hit a record high that day, topping 1,170 dollars an ounce. Since then, the price of the precious metal has soared higher to new all-time peaks as investors seek a safe haven amid economic uncertainty.
The sale brought the total IMF gold sold to central banks to 212 tonnes. India bought 200 tonnes between October 19 and 30 for 6.7 billion dollars and Mauritius bought two tonnes on November 11 for 71.7 million dollars.
Sri Lanka has a 20-month IMF loan of 2.7 billion dollars that was awarded in July after the island nation's reserves slumped to just over one billion dollars as the government made a final offensive to crush separatist Tamil Tiger rebels.

It's interesting that nations are using dollars they borrowed from the IMF to buy gold from the IMF. Someone is making a bad deal.

Midtowng did you miss this Instapopulist?

In the middle of the night, a little blurb from the India press came out that India is "in negotiations" to buy the rest of the 200 tonnes of gold from the IMF, i.e. all of it.

Well, it would seem the IMF is the one making the bad deal and it also sounds like emerging economies, esp. India are trying to decouple from the dollar using Gold.

I'm wondering if something more cataclysmic is under foot, such as a national default on debt somewhere. I am not pointing to the U.S., although trying to believe that the U.S. isn't vulnerable is a huge mistake (this constant belief that the U.S. is rock solid), but something more akin to Russia, S. Korea, Thailand level of default.

definition of emerging economy?

You refer to India as an ‘emerging economy’, and in other places China also. What is the definition of an emerging economy? When do they cross the threshold to ‘emerged’? Because the way they are kicking our backsides they sure seem emerged to me. And, if they are not ‘emerged’ now, what’s going to happen to us when they do?

Again, “what is the quantitative measurable definition of ‘emerging economy’ and what is the threshold to ‘emerged.”

Thank you


Well, it's supposed to mean 3rd world nations which are rapidly growing and industrializing...

Unfortunately the WTO gives EEs preference in trade and this is the most absurd. Last I checked China is still classified as a EE, which gives them enormous advantages in terms of setting tariffs.

Obviously this is absurd since China is slated to be the world's #1 economy in about 5 more years.