The bond market is revolting.

[Beet]

C'mon, jmf, in February it was 275 basis points, now three months later it's 335 basis points. And in the intervening time you know what was announced... At this rate we will be around 500 by the end of the year.

On the other hand, the pound is absurdly f'ing high. Since Sam suggested shorting the pound when it was around $1.35 right after they announced QE (which I thought was a reasonable suggestion), it has now climbed to $1.58. Not exactly the stuff capital flight is made of? But I haven't had as much time as I'd like to follow these things.

[Swing low, sweet chariot. Comin' for to carry me home.]

C'mon, jmf, in February it was 275 basis points, now three months later it's 335 basis points. And in the intervening time you know what was announced... At this rate we will be around 500 by the end of the year.

Question:  What was it 12 months ago?  Answer: 408

Question:  What was it 14 YEARS ago? Answer: 659

we are coming off of historically low yields (<300)....that's a GOOD SIGN, it means things are stabilizing.  It we were still headed for depression, the yield would be <250, a VERY BAD SIGN

[Sam Spade]

C'mon, jmf, in February it was 275 basis points, now three months later it's 335 basis points. And in the intervening time you know what was announced... At this rate we will be around 500 by the end of the year.

On the other hand, the pound is absurdly f'ing high. Since Sam suggested shorting the pound when it was around $1.35 right after they announced QE (which I thought was a reasonable suggestion), it has now climbed to $1.58. Not exactly the stuff capital flight is made of? But I haven't had as much time as I'd like to follow these things.

Honestly, I would have exited once the US started QE, but since I didn't say so, there's no reason not to call me on it.  We all make smart calls and dumb ones on individual plays.  My gold call of a few weeks ago looks pretty sweet - it's gone up about $70-80 dollars, but that was entirely technical.  GS call was technical too but has been pretty much neutral.  In fact, I would play the gold trade very closely now, because I expect it to turn around decently soon.  I'd probably exit the GS call, just because nothing important has happened (yet).

I have to be frank and play contrary analyst here for a moment.  There is a very important part of me that looks at monetary theory within the present world situation and thinks that QE is actually deflationary, but I would have bet against that because of the way the market psyche thinks - henceforth my call on the pound. 

But this is all out the window now - the dollar is acting as such because major players are playing the reflation trade AND are generally concerned about the credit quality of the US (as am I - henceforth my preaching on bonds which simply refuse to break the uptrend line established after the QE announcement - the dollar is different).   You can't bet against this action until credit spreads deteriorate in any decent scope again.  In other words, we need post-September 1930 to initialize...

[Swing low, sweet chariot. Comin' for to carry me home.]

Obama's budget is much more of a medium to longterm threat to the economy than temporary QE.  There is no excuse not to drastically cut spending after the economy starts to recover.  We simply cannot afford the level of spending Obama has projected over the next 8 years.

Now, I know it's not entirely Obama's fault and he was dealt a very bad hand, but his budget only compounds the problem.

Tempory QE and stimulus spending is prudent when faced with the alternative of imminent  Great Depression II, but once the ship is stablilized (some time in the late Q3 to Q42009 timeframe), the spending has to be brought under control.

[Beet]

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Alright, but when did BB try to remove liquidity and push money from stocks to bonds before Lehman?

[Sam Spade]

bump.  Pretty bad day for the 10-year.

BB is about to do something about this (because of mortgage rates), so I can't advise shorting bonds presently (actually I would advise going long bonds for a little while) BUT eventually this is going to blow up on the long-end (and therefore the mortgage rates).  When that occurs, we can discuss the next step this scenario will take.

But this will take a little time.  I don't expect it to be imminent.  Just when it does, causing us to reach the next stage, please don't be long gold or equities (or oil probably either).

[Swing low, sweet chariot. Comin' for to carry me home.]

But this will take a little time.  I don't expect it to be imminent.  Just when it does, causing us to reach the next stage, please don't be long gold or equities (or oil probably either).

Don't leave me hanging...can you lay out the stages so that I know what you're talking about?

[Beet]

Bad news guys, bad bad news today. If this goes on Obama will have to start changing course. Can we really afford a massive new health care entitlement right now?

[Sam Spade]

Today's ten-year auction kinda sucked.  Bid-to-cover and indirect bidding was ok, but the 5bps tail was bad.

This is why we popped up over 4% for a little while (and will eventually be getting there unless the Fed buys back much more (and even then maybe not) or the Fed pulls liquidity)

[Swing low, sweet chariot. Comin' for to carry me home.]

Bad news guys, bad bad news today. If this goes on Obama will have to start changing course. Can we really afford a massive new health care entitlement right now?

4% is still historically low, so when the GDP starts to grow, expect the bond yield to move closer to 5%....so, NO, we can NOT afford to be taken on any more debt that is not absolutely necessary.  Obama is spending on new programs as if we're running $400B annual surpluses.