We have been talking about this for some time, (see posts here 1, 2, 3, 4). In this clip Bloomberg editor Tom Keene talks about the issue and raises some interesting points on the matter. Debt growth has retracted rapidly and deep, it is even greater than the contraction of the 70’s (see chart in the clip). There seems to be no private demand…. Cause for concern one would think!
Charles Diebel of Nomura Internation on his outlook on the treasuries. There has been talk for some time of a treasury bond bubble forming, the scope and depth of this can only be expressed over time, however, the money that has flown out of equities and property must have flown somewhere and perhaps the treasury ‘flight to quality’ is actually going to be the stimulus that caused the treasury bubble to form (if there is one). The talk of inflation – according to Mr. Diebel- is more of a 2010 story than one of 2009, however, as per our comments in the past, if you are considering a fixed rate mortgage you will have to do so ahead of the curve in order to gain an upperhand on inflation.
[this clip has a 5 second delay before it starts]
We have spoken before on this blog about the likelihood of a treasury/govt. bond bubble forming. The indicators were out last year when we saw negative margins in the secondary market for US TBills. What this meant was that rather than earning interest to hold Tbills people were actually paying to hold them.
This, matched with the TARP and Stimulus packages mean that government bonds will need to increase the yield to get buyers when the flight to safety that has propped them up so far dissappears.
The manifestation of this will probably result in a severely weakened US dollar, if this happens then the EU will be forced to devalue to some degree so that it doesn’t totally decouple from the world economy, although some hegemonic status in the Euro wouldn’t be a bad thing in terms of providing future protection to the Eurozone.
A counterpoint is in the video below by Hugh Hendry
Taking rent is perhaps the best and yet most unproductive part of an economy, in the past we have spoken about the concept of ‘rent taking’ regarding economic bubbles and the effects of same. The last few years have seen rent takers jumping from one resource to the next in search of a good place to rest.
In the dotcom boom the rent taking was in the real estate of cyberspace, buying ‘probable’ names and sitting on them was popular until it proved to be a pointless exercise as companies found other ways around the problem, in some cases (such as 20th Century Fox re-branding because somebody bought 21stCenturyFox.com etc.).
After that the low rates and capital gains to be found in housing caused the next boom bust, it is fair to say that it was the land owners (the original rent takers) who did the best in this scenario. In any case the money left housing from 2005 onwards (for instance Berkely group sold off half of their 26,000 land …