Bonds, Notes and Bills

In this video Paddy Hirsch talks about Bonds, Notes and Bills helping to break down how debt is described based on its tenure and also a little about how they work. This is worth watching twice if you have heard ‘Government Bonds’ mentioned in the past but didn’t really get what they were talking about.

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Rock bottom, when you reach it, you won't know it

Capitulation, the point in the market cycle of emotions when right before despondency. Despondency is actually the point of the opportunity for greatest profit, and reaching that point requires going through a painful process. The primary factor is that before any recovery we will need to see all of the dead-wood clear from the system, and that is not a pleasant process, it is however, an important part of the process and anybody who says we can have ‘painless recovery’ is not telling the truth.

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Rock bottom, when you reach it, you won’t know it

Capitulation, the point in the market cycle of emotions when right before despondency. Despondency is actually the point of the opportunity for greatest profit, and reaching that point requires going through a painful process. The primary factor is that before any recovery we will need to see all of the dead-wood clear from the system, and that is not a pleasant process, it is however, an important part of the process and anybody who says we can have ‘painless recovery’ is not telling the truth.

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Government Bond Bubble forming

[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

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Auction Rate Bond Market feels the pinch

There has been unforseen intervention by the US Fed in the American markets, however there is still a domino effect, today we saw that there was a problem with the Auction Rate Bond Market and it has culminated in an investigation by nine state regulators.

It was said in the past that the Auction Rate market was dead after Wall Street banks ceased to purchase their own unwanted bonds, Auction Rate Securities are not liquid and this has resulted in the above case which broke in the news today. Investors were lead to believe that the bonds were a ‘cash equivalent’ however they are not, and the regulator is pushing to over rule the bonds because if money was to be seen as cash going in it has to be treated as cash on the way out (i.e.: it can’t be tied into conditions).

Auction Rate Bonds allow issuers such as Governments, Hospitals and Municipalities to issue …

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