us treasuries: biggest weekly loss since 1987, page-21

Andrewhc

"I thought the exit from treasuries was a sign that investors are looking for higher yields and could be returning to equities?"

My comment: Not sure what you mean ie short term T bills provide a lower yield rate than long. Oh you mean return to equities? The only return to equities will be in very select sectors and stocks eg definitely gold stocks, possibly oil, agriculture and bio/pharma - cashed up , debt or secured debt.

However, with overall markets continuing to move downwards and no sign of a bottom coupled with risk aversion, credit deprivation etc do you really see this as likely? I don't.



http://www.runtogold.com/2009/01/why-and-how-the-treasury-bubble-will-burst/

"Holders of capital seek to eliminate their downside while maintaining the same upside resulting in less demand for government debt. To entice capital up the liquidity pyramid rates must rise but cannot because so much capital is moving down the pyramid. To date, enticements up the pyramid have failed as MBS, Auction Rates Securities, ABCP, the DOW, S&P 500, etc. all show as asset price deflation continues and intensifies.

When a house of cards collapses there are at least cards left on the table. In the current case, there are no cards left on the table. As we see the current system is not collapsing but evaporating."


What is happening in the currency markets? I think you will find that the movement is away from buying currencies and increasingly favouring Gold as a currency of choice.

Some worthwhile reading:

Great Blog this one -
http://blogs.cfr.org/setser/2009/01/24/the-us-placed-about-13-trillion-of-treasuries-with-non-chinese-investors-in-2008/

http://watchingusdollar.blogspot.com/2009/01/peter-schiff-bond-bubble-burst.html

http://blogs.wsj.com/marketbeat/2009/01/16/chinas-short-term-treasury-binge/

http://www.runtogold.com/2008/02/first-snowfall-of-kondratieff-winter/



Champ2003

No that was not what I was implying. However, "Why would they do that if the value of their gold is increasing whereby treasuries offer low yields??"

Why indeed - that is provided they have anything to sell.

http://seekingalpha.com/article/116312-the-u-s-treasury-s-golden-shell-game

Lastly on China - or "Chinamerica" I appreciate Niall Ferguson's comments on this:

http://www.vanityfair.com/online/politics/2009/01/niall-ferguson-america-needs-to-cancel-its-debt.html

How badly could the Chinese sc*** (my comment - sorry HC direct quote) us if they wanted to?

Well, they would have a difficulty in that they would kind of be sc***wing (HC and again) themselves. This is their dilemma. There’s a sort of “death embrace” quality to this, I think that someone’s talked about mutually assured financial destruction. The Chinese have got, we know, reserves in the region of $1.9 trillion, and 70 percent [of it is] dollar denominated, probably. That’s a huge pile of treasury bonds, not to mention Fannie and Freddie debt that they’ve accumulated over the last decade, when they’ve been intervening to keep their currency weak, and earning these vast amounts of foreign currency by running these trade surpluses. Now, politically, it might be quite tempting for the Chinese to phone up and say, “We really disagree with you about, let’s say, Taiwan and Japan and North Korea. You’d better listen to us, because otherwise, People’s Bank of China starts selling ten-year treasuries, and then you guys are dead.”

But then their investments become worthless.

Then you lose about five percent of China’s GDP, and that’s a hard sell—even for an authoritarian regime. So, they have a dilemma, and they are discovering the ancient truth that, when the debt is big enough, it’s the debtor who has the power, not the creditor.

But, then again, these things aren’t always the result of calculated policy, decisions. There’s a sense in which a catalyst elsewhere could force the hand of People’s Bank of China. It doesn’t need to be the Chinese who start the run of the dollar. It could be Middle Eastern investors.

In which case the Chinese might just follow and cut their losses.

Well, they might have no alternative. They might be facing the decision that, “If we hold on, you know, we’re left really holding the hot potato.” So, that is a big worry of theirs. I know it’s a big worry of theirs. They’re thinking, “Can we somehow sneak out of some of these decisions without anybody noticing?” That’s why they’re so secretive.

One of the great problems for anybody trying to make a decision about currency is, where else do you go? Short-term, it seems to me that everybody is kind of stuck trying to avoid this dollar crisis because it would be so expensive for those people who are invested in the U.S. But you shouldn’t assume—you can’t assume—that this is a stable state of affairs. It’s anything but that. It’s very, very precarious."


Also:

This is an interesting article with an equally interesting debate between the writer and Mish Shedlock in the replies:

http://www.marketskeptics.com/2009/01/hyperinflation-will-begin-in-china-and.html