some article i read recently spoke about how surprised people will be about how low treasury (ST and LT) yields go in the face of massive deficits. i was skeptical, but am a believer now. the Fed is going to be setting LT interest rates - we will see a 30 year UST with a 2 handle, a 10 year UST with a 1 handle in the coming days i think. i wouldn’t be shocked if at some point, the Fed starts buying equities too to support markets. i had a post on here a few days ago about ‘equity buyer of last resort’ and everyone seemed to think it was farfetched. i’ll wager some of you will change your minds soon.
Well, because it’s a global crisis and people don’t know what to do, they’re going to cash and putting it into the traditional “safe” vehicle. As soon as other opportunities for investment start popping up, we’ll see the reverse flow and rates will almost certainly shoot for the stratosphere. The Fed may then try to control things buy buying them, and that will probably end up debasing the currency and/or causing high inflation. I don’t know how long that will take, maybe 6 months, maybe 2 years, but it’s almost certainly coming. Now might be a good time for TIPS again.
look at japan from 1989 to 2004, fast forward everything into 3 years, there’s your template
deflation causes people to defer spending. When people don’t spend now it further weakens things.
Japan as a model of events… maybe… but the Yen was not the world reserve currency, and when the US entered a recession and the Asian currency crisis hit, people didn’t rush to buy Yen to protect themselves…
“the Fed is going to be setting LT interest rates - we will see a 30 year UST with a 2 handle, a 10 year UST with a 1 handle in the coming days i think.” Coming days? No way. Maybe over the next year and eventually they may get there, but I think a bond dislocation will happen before we eventually get to these low rates. “i had a post on here a few days ago about ‘equity buyer of last resort’ and everyone seemed to think it was farfetched. i’ll wager some of you will change your minds soon.” The Fed will NEVER do this openly or directly. The consequences far outweigh the risks of a 80%+ equity collapse. The end of USD hegemony is on the top of those consequences and is the only consequence the Fed cares about.
i meant coming months, year-or-two, not ‘days’ literally basically point is - people are worried about hyperinflation only because inflation expectations from the boom are still sticky - helped by the govt borrowings story. those expectations ignore the real risk in a collapsing economy - deflation, which has arrived, and the next sticky ‘flation’ expectations will be deflation stickiness, not hyperinflation.
cfa_gremlin Wrote: ------------------------------------------------------- > The Fed will NEVER do this openly or directly. > The consequences far outweigh the risks of a 80%+ > equity collapse. The end of USD hegemony is on > the top of those consequences and is the only > consequence the Fed cares about. that’s what the BOJ said at first - before they started buying TSE equities. this crisis is exceeding everyone’s expectations.
cfa_gremlin Wrote: ------------------------------------------------------- > “i had a post on here a few days ago about ‘equity > buyer of last resort’ and everyone seemed to think > it was farfetched. i’ll wager some of you will > change your minds soon.” > > The Fed will NEVER do this openly or directly. I personally think they do it now. > The consequences far outweigh the risks of a 80%+ > equity collapse. The end of USD hegemony is on > the top of those consequences and is the only > consequence the Fed cares about.