Bernanke/gov will probably tank the markets in order to push investors into treasuries

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Subprime JD's picture
Subprime JD
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Bernanke/gov will probably tank the markets in order to push investors into treasuries

This idea just occured to me today. The yield on the 10 yr is hovering around 3.17%. Bond prices will continue to fall thus raising yields higher which pushes the borrowing costs of the government much higher. Moreover, with the stock market continuing its wild run more investors are being lured into equities instead of low yielding government debt. Coupled with the fact that the treasury will issue over 2 trillion worth of bonds this year the fed is probably going to pull some type of scare move on the markets which will cause them to tank. This is a very fine line that the fed/treasury are dancing on. If the markets go up too much, then financing US debt becomes impossible. But if they tank the markets too fast then consumer confidence crashes alongside with them. So dont be surprised when in a few weeks/months you start hearing a bunch of negativity from the fed/treasury. Also, they may allow some major financial institution to be liquidated which will cause another panic to ensue among the wall street lemmings, another panic which will bring them back into the treasury market.

 

What do you guys think...

 

The bear

investorzzo's picture
investorzzo
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Re: Bernanke/gov will probably tank the markets in order to ...

I don't think they will have to do anything, as investors will wake up to the fact that the economy is not recovering. No one wants longterm bonds, treasury's. No one wants to own any longterm paper. Stocks will go down again, as the bear market rally fades into the summer. The smart investors are loading up on gold and guns. I do wonder if we will go to war to defend the dollar. That is, will Iran or some other country try to trade oil (oil burse) for another currency other than the dollar? We went to war to stop Iraq from doing just that. You mention that the treasury will issue 2 trillion in bonds, whos going to buy them - themselfs? How long can this continue.........The rest of the world has figured it out. When will the American public.

SPM's picture
SPM
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Re: Bernanke/gov will probably tank the markets in order to ...

Interesting observation bear.

strabes's picture
strabes
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Re: Bernanke/gov will probably tank the markets in order to ...

bear, the market is going to crash on its own.  we're just in a classic bear-market rally (see chart below of the great depression...if we're in a similar crash, we're somewhere around Feb 1930 or Feb 1931...the crash has only just begun).  the fundamentals remain horrible. 

 

29to32percentchart1

DavidC's picture
DavidC
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Re: Bernanke/gov will probably tank the markets in order to ...

On basic maths, that's going to give a low of around 165 on the S & P, if we replicate the Great Depresssion.

Ouch!

David

Subprime JD's picture
Subprime JD
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Re: Bernanke/gov will probably tank the markets in order to ...

Due to the fact that the government has thrown trillions of dollars at this crisis i dont see the market replicating the 1929-32 bear market. I know Hoover intervened but not to the extent that Bush/Obama administrations have. Also, back then Congress passed the Tarrif rule that caused a huge collapse in international trade whereas today the G20 meets on a regular basis ensuring that international trade continues unabated.

This crisis is far worse than the 1930's depression but with all the intervention the result will look and feel different. Back then the government coulnt print as much money because it was tied to gold whereas today the fed can print all the money it wants. Read Iriving Fishers debt deflation hypothesis, he said that prices will continue to fall UNLESS there is reflation. If it wasnt for the fed the dow would be around 5000 at this point. What happens to the dollar is another issue which will have far worse consequences than falling prices.

 

Bear

strabes's picture
strabes
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Re: Bernanke/gov will probably tank the markets in order to ...

 bear, true it will look different.  But the collapse is going to be massive.  The Fed can't print money from nothing and have it actually help in the long run.  It postpones Dow 5000.  But I personally expect Dow to drop below that eventually.  It would be far better if it dropped there now and we allowed the market to readjust.  The government delaying it by taking wealth from citizens and giving it to rich bankers can do nothing but hurt the productive economy.  

Fisher's debt hypothesis was right on the money.  I recommend everyone read it to understand what's happening today.  It's deflation for a while longer.  But just because the Fed thinks it's reflating doesn't mean it's really doing it.  Fisher didn't say a few money bureaucrats could reflate the economy.  He meant real reflation, i.e. a growing producing economy.  That's the solution, not false reflation from the Fed which destroys our currency in the end.

investorzzo's picture
investorzzo
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Re: Bernanke/gov will probably tank the markets in order to ...

With the economy being run 70 percent from consumers and unemployment growing much faster than the numbers being put out by the government, It's obvious that this consumer driven economy isn't going anywhere! I am sure that the government will keep trying to keep us occupied with more false flags and flu hysteria. At least until they can no longer do it without fascism..........

Subprime JD's picture
Subprime JD
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Re: Bernanke/gov will probably tank the markets in order to ...

Bernanke warns of bank crisis "relapse". This is what i was talking about, oddly enough i started this post yesterday LOL.

Consumers need to delever and they will continue doing so. The banks are also in the process of develeraging but they are doing this by pushing the bad paper on to the taxpayers balance sheet. The issue is whether lending standards will be decreased again. Perhaps the gov will establish new lending guidelines that consider defaults from the past 3 years not to be as bad as defaults from before. The gov might reason "well this is a credit crisis where many "good" borrowers got burned so we wont tarnish their credit scores that badly. I know this sounds impossible at this stage of the game but if the government wants to reflate the economy by the use of leverage than perhaps this idea of downplaying tarnished consumer credit scores will be implemented. You never know with these wackos.

 

The truth of the matter is that any consumer that got into too much debt is NOT a wise borrower and therefore should have his credit history be tarnished. The same applies for the banks.

strabes's picture
strabes
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Re: Bernanke/gov will probably tank the markets in order to ...

 bear, this story in the FT is interesting.  it reports on the Fed firming up the TALF program by pushing risk back into the private sector. this is a tightening move, despite the absurd level of easing they've been doing for 6 months.  I think this could be a subtle but important shift...perhaps a result of Volcker influence in this administration.  a bias shift by the Fed could result in this rally starting to level off, then something like bankruptcies in E Europe, foreclosures in commercial real estate, etc would trigger the next phase of the collapse.

http://www.ft.com/cms/s/0/10eb24be-390d-11de-8cfe-00144feabdc0.html?ncli...

 

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