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Lemonyellowschwin's picture
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561

Stop the average person on the street and ask them this question:  "Would you loan $10,000 of your own money at less than 3% interest for thirty years if you knew that the borrower is currently at least $10.5 trillion upside down and has virtually no propsect for getting out of debt?"

What do you think the answer would be?

Yet the whole world seems to be piling into treasury bonds. 


Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: Groupthink?

Lemonyellow: Yeah, I think you've hit the nail on the head. It makes absolutely no sense whatsoever. Real wealth does not rest in paper anyway.

Groupthink is a very powerful psychological force and can have devastating effects. I personally support individual creativity and out of the box thinking
and I believe that is fairly absent from what we are seeing the market
now. I think there is a lot of groupthink at play here as many investors and institutions seek to work within the paradigm that they have all become accustomed to. Bear in mind that there are very few people alive today that can remember a time before the Keynesian model. Also, there are increasingly few people that have a sense of awareness and clear memory of what things were like before Nixon closed the gold window. 

At some point, I would say Treasury yields are going to have to rise. I don't think Ben Bernanke is going to buy them up ad infinitum. Besides, the more he buys them and pushes money into the economy, the more money there will be for inflation which will tend to push up the prices of stocks and other asset classes, right? At some point, perhaps quite soon, it would seem prudent to short Treasury bonds. I would personally go after the longer term ones, as the Fed as the least influence over these and they currently represent the greatest risk relative to the yield in my mind.

Any thoughts on this?


affert's picture
Status: Silver Member (Offline)
Joined: Sep 22 2008
Posts: 100
Re: Groupthink?

Note: this should in no way be taken as investment advice.  I'm a computer nerd, not an investment guru, just trying to not have all my retirement money evaporate.

I tend to agree with the view that long terms bonds have to fall in the future.  I'm not sure of the time frame, but the way I look at it,one of two things will happen during the Obama presidency:

1) the stimulis package will work.  People will move their money back into more traditional investments (stocks, commodities, etc) away from bonds that were bought out of fear and uncertainty.  So, bond prices will fall.


2) the stimulis package won't work.  The US will keep pumping more money into the system to no avail.  Eventually, people (either individuals or foreign governments) will slow down their lending, at this point it will probably become much more expensive for the US govn't to borrow money.   So, bond prices will fall.

The only senerio where bond prices rise or stay even is if this current morass, which I believe is too unstable to continue indefinatly.  


~~edit: typo~~

dcdheat's picture
Status: Member (Offline)
Joined: Jan 18 2009
Posts: 1
Re: Groupthink?

Check out the ETF TBT.  This ETF moves twice the inverse movement of long term treasuries.  A great way to see the bubble that long term treasuries have been in is to run a 3yr chart of TLT.  It's frightening to look at.  I started shorting treasuries when it was at 114 and 118 and I think the high was around 122 - don't be suprised if you see it go back up there but it is technically and fundementally way out of balance.

oldbill's picture
Status: Member (Offline)
Joined: Jul 13 2009
Posts: 5
Re: Groupthink?

Most of the people I know still overwithhold both Federal and State Income Taxes, by thousands. Isn't this a worse deal than Treasury Bills from Treasury Direct? We have Savings Bonds (I-bonds and EE-bonds) bought from 1998 to 2003, mostly purchased prior to 2000. We also have Gold Eagles and Silver Eagles. We don't trade in and out of these. They serve specific purposes in the portfolio.

Since the dollar will be inflated into worthlessness, all debts will go unpaid, and gold and silver will be confiscated, that doesn't leave a lot, other than to quit working and move into the wilderness, live in a tree, and function with stone cutting tools.

Most debtors will attempt to repay their debt, if they have any investment in the collateral. After the attempt, they will bankrupt, not before. If jobs are scarce and assets are in surplus, we will likely have continued declines in prices, even if the money supply is grossly inflated. It is becoming more and more important to distinquish between inflation (increase in the money supply) and declines in prices due to excess supply.

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