Jimmy Rogers, Helicopter Ben, and the short long-bond trade

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Erik T.'s picture
Erik T.
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Jimmy Rogers, Helicopter Ben, and the short long-bond trade

It's well known that famous private investor Jim Rogers was shorting long treasury bonds. Perhaps he had been reading the Martenson reports? But it has now been widely reported that Rogers covered his shorts after Bernanke made some statements about the Fed possibly buying treasuries. I heard Rogers use the words "...so I had to cover my shorts because of the Fed thing" when asked about this trade in an interview I found thanks to Davos' daily digest.

Rogers is a super-smart, super-successful guy for whom I have unlimited respect, so the fact that he already bailed out of a trade I'm still in scares me a little. Make that a lot. I don't fully understand his rationale, which to my thinking doesn't really justify abandoning this trade. This thread is to solicit opinions/feedback/ideas about this, in case I am missing something.

I get the obvious supply-demand connection... Prices go up when there are more buyers, and the fed has deep pockets to push prices up. But my understanding of the fed thing was that they are ready to buy treasuries if they have to in order to keep their agenda (quantitative easing money printing) on track. The reason the fed would buy treasuries, if I understood correctly, is that they know as well as everyone else that this business of foreigners lending us money on unfavorable (to them) terms can't last forever.So the fed is ready to monetize in order to pick up the slack. Yes, I see why this limits the potential short long bond trade in the short term.

But to my thinking, this is just the fed acknowledging that the upside risk to treasury yields is just as big as we thought it was. So the fed has an intention of trying to mitigate that risk. Fair enough. But they plan to do that by running the printing presses into the night, which just exaccerbates the problem in the long run, and should be cause to fear even greater upside yield risk. In other words, my analysis of the Fed's statement is that it means the short long bond trade is likely to be more profitable in the long run, but it will take longer to reach that profitability due to the Fed's interference.

I would understand this if it were anyone other than Rogers. The obvious answer is "Rogers sees that the fed's action will prevent this trade from being profitable right away, so he got out with the intention of getting back in just before the big fall, which will now likely be delayed by the Fed action..." But this guy is famous for describing himself as the world's worst market timer. Also, one of the primary "rules" he and Soros lived by when they were running Quantum was "Always bet against the central bank when they are trying to defend a currency peg". People familiar with Quantum know the whole breaking the bank of England story. This isn't a currency peg, but it's the same concept. The Fed can keep the market going by supplementing what the foreigners buy for a while, but when they really move for the doors en masse, the Fed is screwed. So if Rogers believed in the same fundamentals I see for the short long bond trade (long term, that is) then it would be his style to keep the trade on, and wait out the fed's attempt at intervention.Getting out of a trade with fantastic fundamentals for the sake of trying to time the re-entry just before the collapse just doesn't jibe with the Soros/Rogers style.

But for some reason, Jimmy bailed out on my favorite trade, which I still have significant exposure to. In a nutshell, that scares the crap out of me because he's smarter than I am. All I can conclude is that I am not fully comprehending why Bernanke's comments caused Rogers to reach for the eject levers. Perhaps my assumptions about what he meant by "the fed thing" are in error? Anybody have any thoughts?

Erik

 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

It's clear the Fed's statement is a bearish signal on the long-term fundamentals of treasuries (why else would they need to prop it up?).  However, I think Rogers is realizing he didn't read the dollar/treasuries correctly and he's trying to blame the Fed for it in his casual statements (sometimes it seems he makes statements to slam the Fed and Geithner rather than speaking precisely to his investment planning). 

Rogers, Schiff, etc. are correct in the long-term, this system must collapse, but the global monetary system is built in such a way that the $ is the ultimate safe haven in a flight to quality...everything else in the world is higher risk.  That will continue until the system collapses.  So, they continue to blame the hedge fund deleveraging for the strength in the $ and treasuries. That is wrong.  It is a fundamental move into the lowest risk, highest on the global pecking order, denomination for liquidity in a deflationary environment.  Bond traders who understood that made a killing in 08.  Rogers was on the wrong side.

Having said that, I'm a HUGE Rogers fan.  The Fed and Geithner deserve all the body blows he's sending their way. 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Rogers always says he's "getting out of dollars" and I think you might want to weigh that against his leaving this trade.  Perhaps he thinks the profits are too far away for him to get out of dollars when he wants to.  Perhaps other investments, like commodities (this is Rogers after all), seem like a better (sooner) bet given the Fed stand on this issue.  Just my two cents (or considering inflation over the last century, my two nothings).

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Well if today's action is any indication, Rogers is a better market timer than he likes to admit! My three biggest futures positions are short dollar index and long bonds, and long crude oil. All three moved against me today, halving my previous profits on these trades.

strabes, you make an excellent point. What we are all expecting is that everyone will rush to dollars as a safety trade, then everyone will eventually wake up and realize it's not a safe trade. But until they smell the roses, there's plenty of room to expect both the dollar index and treasury bonds to move up.

I think I'm going to keep the positions I have, but not continue to average in as I'd planned. I thought the DX was going to top out at 90 or 91, and we hit 90 on the september contracts today (and almost 90 on the front month). After looking at the long-term chart, I realize that a retracement of the 2001 highs (around 115) could be entirely plausible.

What scares me about trading DX futures is that when the dollar collapses, I expect it to happen quickly and catastrophically. It would suck to take the loss on the short position on the way up, only to have the exchange default after the DX reverses and heads into the toilet! If you think about it, the futures exchanges still functioning normally in that environment (true dollar collapse) is a serious risk.

Erik

 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Erik,

I am somewhat confused by this too, and I already got burnt buying call options on TBT (had a real nice profit, but I got greedy and didn't sell on time - got burnt on the way down).

What David says makes sense:  Rogers may be right about bonds being way over-priced, but with the Fed providing theoretically unlimited artifical demand, the yields don't really have to ever come down, do they?  I mean, if the Fed is willing to outbid the rest of the market at any price it wants, why should yields ever come down?  Fed profits all go to the Treasury, so it's better for the government to pay interest to the Fed rather than to foreigners, isn't it?  Devaluation of the dollar won't really affect new treasury issues, so long as the Fed is there to buy them.  It will wipe out the value of pre-existing issues paying a measly 2-3%, but unless the Fed and the Treasury are suddenly imbued with a sense of guilt, why would they stop the shell game? 

I too would like to know what others think of this.  I am also a huge Rogers fan, own both his RJA and RJN indices, read every book and watch every interview he's in.  I wish he had a blog or a newsletter, but I guess it would be pointless since the message would always be, "Buy commodites! "

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Patrick - I don't know if Rogers himself actually keeps this blog, but here's a link anyways:

http://jimrogers-investments.blogspot.com/

I also like Marc Faber too - Marc is also telling people to short treasuries.

http://marcfaberblog.blogspot.com/

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

The Fed isn't big enough to provide unlimited demand.  It's dwarfed by the collective institutions that create the bond market. So once it becomes necessary for the Fed and the Fed alone to keep yields low, it won't and can't happen.  The Fed is a privately-owned market maker in Treasuries.  It won't hesitate to raise rates to keep global demand afloat once China and Japan start backing off.  

But that's a long way off given how much carnage is still coming around the world.  Even more funds are going to be flocking to USD. For example, Eastern Europe is going to collapse...where will panic-stricken institutions go?  Up the global monetary chain...US Treasuries.  

I think it's at least a couple years out, but eventually Rogers should prove correct and the Fed will have to push rates into the double digits.  Just before that timeframe is the time to short $ and TLT...until then you better be long $ and TLT...who has the crystal ball?  Cool

I highly highly recommend watching this guy's videos.  He's an ex-derivatives market maker for Drexel in the 80's.  That type of guy is who you want to listen to in this situation.  Most big desk traders don't talk...they keep their secrets and park the money in Switzerland.  This guy is trying to help.  He shows why the Austrian economists, Friedman, and folks like Rogers and Schiff are wrong (at least WERE massively wrong in 08 and continue to be wrong for now).  I wish I would've found these when he posted them in Mar 08...would've saved me a couple hundred K and made an extra couple hundred K... 

http://www.youtube.com/user/Crashof2008?blend=2&ob=0

 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Ok, I get flocking to Treasuries, but I dont get why anyone would want the 5-10-20-30 year variety.  Especially with price risk.  People really want to hold on to a T-bond for 20 years and earn 3% along the way and in the end they will be happy to get their principal back?  Waiting 20 years could mean your bond may have the same purchasing power as a dollar bill today.

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

They want long term in deflation because it locks in the highest low-risk yield available...long term rates move down more slowly than short term (a good question is whether it's still low-risk in this environment).  As inflation returns, bond traders ride the curve back to short term because short rates stay ahead of inflation...the Fed will raise rates before real rates catch up...again, long term rates move more slowly than short term.

 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Well, they dont post a big sign for everyone when inflation returns, and why would "safe" money go for that kind of risk with their principal?  The reason they are in treasuries is they dont want to lose the principal, and aare wiling to accept the low rates of treasuries.  To then subject the principal to possibly be caught in down draft doesnt make sense.  Once there is even a hint of inflation, wouldn't everyone be hitting that sell button, causing a stampede for the exits?

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

The big sign is the bond market, for the bond traders that expertly know how to play it (I'm not one of those).  They know when to ride the curve back.  The big desk traders are playing with tens/hundreds of millions and the institutions like Goldman are playing with a multi-billion capital base.  So, if you put a billion in the shortest term US bills and keep flipping them to the highest rate available as the Fed pushes up rates to defuse inflation, they will always have a small spread advantage over real inflation.  And the principal doesn't erode because it's a short-term play...they keep resetting the principal as they reinvest with t-bill prices dropping over time in inflation. 

I'm no expert on how they really pull this off in detail, but it's basically a laddering strategy and the ladder shifts between the short and long sides depending on inflationary signals.  

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

strabes...

Although for everyone's sake, I hope your right, I tend to disagree with many aspects of what your saying.

For one thing, the dollar being the safest place to be. I simply don't see how that is possible. Simply put, there are a varity of other currencies that are much less dangerous in the short term than the dollar. We are running up deficits bigger than any country anywhere, ever based on a rosey growth model that shows us all getting better by...well now. If you take into consideration the 6.2% contration how would that be possible? Then we grow by 4% + over then few years even off to about 2.5% there on out. The normal response seems to be 'well our debt to GDP % is way better'. Our GDP is crap, based on 70% consumer consumption....spending, spending, spending. It seems  to me that since, when adjusted for the governments inflation rate, our income has not changed since the 70's yet our consumer debt level has gone up to 360% of GDP the idea of GDP being majority based off of consumption is also a sham. Now, tie that in with the governments plan on fixing everything and we have a problem. (which it seems like you may agree there saying that rodgers and shiff are right). Put all that together with the fake strength happening right now and I feel there will be an even BIGGER flight from the dollar the moment the 'rally' comes along. The scary thing though, even with this super strength of the dollar it still is not worth as much as one pound, or one euro, yet these are to two main example many like to use (i dont believe these are the best places either, but no nearly as bad in the short term of things.).  All that being said, the idea of the 'flight to quality' never made sense. I personally feel it was a instinctive reaction because we are the reserve currency (for now)

You also said they Fed doesn't have the ability to buy an unlimited amount of bonds at one point. That is also not true. They have the ability to monetize as much as they want, if they want. The 'best' part is they don't have to tell us any of it. Shoot, they don't have to tell us where they put anything if they dont want to. The moment these other countries stop funding our spending spree, which will come, there will be trouble, and the fed will do anything to hold it off. I dont think this is gonna happen overnight, but it will happen.

As I said, for all our sake, I hope you are right, I simply don't see it though. The idea that they are going to be able to suck multiple trillions out of the system in time with a bunch of toxic assets on their balence sheet will be a magic trick in itself.

Mike

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

strabes...

Although for everyone's sake, I hope your right, I tend to disagree with many aspects of what your saying.

For one thing, the dollar being the safest place to be. I simply don't see how that is possible. Simply put, there are a varity of other currencies that are much less dangerous in the short term than the dollar. We are running up deficits bigger than any country anywhere, ever based on a rosey growth model that shows us all getting better by...well now. If you take into consideration the 6.2% contration how would that be possible? Then we grow by 4% + over then few years even off to about 2.5% there on out. The normal response seems to be 'well our debt to GDP % is way better'. Our GDP is crap, based on 70% consumer consumption....spending, spending, spending. It seems  to me that since, when adjusted for the governments inflation rate, our income has not changed since the 70's yet our consumer debt level has gone up to 360% of GDP the idea of GDP being majority based off of consumption is also a sham. Now, tie that in with the governments plan on fixing everything and we have a problem. (which it seems like you may agree there saying that rodgers and shiff are right). Put all that together with the fake strength happening right now and I feel there will be an even BIGGER flight from the dollar the moment the 'rally' comes along. The scary thing though, even with this super strength of the dollar it still is not worth as much as one pound, or one euro, yet these are to two main example many like to use (i dont believe these are the best places either, but no nearly as bad in the short term of things.).  All that being said, the idea of the 'flight to quality' never made sense. I personally feel it was a instinctive reaction because we are the reserve currency (for now)

You also said they Fed doesn't have the ability to buy an unlimited amount of bonds at one point. That is also not true. They have the ability to monetize as much as they want, if they want. The 'best' part is they don't have to tell us any of it. Shoot, they don't have to tell us where they put anything if they dont want to. The moment these other countries stop funding our spending spree, which will come, there will be trouble, and the fed will do anything to hold it off. I dont think this is gonna happen overnight, but it will happen.

As I said, for all our sake, I hope you are right, I simply don't see it though. The idea that they are going to be able to suck multiple trillions out of the system in time with a bunch of toxic assets on their balence sheet will be a magic trick in itself.

Mike

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

sorry, I don't know why it double posted.....

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
that1guy wrote:

I personally feel it was a instinctive reaction because we are the reserve currency (for now)

But that's just it.  We are the reserve, which implies safety...the Fed/Treas fraudulent partnership is the king of the global monetary system. Treasury guarantees payback to the world via the IRS, which has proven to be the most effective and ruthless organization in the history of the world in terms of legally stripping massive amounts of money from 350,000,000 people.  Until that system breaks down, big money institutions will put their money in Treasuries when they want safety.  

I'm not talking theory at this point...my theoretical bias is to agree with Schiff/Rogers...and I still think they're totally right in the long run.  I'm just looking at the facts and they've forced me to drop my theoretical bias.  In my discussions with big bond traders and market makers--the type of people it doesn't pay well to disagree with--the facts are currently exactly the opposite of what Schiff is saying.  There is nothing safer right now than LT treasuries in a deflationary environment.  People who bet against that in 08 (and until deflation runs its course) will lose money.  

Deflation will run its course.  At that point, who knows what happens, but I think Schiff/Rogers will be well-positioned.  

Quote:

 You also said they Fed doesn't have the ability to buy an unlimited amount of bonds at one point. That is also not true. They have the ability to monetize as much as they want, if they want. The 'best' part is they don't have to tell us any of it.

Yeah there's no statutory limit on how much they can buy, but there's effectively a market limit.  If the Fed started monkeying too much in the Treasury auctions and buying everything, the big money centers which collectively dwarf the Fed would stop buying because they'd know something is up since the Fed can't really pulloff that type of move, which is precisely what the Fed wants to avoid at all costs.  Since it's a private owner of Treasuries, it wants that market to remain liquid...it's making a killing as the rest of us in the world are losing our money because the value of its Treasuries has shot up.  If money centers ever start running from Treasuries, the Fed will shoot rates to the moon to defend them.  That is a deflationary move.  

The Fed does have to tell the marketplace what it does with Treasuries.  It's a big player in the auction market...for the auction to function, players need to reveal what they're doing.  And its Treasury portfolio is published in its books.  What it doesn't have to tell is what it's doing now with the money that's being doled out to banks, the toxic asset purchases, etc.  

The real fear in this economy isn't a flight from the dollar in terms of the currency markets.  Rather, it is a flight from Treasuries (the primary source of "money" that's based in dollars...the basis for Fed operations and therefore the larger market of bank "money"--M1, M2, M3).  

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
strabes wrote:
that1guy wrote:

I personally feel it was a instinctive reaction because we are the reserve currency (for now)

But that's just it.  We are the reserve, which implies safety...the Fed/Treas fraudulent partnership is the king of the global monetary system. Treasury guarantees payback to the world via the IRS, which has proven to be the most effective and ruthless organization in the history of the world in terms of legally stripping massive amounts of money from 350,000,000 people.  Until that system breaks down, big money institutions will put their money in Treasuries when they want safety.  

 There is nothing safer right now than LT treasuries in a deflationary environment.  People who bet against that in 08 (and until deflation runs its course) will lose money.  

Deflation will run its course.  At that point, who knows what happens, but I think Schiff/Rogers will be well-positioned.  

Yeah there's no statutory limit on how much they can buy, but there's effectively a market limit.  If the Fed started monkeying too much in the Treasury auctions and buying everything, the big money centers which collectively dwarf the Fed would stop buying because they'd know something is up since the Fed can't really pulloff that type of move, which is precisely what the Fed wants to avoid at all costs.  Since it's a private owner of Treasuries, it wants that market to remain liquid...it's making a killing as the rest of us in the world are losing our money because the value of its Treasuries has shot up.  If money centers ever start running from Treasuries, the Fed will shoot rates to the moon to defend them.  That is a deflationary move.  

.  The real fear in this economy isn't a flight from the dollar in terms of the currency markets.  Rather, it is a flight from Treasuries (the primary source of "money" that's based in dollars...the basis for Fed operations and therefore the larger market of bank "money"--M1, M2, M3).  

Hmm, it seems to me the only real difference between our thinking is that you are referring to short term investing and I am looking more long term...which you agree with too. I do agree with a few of these points, like possibly the market limit in treasuries, hence the reason it seemed as though the market is calling the Fed's bluff on being a purchaser of last resort (also for now, I could see that changing with something like this new budget coming into play, and the thoughts on multiple trillion deficits for years to come). Your right in that their defence should be to shoot interest rates to the moon, but if they  do that, especially in the environment we are in, that will effectively destroy our economy as well. Do you think other investors would look at it as a return on investment or a desperate move by a broke nation to keep funding its spending spree? Where in the world would we get the ability to repay that kind of interest? The IRS is definitely a vicious group of ruthless collectors, but we are already paying a HUGE portion of our income just to cover interest payments, what happens when interests rate shoot up, and our debt is...i don't know 16trillion. Put that together with all the boomers retiring (if they retire now), and job losses, where will the income come from? I don't believe taxing the rich more will cover that in the long run, but then again, I think that is where we agree (about the long term situation).

Do you believe we will always hold our reserve status through all of this? I'm asking because although I definitely agree the a flight from treasuries is a big fear here, why couldn't a sharp drop in the value of the dollar cause a flight from treasuries? When the dollar drops off its pedestal I can easily see that cause a run/flight. In fact in only makes sense that a government like China has changed to an 'active' reserve policy and is out actively acquiring assets with its absurdly strengthened reserves.

I just gotta say again, this is why I like these forums. lol....it is hard to have a good conversation about this kind of stuff you know. I like getting all the input. There is so much to learn...ah well. I look forward to your response.

Mike

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

I for one do not feel that the argument "The dollar is the world's reserve currency, so the world has no choice but buy treasuries for safety" holds too much water.  To think people in other countries are that stupid really smacks of imperialistic arrogance.  Investors around the world are not that ignorant.  True, treasuries may look safer than whats currently available, but I dont't believe for a minute it will remain so.  That dollar will get converted into local RE, businesses, commodities whatever out there that has "real" value.  The ones holding dollars when the music stops will be the true suckers.

That being said, is there another vehicle that is inverse long bonds that isnt a 2x like TBT?  Shorting the real deal may be too big a commitment for me.

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

plantguy,

Even if investors buy RE, commodities, or whatever, someone on the other end of those transactions winds up holding the dollars and they then become "investors".  You're right, whoever winds up with dollars when the music stops will get the shaft.  The problem is nobody knows how long this song is going to last, and in the meantime, no other currency looks any better.  Also in the meantime, business must go on, and most of the world does business in dollars.  Kinda hard to switch out of the currency when it's also what most of your customers have available to pay you in.

I don't know about too many bond shorting funds.  I too have used the TBT, but am not a big fan of it.

Cheers,

Patrick

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
plantguy wrote:

To think people in other countries are that stupid really smacks of imperialistic arrogance.

It's not that they're stupid.  And I'm not an imperialist.  It's just an understanding of the global monetary system. Unfortunately other countries are stuck in the same setup that we're all victim of.  

Seriously, the most important thing to know in this world when it comes to economics, markets, money is the bond market. It rules.  All I'm doing is describing how it works, how trillions in value is shifted everyday within the bond/credit market. What I'm saying has nothing to do with politics, hopes, desires, biases.  It's just the facts of the cold hard bond market and the primacy of USD debt.  

The US Treasury will not default on its securities.  They will let everything else go bust...pensions, FDIC, govt programs, medicare/SS, corporate america, cities/states, all of us...before they default on their securities, especially short-term T-bills. Why?  The same reason we have to pay banks before we can consume.  The same reason creditors get everything in bankruptcy proceedings.  If default happens, it's the end of the US.  It has to maintain "full faith and credit" on its bills/bonds.  US govt is in the same situation a lot of overstretched homebuyers are in...they are slaves to the banks, they have to give everything to the banks.  The US will give everything to its "banks" (China) before it gives a dime to its "employees" (taxpayers) or "customers" (recipients of govt programs).  

plantguy wrote:

That being said, is there another vehicle that is inverse long bonds that isnt a 2x like TBT?

Just short TLT.  You'll probably get a short term bounce as bonds are expected to go into a corrective wave before they shoot higher.   But get out before it shifts into the upward wave.  It never pays to bet against the big bond traders of the world.  

that1guy wrote:

Do you believe we will always hold our reserve status through all of this? I'm asking because although I definitely agree the a flight from treasuries is a big fear here, why couldn't a sharp drop in the value of the dollar cause a flight from treasuries? When the dollar drops off its pedestal I can easily see that cause a run/flight. In fact in only makes sense that a government like China has changed to an 'active' reserve policy and is out actively acquiring assets with its absurdly strengthened reserves.

Sorry Mike, I didn't see these questions before.  No it won't last forever.  It can't.  But it will last quite a while longer until the system either 1) devolves back to local/state control as the Wall St / Fed / Treasury system collapses, or 2) evolves to a new system that the G20 is designing, or NAU, or 1-world bank, or whatever else they come up with.  The government is working hard to prop up the Wall St / Fed system so #1 is prevented from happening (that's too bad) and the G20 is working on #2.  I'm afraid we're going to get #2.  

A sharp drop in the dollar would indeed cause a flight, and vice-versa, a flight would cause drop in $.  The Fed will fight that by jacking up short-term rates to attract capital to the dollar.  It won't hesitate to strangle our economy in order to defend the value of its Treasuries.  That is when the economic collapse will really happen.  We will all suffer as the Fed pleases its creditors.  It's trying to avoid this situation.  And the world is willing to help avoid this situation because it will collapse the world (it's like Mutually Assured Destruction from the USSR nuke days).  But, it's probably inevitable.

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

I'm dumbfounded to understand why anyone would buy TBT. The problems inherent to leveraged short funds in high-vol markets are well documented, on this site and elsewhere.

IMHO the obvious choice for the leveraged short long bond trade is the futures market. Futures get a bad rep because they offer a huge amount of leverage - enough to have gotten plenty of people in trouble. But just because the margins are low doesn't mean you have to use all that leverage. You can pick your own leverage factor, and avoid the problems inherent to an ETF by selling the futures.

Long bond futures are in backwardation, which is bad news for the short investor. Also, futures are a derivative and involve exchange risk, but frankly the ETF has its own set of question marks with regard to being an indirect access to the actual shorting of the long treasury bonds themselves.

Erik

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that1guy
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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
strabes wrote:

 

Sorry Mike, I didn't see these questions before.  No it won't last forever.  It can't.  But it will last quite a while longer until the system either 1) devolves back to local/state control as the Wall St / Fed / Treasury system collapses, or 2) evolves to a new system that the G20 is designing, or NAU, or 1-world bank, or whatever else they come up with.  The government is working hard to prop up the Wall St / Fed system so #1 is prevented from happening (that's too bad) and the G20 is working on #2.  I'm afraid we're going to get #2.  

A sharp drop in the dollar would indeed cause a flight, and vice-versa, a flight would cause drop in $.  The Fed will fight that by jacking up short-term rates to attract capital to the dollar.  It won't hesitate to strangle our economy in order to defend the value of its Treasuries.  That is when the economic collapse will really happen.  We will all suffer as the Fed pleases its creditors.  It's trying to avoid this situation.  And the world is willing to help avoid this situation because it will collapse the world (it's like Mutually Assured Destruction from the USSR nuke days).  But, it's probably inevitable.

No worries. We all get busy Laughing.

Now we are talking. This is now very similar to my view. In-fact, I have given option 1 and 2 many times over in conversation. This is also what I think Michael Panzer was getting at when he said, "Desperate moves by populist, weak, or economically illiterate policy makers, at home and abroad, to address fiscal woes and social tensions, will lay the groundwork for spasms of deflation and hyperinflation." in 'When Giants Fall."  I also agree that if they do raise rates to attract money, especially during the current situation then we will have BIG problems. much bigger then we see right this second. There is a possibility of something with in option 2 to come to light, which is unfortunate, but here is the question.

Why, in your opinion, would raising rates continue to attract money? What I'm getting at is confidence. It is becoming more and more known that we can't afford to pay everything back, and when the dollar's value drops (especially to count the multiple newly spent trillions) who is to say that raising rates will do the trick to keep the system running. So what happens when they raise rates, deliver that crushing blow, and the money does not come running because we are, for example, 15+ trillion in the whole?

Also, giving that the administration is dead set on loosing up credit, getting credit markets flowing, opening up credit...credit credit credit AKA free money for all, Do you think they will just raise rates that quickly? They are to busy trying to please everyone. It would circumvent everything they are attempting (even though they shouldn't have done it in the first place). I guess where I am going with this one is how high will inflation have to get before they raise rates through the roof. With everything they are doing, they won't raise rates at a simple hint of a problem, especially with such a combination of problems ranging from food crisis, to future liabilities.

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strabes
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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
Quote:

Why, in your opinion, would raising rates continue to attract money?

Short-term international capital flows are the most efficient market in existence.  When the Fed raises Fed Funds rate (by selling short term treasuries), it slows the velocity of money, slows the economy, reduces expected future inflation, bond traders see that as a conservative move, and they're willing to come back to the $ for higher short term returns.  Potentially helps lower rates on the long end (bonds) due to lower inflation expectation while raising rates on the short end (T-bills), flattens the yield curve.  T-bills are 4 week, 13 week, 26 week securities so the risk of default is nil.  The govt will never default on them.

 

Quote:

Also, giving that the administration is dead set on loosing up credit, getting credit markets flowing, opening up credit...credit credit credit AKA free money for all, Do you think they will just raise rates that quickly?

The Fed is not the administration. The president and treasury can whine all they want, but the Fed would absolutely raise rates to defend its balance sheet and fight inflation fears.  Once there is a hint of a real run on LT treasuries, yes they will raise ST rates to defend.  This is when we see who really runs the world...the Pres or the Fed.  This is when Obama realizes he's screwed.  This is when americans realize they've been had.  Bernanke can talk all he wants right now about getting credit flowing again, but he'll go against those words if China runs from Treasuries.  

 

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
strabes wrote:

The Fed is not the administration. The president and treasury can whine all they want, but the Fed would absolutely raise rates to defend its balance sheet and fight inflation fears.  Once there is a hint of a real run on LT treasuries, yes they will raise ST rates to defend.  This is when we see who really runs the world...the Pres or the Fed.  This is when Obama realizes he's screwed.  This is when americans realize they've been had.  Bernanke can talk all he wants right now about getting credit flowing again, but he'll go against those words if China runs from Treasuries.  

 

Definitely a good point. The Fed is not the administration. Maybe this is more of the million dollar question, "Who really runs the world, the Pres or the Fed?" It seems that either way the public is in for a rough ride. Personally I don't believe that the Fed will be able to save the day in the end. I also, unfortunately believe we will be in such a mess by the time they have to jump rates we will simply go from extreme to extreme.

I guess the other question would be whether or not the Fed can catch the issues in-time. Frankly I believe they have a limited window to save anything, which we are possibly in right now (I say 'save' lightly). They have been screwing up for a long while, which makes it hard to have any sort of faith in it now (let alone working for the Gov, it seems nothing they do is timely or makes sense across the board).

Being someone well adverse in Bonds, would you say that by the time China, or anyone for that matter makes a run on us it would be a bit late to raise the rates? In other-words, being so far in debt tied in wiht the fact that one major run would have a trigger effect wouldn't raising rates simply crush any hint of life left in the economy? Not that there is much life now, but from what I have been gathering in this market (dollar/bond) there are many things happening in today's market that could trigger it; namely a volatile dollar, or rates themselves.  

It seems to me either way we are in for a rough ride. As Dr. Martenson says, "the next 20 years will be nothing like the last"

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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

Strabes, (and all)

What is your take on the TIC report Dr.Martenson reported? As he said th is is only one month, but it is pretty bad, and looks like, if it keeps up, the flight could have begun.

If this keeps up and becomes a trend do you think this is when the fed should (or will) raise rates?

What do you all think...

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strabes
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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...
 
 
Quote:

being so far in debt tied in wiht the fact that one major run would have a trigger effect wouldn't raising rates simply crush any hint of life left in the economy?

Yes.  That's the point...the Fed will kill the economy to save its balance sheet.  Deflation.  Depression.  It is not there to help all of us. So when I talk about the Fed taking action, it's not that it's trying to "save the day" for us, for economic growth. Not at all.  It is a private banking cartel that owns a crapload of treasuries.  It will act like any bond trader with that portfolio.  
 
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Re: Jimmy Rogers, Helicopter Ben, and the short long-bond ...

But how does tha Fed's power to create money out of thin air to buy those treasuries affect the equation?  They bought it with nothing, right?  So they have no liabilities, do they?

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