The BUBBLE of all BUBBLE’S

Posted by Eric Solis on December 26, 2009 under U.S. Treasury Markets |

The US Treasury market will be the mother of all bubbles!!!  We have seen the tsunami of liquidity that has flooded the world financial markets over the last couple of decades hop scotch from the stock market to the real estate market/derivative market and then to the commodity/gold market(s).  But none of these bubbles are even a drop in the bucket compared to the bubble created by the Federal Reserve and Treasury over the past three years.  Without going into a long diatribe with regard to the what, where, when, why and how; suffice it to say that anybody caught on the intermediate/long end of the market will be holding the equivalent to what the market calls “zero coupon bonds’ (bonds bought and extreme discounts which mature at par in the future). 

If you are a greedy speculator who could give a rip about our country and want to reap profits beyond your wildest dreams, then short as many treasury bonds as you can on margin, with the opportunity to buy them back at penny’s on the dollar within the next 24 to 36 months.  Make sure you can carry the trade and pay the margin expense.  But rest assured, this will be a blood bath unlike anything the markets have ever seen.  And people who thought they owned the safest investment in the world will learn the hard way that irresponsible fiscal and monetary policy of a government, regardless of its size can have a devastating and lethal impact on its lenders. 

In the end, maybe they deserve it.  How does one come to believe that a country with 12 trillion in debt should pay 0% interest on its debt???  As an old friend of mine once said…thinking so does not make it so!