US Treasuries…The Panic Bubble

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  • on December 2nd, 2008

We are frothy with panic. With good reason for sure, but there are many ways to panic, so why follow the panic crowd into US Treasuries.

If you read this blog, you are not rich enough to have all your money in US Treasuries. You just may be poor enough to ask why than are dumb ass rich people locking up their money for 10 years for zilch. Don’t they have 20 homes with 80 mattresses to hide all their money.

Business Week (they get the online world by the way better than most old media) has a good article up entitled ‘Unraveling the Mystery Behind US Treasury Prices ‘

To get a sense of how much demand there is for fully-guaranteed government bonds, just look at prices over the past few months. The benchmark 10-year Treasury note was trading at a price of 106-22/32 for a yield of 2.974% on Nov. 26; the price was 102-06/32, and the yield 3.73%, on Sept. 2.

Puzzle No. 1: The upward march of Treasury prices

Bill Larkin, portfolio manager for fixed income at Cabot Money Management in Salem, Mass., thinks Treasury bonds are probably one of the most dangerous trades for investors right now. The stock and bond markets are pricing in the worst economy in 30 years, with no inflation expectations. “When you get into yields this low, and you get into this historic expensive zone, if you plan on holding them to maturity, you’re fine. But in real terms, adjusted for inflation, you lose,” he says.

Jim sarni says…”As investors, we’re all being bombarded by information that scratches the surface [in terms of trying] to solve the liquidity problems in the market,” Sarni says. “Nothing is gaining traction because none of the details are known, and that’s manifesting itself in people being skittish, which is driving them to the safest thing out there until there’s more certainty about what’s going on.”

Just read the full article. It’s a good one.

My twitter pal and blogger StockJockey has a fantastic wrap up on the Treasuries Bubble with many more links .

So, how can we make money? If I was rich enough to panic, I am not sure what I would do honestly. I would never let myself manage enough money that would give me these headaches either. I am with ‘The Jockey’ on this point though: ‘Investors looking to short Treasuries might eventually have their day, but for now, patience is required.’ The trend is awfully strong into US Treasuries.

Some true madness out there in the government securities and currency markets (the real money) so don’t expect the stock market to calm down anytime soon.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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