Treasurys Archives - the patient investor %

June 20, 2012

Fed Extends Operation Twist – WSJ.com

U.S. Federal Reserve officials extended through the end of the year a program meant to drive down long-term interest rates and signaled that they were “prepared to take further action” if needed amid heightened worry about the economy’s performance.

By continuing the program, known as “Operation Twist,” the Fed will buy $267 billion in long-term Treasury bonds and notes while it sells short-term Treasurys. The program had been set to expire this month.

via Fed Extends Operation Twist – WSJ.com.

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.

Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.

Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.

Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.

September 21, 2011

QE Can’t Save the Day… We’ve Done a Version of It For Over 10 Years | ZeroHedge

While most commentators proclaim that QE is a completely new phenomenon, we have in fact seen a version of it in the form of the Fed’s and Asia’s (especially China’s) purchases of US Treasuries/ currency pegs over the last decade or so.

Indeed, today, the Fed, China, and Japan collectively hold 61% of the $10 trillion of US debt held by “the public.” When you add in the additional $4.6 trillion in US debt held by “intragovernmental holdings” (basically the Federal Government buying Treasuries by raiding Social Security and other pension funds) you find that Asia and the Feds have monetized $10.7 trillion of the US’s total $14.6 debt (roughly 73%) over the last 20 years.

via QE Can’t Save the Day… We’ve Done a Version of It For Over 10 Years | ZeroHedge.

September 19, 2011

China to ‘liquidate’ US Treasuries, not dollars – Ambrose Evans-Pritchard

A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

“The incremental parts of our of our foreign reserve holdings should be invested in physical assets,” said Li Daokui at the World Economic Forum in the very rainy city of Dalian….”We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way.”

via China to ‘liquidate’ US Treasuries, not dollars – Telegraph Blogs.

Why would a poor country with GDP per capita of $4000 and an emerging economy be investing in US Treasurys or blue chip stocks? Perhaps because repatriating funds would cause the yuan to rise to a more realistic level against the dollar and end China’s trade advantage.

August 24, 2011

What we need and what we actually get may be vastly different

This is in response to a question raised by Thomas Franklin:

Hi Colin,

….. My question is not just about the bond market although it is part of it but a reflection of the bigger picture globally with what is unfolding. With many governments facing rising debt levels and the Feds policy of financial stimulus, surely this is just delaying the inevitable of “Global Financial Meltdown” The USA and the dollar is a sinking ship, with the Fed losing the battle of bailing the ship out. So what do you think will replace the system we currently have?

Hi Thomas,
What we need and what we actually get may be vastly different.
Firstly, what we need:

A consensus Swiss-style democracy instead of the winner-takes-all system we have at present, where incumbent politicians run up fiscal debt in order to boost their chances of re-election.
Restrict the Fed to a single mandate, to protect the currency, rather than targeting inflation to help the politicians.
Restrict capital flows between countries, like China/Japan’s purchase of >$2 trillion of US Treasurys, used to manipulate exchange rates and create a massive advantage for their export industries.
Austerity to cut unnecessary spending and public works programs to improve national infrastructure and create employment — but the programs must deliver real returns on investment so they can later be sold off to repay debt.
Europe needs a eurobond system, with central borrowing and restrictions on individual member deficits.

What we will probably get is:

More of the same: government controlled by special interests and dominated by fear of the next election.
The Fed going nuclear and buying more Treasurys — creating inflation to bail out the banks and save Treasury from default.
Inflation as a soft form of default to give bondholders (read China/Japan) a haircut and deter them from buying more Treasurys.
More profligate spending and ill-chosen, bridge-to-nowhere infrastructure projects.
A breakup of the Euro?

Hope that doesn’t sound to optimistic 🙂

Regards, Colin