Sunday, July 7, 2013

Bond Bull… They think its all over….. is it?

Keiser Report 6th July = Art of Debt Juggling

"In this episode of the Keiser Report, Max Keiser and Stacy Herbert discuss tipping points on the way to the Bondpocalypse, a time when flipping houses to greater fools will no longer be a viable retirement plan and incarcerating your fellow slightly annoying citizens for eternity will be far too much decadence to afford. In the second half, Max talks to Karl Denninger about bonds, QE tapering and Wimpy from Popeye paying for a hamburger next Tuesday. Karl says that as any investor under 50 will only know a world of ever declining interest rates, they will have to adjust their thinking for this new period of ever rising or flat rates."

Posted by techieman @ 09:58 PM (4125 views)
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30 thoughts on “Bond Bull… They think its all over….. is it?

  • I read an article in the economist about this recently. Bill Gross from Pimco said something similar: that his career spanned a massive bull market that is clearly almost over and the whole market will have to adjust to that.

    I would say property and bonds were quite poor bets for the next few decades, but shares don’t look particularly good value atm.

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  • To hot to sleep, so I thought I’d have a look on rightmove. Saw a flat very similar to the one I’m renting has gone STC at an eye watering price that would give a GROSS rent yield of about 3.3% – contemplating the madness made me a bit miserable, but this vid cheered me up – so thanks for posting!

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  • Hi Reticent, The video references Uncle Bill in a couple of places and is worth a view (even allowing for the Keiser froth – which is subject to personal taste), Denninger interview is quite interesting. 17 mins on if you want to circumvent.18:40 on is the key.

    I actually remember 15% rates in the early 80s.

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  • happy mondays says:

    As an investor (not me) i would think that property in the UK would be a fragile place to park your money with it’s dizzy price levels & if you are saying that the Bull run on bonds is over & that interest rates will rise, then even more reason to give property a wide birth.. I too remember 15% Ir’s but can not see them getting above 3% which i’m sure will still stuff up a few people with large mortgages.

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  • I like Max – he is funny!

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  • According to Karl Denninger:-

    Either: flat rates

    Or: rising rates

    My money on flat rates – with a couple of VERY minor raises.

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  • @hpwatcher, a few weeks back Max said that he had studied comedy. I think the key point is to take his presentation style as comedy, but the facts that he is reporting on more seriously.

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  • @hpwatcher, a few weeks back Max said that he had studied comedy. I think the key point is to take his presentation style as comedy, but the facts that he is reporting on more seriously.

    Really? I always thought he was joking when he was telling people to buy gold.

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  • An interesting comedy episode with a serious side.

    If bond yields go up it’s because prices have fallen (I think).

    If prices fall then bank balance sheets have their backing assets reduced (I think).

    Higher bond yields will force Building Societies and others to revise IRs upward, (I think)

    So, if this is a severe occurrence, we could get to a situation where banks will need more cash at the same time as IRs rise for house mortgagees. (OOoohhh).

    Therefore Osborne’s help to buy is either skating close to the wind or sailing on thin ice. It’s Monday morning, so I can’t decide which.

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  • The end of future money in Happyland. From debt-leveraged inflation of asset prices to debt deflation of the overall economy, with some overlap between the two. People have been paying off debts since 2008 and this has left less and less to spend on goods and services (hence depression). In the US state and local governments are also in trouble because they’re not collecting the capital gains and property and sales taxes they used to collect and in desperation they’ve been suckered into losing on interest rate swaps by Wall Street sharks, and pension funds are collecting little or nothing on their investments.

    Financial elites will have to make their money in future not by lending but by buying assets from the indebted public sector and charging high prices / monopoly rents to use them.

    House prices? Look what happened when Japan’s IRs flatlined and bond prices fell. Fair value (measured by the long-run average ratio of house prices to rents) is positive in most countries (i.e. houses are overvalued) while in Japan in 2011 they were undervalued by 36%, according to The Economist: http://www.economist.com/node/18925999

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  • He did say that Japans interest rates were flat due to them being able to draw on a large pool of savings, last time I looked this country had no savings so are we really going to follow Japan with flat rates.

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  • mark wadsworth says:

    @ Alan 8, Georgon Osbrown is teetering on the edge of his skates on thin ice next to a precipice close to the wind, I think

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  • mrm @10 – I thought he said/meant that in Japan the effect of flatlining IRs was to some extent mitigated by their savings, but that the economy and asset prices still didn’t pick up. Same result whatever he meant.

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  • …But has anyone realised all this yet?

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  • The big issue here, is that we may be entering a secular cycle of increasing interest rates. Just prior to that cycle, government’s blew the capital which would have absorbed rate rises and provided liquidity. Forcing rates down the past 10yrs or so, trying to put off rate rises depleted capital from banking.

    By using capital which should have allowed us to adapt to changes, attempting to halt changes, we are out of bullets and the government has caused the coming economic problems.

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  • Actually this dovetails into what Merv said in his Feb opening remarks. Its a bit like running with a bungee at some point you expend more and more effort to get less and less return until a tipping point is reached.

    So the question is are we at that point or is there a possibility to replace the bungee with a larger and larger one until……i.e. is the fall in bond prices since last year actually the beginning of the new trend or is it near the end of the counter- trend move, with even more ammo expended?

    Dillenger doesnt even mention liquidating the QE he is just talking about the affects of stopping it.

    Merv has passed that hot potato over to the maple man.

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  • A lively rendition of the Hokey Cokey seems appropriate…………………”Central banker reassurance tempts investors back to bond funds”

    Investors across the globe returned to bonds fund last week after central bankers calmed the markets by reassuring that the end of quantitative easing is not imminent.

    Fund flow data provider EPFR Global says the bond funds it tracks benefitted from a $2.11bn in inflows during the week ending 3 July, bringing to an end the four-week, $57.8bn outflow streak that had blighted the portfolios.

    Bond funds had been hit especially hard in the aftermath of the Federal Reserve’s suggestion that the pace of its $85bn-a-month bond-buying programme could slow later this year, with a record $23.3bn being pulled from the portfolios in the previous week.

    However, central bankers moved to reassure the markets last week. Fed officials stressed that any tapering plans were reliant on strong improvements in the US’ economic health, while the Bank of England and the European Central Bank suggested interest rates will remain low for some time to come.

    Equity funds, meanwhile, took a net $5.98bn over the week to 3 July with money from retail investors reaching a 13-week high. UK, German and Swiss equity funds were popular with investors, although Canadian and Australian equity funds were among the few to record outflows.

    Japanese equity funds saw inflows jump to a six-week high as investors moved to position themselves for an earnings season that is likely to be positive, especially for exporters that have benefitted from the weaker yen.

    Investors also returned to emerging market equity funds, but emerging market debt portfolios were struck by their sixth straight week of net redemptions. Although outflows in the wider EMD fund space moderating, portfolios focused on EM corporate bonds suffered their highest weekly redemptions since the current financial crisis began.

    SOURCE http://www.fundweb.co.uk/

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  • i remember the 90`s says:

    I used to visit this site just for the HPC but now has it has been put on hold I come here to get the take on what is happening next in the latest saga of western world economic disasters ,Thanks u all.

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  • @17 – It’s a bit like going to watch a movie that you thought would be familiar, then finding out that the movie it entirely different to what you thought.
    The movie cast and plot has been swapped out several times since I started observing 🙂 What happens next, only the director (Bankers) know.

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  • So the question is are we at that point or is there a possibility to replace the bungee with a larger and larger one until……i.e. is the fall in bond prices since last year actually the beginning of the new trend or is it near the end of the counter- trend move, with even more ammo expended?

    I see more being done to keep things as they are.

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  • …. or to TRY to keep things as they are

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  • Is this meant to be a comedy ? Or was Mr K been on a “Leo Sayer” before hitting the studio ?

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  • @ techieman “… or to TRY to keep things as they are” (Monday, July 8, 2013 03:50PM)

    Agreed, “try” is the key word. In fairness greenbay (remember him !) stated that the Government of the day would go to whatever lengths were required to keep the credit/house party going and it seems he was right. Can the “do whatever it takes” strategy be maintained indefinitely ? – a resounding no – at some point it MUST come to an end and it wont be pleasant.

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  • mark wadsworth says:

    Techie: “Dillenger [Denninger?] doesnt even mention liquidating the QE he is just talking about the affects of stopping it.”

    Exactly, that’s the terrifying bit. If our Lords & Masters said they were going to start reversing QE and this led to a bit of a panic, fair enough, but all they said was they might reduce the scale of future QE, which is a long way from stopping it and even further from reversing it.

    Ergo, this whole thing is a house of cards balanced on a knife edge on thin ice close to the wind etc.

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  • Jack C – Never disputed him being correct, and thought they would have a modicum of success with their efforts. But I’m with MW – I didn’t think they would have been this successful and lasted this long. But then again I didn’t realise the governments whole raison d’etre was to keep house prices unaffordable for the mass of people that they want to vote for them! But I suppose its that they would prefer not to lose the ones that do vote for them.

    Yes MW – and I think people are beginning to realise that. Yes got his name wrong – and no I wasn’t trying some clever play on “diligence” :).

    The clip I posted of Danny Kaye I thought was quite apt – I mean who could the 2 swindlers be? Ben and Mark?

    As for Osbourne, I think the market may force his hand. If we have any sort of fall back in price / increase in rates then he may well realise HTB/S is a non starter.

    The thing that makes me laugh is the Tories always go on about letting the market decide and yet when it suits them they are first to interfere with it using our cash.

    Even more surreal is that the “opposition” cant actually bring themselves to be critical, since when have they wanted the market to be “King” ?

    Yes Jack the Bond market is due a bounce – and probably of a short squeeze variety, probably after a short run up (we are having now) and new falls in the next few days to breach the recent lows a little (everybody is starting to be pessimistic and it looks oversold) but my own view is that after a more substantial bounce that we will start on the secular bear in Bonds – in earnest. Dollar is off a bit today – again no real shock.

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  • Agreed, “try” is the key word. In fairness greenbay (remember him !) stated that the Government of the day would go to whatever lengths were required to keep the credit/house party going and it seems he was right. Can the “do whatever it takes” strategy be maintained indefinitely ? – a resounding no – at some point it MUST come to an end and it wont be pleasant.

    Sadly most of us will probably be pushing up daisies.

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  • HPWatcher, actually, they can keep it going forever, but it will benefit a progressively smaller number of people. Certainly, there is still a minority in most African Countries benefiting still from decades of hyperinflation. It is called Tyranny. What the middle class do not realise is that the system will dump them as soon as their corrupt system does not support them. They are dispensable in other words, but as yet, they do not realise that, so like their forebears, they must stand up for their rights, their liberties, or lose them.

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  • Some recent commentary from Shaun Richards:

    What use is forward guidance in an increasingly uncertain and insecure world?

    Should “forward guidance” otherwise known as making a promise about an uncertain future lead to a rise in inflationary expectations then longer-term interest-rates such as UK Gilt yields could rise in response. In fact UK economic history is littered with examples of this happening where economic policy has inverse and indeed perverse effects. Those of us who hoped that having monetary policy set by a (supposedly) independent central bank, as opposed to politicians, would allow us to escape that fate are facing yet more possible disappointment. The Monetary Policy Committee looked for a while as if it might have achieved “escape velocity” but since then it has crashed back to earth.

    Indeed since the announcement at mid-day on Thursday the UK Gilt market has fallen and yields have risen. Or to be more specific after an initial knee-jerk rally which took our benchmark ten-year yield down to 2.32% we have seen it rise to 2.48% at the time of typing. As ever there have been other forces at play such as the response to Friday’s US employment numbers the impact of which has ricocheted around bond markets, but there is food for thought in that after only a few days of “forward guidance” UK bond yields are higher rather than lower. Oops. Expressing this another way, our benchmark yield was below that of France but more recently has returned to being higher and is now 0.21% above the 2.27% in La Republique.

    Personally speaking, I have no idea if the recent developments in the bond markets are just a blip or a harbinger of a full on crash for asset prices.

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  • …. or to TRY to keep things as they are

    Okay, but anyone care to take a guess at a timescale?

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  • stillthinking says:

    Timescale Like watching paint dry in my experience.

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