Monthly Archives: June 2012

ha – operation twist

Bernanke has decided to continue with operation twist, and continue to subsidize those folks on the long bond..

 

Surprisingly, deflation hit the streets.  The long bond went up, commodities/oil down, and same with equities.  The dollar also strengthened against both the euro and yen.

Can investors afford to ever leave the treasuries as long as Ben keeps pushing yields down?  The net result is a withdrawal in bank deposits substituted for treasures.  What incentive do investors have to invest in riskier mortgages and corporate debt in a lower rate induced deflationary cycle?

Investor are also loving the cuts in taxes via cuts in pensions.  As long as concessions continue to be made as a result of deflation, is there really an incentive for investors to support the increase in liquidity?

 

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 Yields contin…

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Yields continue to drop with euro and oil.  It makes sense.  The strong euro has long supported high oil prices.

It really looks like global de-leveraging will end soon.  Obviously, if governments keep bailing out banks, the banks will continue to contract the money supply.  Yet, once the bailouts end, there really is no incentive to de-leverage.

Once pensions and social security are trimmed, governments will have incentive to leverage/inflate again to collect tax revenue.  Is the time coming?  Maybe not today, but it has to be somewhere between today and 10 years from now.

i’m looking at 60 equity – 40 fixed on the short end of the yield curve for now.