Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Bonds & Banter


John's piece earlier about foreign investors' appetite (or lack thereof) for our debt securities is a point that simply cannot be emphasized enough. Yes, yes, I can hear the rebukes already: "it's long been an issue", "what's the trigger to cause it", "they to keep buying", etc. But here's the issue, and it's something that many of us have tried to write about for some time: giving control of nearly half of your debts to foreign entities - no matter if you are of an Austrian or Keynesian bent - increases the risk profile for all investments.

For now, the Japanese, the Chinese, etc. need to keep us on debt life support or else their export-led economies would falter hard. Why? Remember that statistic I shared some time back?: from 1996 to 2002, the US economy accounting for fully 96% of worldwide GDP growth in the period. If we so much as sneeze economically, the rest of the world gets mighty sick. They have no real domestic demand to speak of to "absorb" all those goods they are producing.

So from a game theory standpoint, it has made sense for foreign central banks to keep buying our debt for years, so they could ensure a steady stream of demand for their goods. This is why it has "long been an issue". Only when these entities realize that they have more to lose by keeping us afloat do they blink and stop buying treasuries. The administration telling them that we are going to devalue the dollar and the Fed telling them the monetary printing presses are ready to be turned on certainly changes the macroeconomic calculus going on in Tokyo and Beijing. Whether a blink is forthcoming remains open to debate. But there is no debate about whether the actions being taken by the Administration and the Fed raise the risk of a blink: they most certainly do.

Maybe not today's or even this year's business, but you would be doing yourself a major disservice not to be aware that there's an elephant in the room. And few are paying it any attention.

PS: relative to our unfolding Fun With Numbers scenario, today's action "looks" like it fits the bill, with an impulsive sell off after tagging just about the levels we were aiming for (SPX 1075 and DOW 9915, NDX didn't get close). To confirm it, a steady hard sell off from here would add confidence to the conclusion. We'll see how tomorrow shapes up. Rest well.
< Previous
  • 1
Next >
No positions in stocks mentioned.

The informatio= n on this website solely reflects the analysis of or opinion about the perf= ormance of securities and financial markets by the writers whose articles a= ppear on the site. The views expressed by the writers are not necessarily t= he views of Minyanville Media, Inc. or members of its management. Nothing c= ontained on the website is intended to constitute a recommendation or advic= e addressed to an individual investor or category of investors to purchase,= sell or hold any security, or to take any action with respect to the prosp= ective movement of the securities markets or to solicit the purchase or sal= e of any security. Any investment decisions must be made by the reader eith= er individually or in consultation with his or her investment professional.= Minyanville writers and staff may trade or hold positions in securities th= at are discussed in articles appearing on the website. Writers of articles = are required to disclose whether they have a position in any stock or fund = discussed in an article, but are not permitted to disclose the size or dire= ction of the position. Nothing on this website is intended to solicit busin= ess of any kind for a writer's business or fund. Minyanville management= and staff as well as contributing writers will not respond to emails or ot= her communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.<= /p>

Featured Videos