bedsit
July 8, 2007, 9:39am
#1
World’s financial community gives two fingers to the US - (SBP)
Investors can now see through the Americans’ game. Since 2000, the US has been playing a big game of IOU with the rest of the world. They spend more than they save, and they’re asking us to bridge the gap.
On the day the Irish media was focused on the consummation of the Fianna Fail/Green Party marriage, an event of considerably more importance for this country received little coverage. Yet this event is likely to have more significant and longer-lasting ramifications for us than anything this new government gets up to.
On June 15, the US government was given two fingers, not by a bunch of internationalist lefties, but by its main supporters, the international financial community.
The US treasury tried to sell new US ten-year treasury bills worth $8 billion to plug the gap between what Americans spend and what Americans save. For the first time ever, foreigners said: ‘‘No thanks.â€
If the dollar does crash, where will USD/JPY go? Should someone with dollars now buy JPY as a safe haven? Anyone want to have a guess?
While a collapse in the dollar might be bad for the Irish economy it might not be bad for the Irish property market. Look how the interest rate cuts after 9/11 revived the Property market. If the dollar falls hard the ECB will be under severe pressure to cut rates to maintain competiveness.
2Pack
July 8, 2007, 1:20pm
#4
Japanese government debt is arguably a lot more junk like than US debt.
The US government owes about 60% of GDP today . The max level considered prudent by the Eurozone in fact . It rose under Bush .
The Japanese (state local and national ) Government debt is OVER 160%
Even at our lowest, 20 years ago, the Irish debt maxed at 125% of GDP
more detail on the McWillians article here
I found that to a more clear & cogent articel from MCWilliams, non of his typical phrase coining.
I suppose there is not point in beating about the bush due to it gravity of the subject.
While you can never rule out anything in finacial markets (Irish property prices could continue to go
There are too may other economies dependent on a relativley stable US$ trading range; the Chineese, the Japaneese, the Eurozone, the UK before you get to the Koreans, Auzzies, Swiss, Kiwis, Singapore and the OPEC block etc.
The markets know what the effect of refusing US debt would most likely be. They will do what ever is needed to ensure profitable trading ranges, not because it suits them to ‘play ball’, but becaues the alternative is just too messy. Yes, the market players can move the market by buying or not, and some central banks may want to teach the Yankies a lesson by holding back, but in the short to medium term, everyone plays ball and the “status quo” is maintained.
That said … if it did happen … the price of a hosue would be the least of our worries
Blue Horseshoe
2Pack
July 8, 2007, 5:25pm
#8
Bear Market in US Treasuries
bloomberg.com/apps/news?pid= … refer=home
July 9 (Bloomberg) – The bear market in U.S. Treasuries is just getting started as investors turn their attention to the strengthening labor market and faster inflation instead of the decline in home prices.
That’s the conclusion of economists at Lehman Brothers Holdings Inc., Morgan Stanley and RBS Greenwich Capital. They estimate 10-year government notes will return 1.28 percent this year, not even enough to cover inflation. The performance would be the worst since 1999, when they lost 8.25 percent, Merrill Lynch & Co. index data show.
The combination of a U.S. jobless rate near a six-year low and inflation at the upper end of the Federal Reserve’s comfort zone will keep the central bank from cutting interest rates to halt the decline in home prices, economists at the banks said. Federal fund futures show a 9 percent probability the Fed will cut its key rate this year. In May, the odds were 100 percent.
It isn't a very appetizing environment'' for bond investors, said Ethan Harris, chief U.S. economist at New York- based Lehman Brothers, who says the Fed will keep its target for overnight loans between banks at 5.25 percent this year. The Fed is stuck in idle.‘’
Harris expects two-year and 10-year government debt to yield 5.10 percent by Dec. 31. Lehman is the fourth-biggest U.S. securities firm by market value.
The yield on the benchmark 4 7/8 percent Treasury due in June 2009 rose 12 basis points to 4.98 percent last week as its price fell 7/32, or $2.19 per $1,000 face amount, to 99 25/32, according to bond broker Cantor Fitzgerald LP. The 4.5 percent note maturing in May 2017 yielded 5.18 percent, up 16 basis points. The price of the securities fell 1 7/32, or $12.19 per $1,000 face amount, to 94 24/32.
Most Accurate
Lehman, New York-based Morgan Stanley and Greenwich, Connecticut-based RBS predicted the Fed wouldn’t cut interest rates and that bonds would slump in the first half. Ten-year Treasuries fell 0.43 percent, according to Merrill’s indexes.
They forecast, on average, that two-year notes would yield 4.92 percent. The securities ended at 4.87 percent. They also said 10-year notes would yield 4.88 percent, compared with 5.02 percent on June 30.
Those predictions were closer than the rest of Wall Street. More than 60 economists surveyed by Bloomberg News in January expected, on average, that the central bank would cut rates once by June, pushing two-year yields down to 4.71 percent and 10-year securities to 4.68 percent.
as for me, I don’t know what to think
People are looking in the wrong place. The collapse of the dollar, a US recession or the CDO market falls apart might see interest rates fall, but it will lead to a credit crunch. You’ll not be able to borrow as much.
Interest rates are yesterdays news, liquidity is what we need to watch now.
rock3r
July 9, 2007, 12:43pm
#10
Where can I read more about the June 15th debacle, in a Mr Men style level of complexity?
more
SBPost
I like this line:
“but there is something unreal about accusing those who point out the blatantly obvious.”
he also talks about the “miracle economy”, this week some people here looked foolish by criticising those who didn’t believe in the “miracle economy”.
The Emperor’s New Clothes
Once upon a time there lived a vain Emperor whose only worry in life was to dress in elegant clothes. He changed clothes almost every hour and loved to show them off to his people.
Word of the Emperor's refined habits spread over his kingdom and beyond. Two scoundrels who had heard of the Emperor's vanity decided to take advantage of it. They introduced themselves at the gates of the palace with a scheme in mind.
"We are two very good tailors and after many years of research we have invented an extraordinary method to weave a cloth so light and fine that it looks invisible. As a matter of fact it is invisible to anyone who is too stupid and incompetent to appreciate its quality."
The chief of the guards heard the scoundrel's strange story and sent for the court chamberlain. The chamberlain notified the prime minister, who ran to the Emperor and disclosed the incredible news. The Emperor's curiosity got the better of him and he decided to see the two scoundrels.
"Besides being invisible, your Highness, this cloth will be woven in colors and patterns created especially for you." The emperor gave the two men a bag of gold coins in exchange for their promise to begin working on the fabric immediately.
"Just tell us what you need to get started and we'll give it to you." The two scoundrels asked for a loom, silk, gold thread and then pretended to begin working. The Emperor thought he had spent his money quite well: in addition to getting a new extraordinary suit, he would discover which of his subjects were ignorant and incompetent. A few days later, he called the old and wise prime minister, who was considered by everyone as a man with common sense.
"Go and see how the work is proceeding," the Emperor told him, "and come back to let me know."
The prime minister was welcomed by the two scoundrels.
"We're almost finished, but we need a lot more gold thread. Here, Excellency! Admire the colors, feel the softness!" The old man bent over the loom and tried to see the fabric that was not there. He felt cold sweat on his forehead.
"I can't see anything," he thought. "If I see nothing, that means I'm stupid! Or, worse, incompetent!" If the prime minister admitted that he didn't see anything, he would be discharged from his office.
"What a marvelous fabric, he said then. "I'll certainly tell the Emperor." The two scoundrels rubbed their hands gleefully. They had almost made it. More thread was requested to finish the work.
Finally, the Emperor received the announcement that the two tailors had come to take all the measurements needed to sew his new suit.
"Come in," the Emperor ordered. Even as they bowed, the two scoundrels pretended to be holding large roll of fabric.
"Here it is your Highness, the result of our labour," the scoundrels said. "We have worked night and day but, at last, the most beautiful fabric in the world is ready for you. Look at the colors and feel how fine it is." Of course the Emperor did not see any colors and could not feel any cloth between his fingers. He panicked and felt like fainting. But luckily the throne was right behind him and he sat down. But when he realized that no one could know that he did not see the fabric, he felt better. Nobody could find out he was stupid and incompetent. And the Emperor didn't know that everybody else around him thought and did the very same thing.
The farce continued as the two scoundrels had foreseen it. Once they had taken the measurements, the two began cutting the air with scissors while sewing with their needles an invisible cloth.
"Your Highness, you'll have to take off your clothes to try on your new ones." The two scoundrels draped the new clothes on him and then held up a mirror. The Emperor was embarrassed but since none of his bystanders were, he felt relieved.
"Yes, this is a beautiful suit and it looks very good on me," the Emperor said trying to look comfortable. "You've done a fine job."
"Your Majesty," the prime minister said, "we have a request for you. The people have found out about this extraordinary fabric and they are anxious to see you in your new suit." The Emperor was doubtful showing himself naked to the people, but then he abandoned his fears. After all, no one would know about it except the ignorant and the incompetent.
"All right," he said. "I will grant the people this privilege." He summoned his carriage and the ceremonial parade was formed. A group of dignitaries walked at the very front of the procession and anxiously scrutinized the faces of the people in the street. All the people had gathered in the main square, pushing and shoving to get a better look. An applause welcomed the regal procession. Everyone wanted to know how stupid or incompetent his or her neighbor was but, as the Emperor passed, a strange murmur rose from the crowd.
Everyone said, loud enough for the others to hear: "Look at the Emperor's new clothes. They're beautiful!"
"What a marvellous train!"
"And the colors! The colors of that beautiful fabric! I have never seen anything like it in my life!" They all tried to conceal their disappointment at not being able to see the clothes, and since nobody was willing to admit his own stupidity and incompetence, they all behaved as the two scoundrels had predicted.
A child, however, who had no important job and could only see things as his eyes showed them to him, went up to the carriage.
***"The Emperor is naked," he said.
"Fool!" his father reprimanded, running after him. "Don't talk nonsense!" He grabbed his child and took him away. But the boy's remark, which had been heard by the bystanders, was repeated over and over again until everyone cried:
"The boy is right! The Emperor is naked! It's true!" ***
The Emperor realized that the people were right but could not admit to that. He though it better to continue the procession under the illusion that anyone who couldn't see his clothes was either stupid or incompetent. And he stood stiffly on his carriage, while behind him a page held his imaginary mantle.
Blue Horseshoe
David McWilliams must be reading the PIN. As I’m fairly certain I haven’t changed my posting signature since day one of the pin. Its so hard being ahead, no one understands
10% pa for the next decade), a “collapse” in the dollar is, unlikely, even accepting the economic mess that the 43rd Persident has overseen on his watch
(until its too late)