|
I thought I had witnessed a lot of craziness in the bond market over the past year:
• The utter obliteration of subprime mortgage bonds …
• The crash of auction rate securities, and …
• The annihilation of bonds backed by buyout loans and commercial real estate mortgages.
But boy was I mistaken. We are truly entering the Twilight Zone. So much so that I decided to call this Money and Markets column: “Postcards from the Bond Market Edge.”
A few examples …
Treasury Auction Proves You CAN
Get Money for Nothing
Back in the 1980s, the rock band Dire Straits put out a smash hit called “Money for Nothing.” It reflected the laments of a couple of blue collar workers who were complaining that rock singers got too much easy money for too little work. But I never thought I’d see the day when the U.S. government would get the same deal!
What do I mean?
|
| The Treasury Department recently got a sweet gift from investors: $30 billion in FREE money! |
Well, the Treasury Department recently sold $30 billion worth of four-week bills. And like any debt instrument, T-bills usually pay interest. So you’re guaranteed some kind of return if you hold them to maturity.
But these bills? They were sold at a 0% yield.
That means buyers literally agreed to give the U.S. government $30 billion in FREE money, accepting ZERO return. And those buyers were falling all over themselves to get a piece of this “great” deal.
The bid-to-cover ratio, which measures the dollar volume of buyers’ bids against the volume of bills being sold, was 4.20. That was the highest ratio of bids to bills sold going all the way back to January 2002!
| Internal Sponsorship |
|
Tune-In to MAM-TV! MAM-TV is up and running! Just click this link, and you’ll be able to check out all that MAM-TV has to offer. Each MAM-TV channel has handy information that you can start using this very moment to protect your wealth and prosper in these challenging times. And our editors will regularly upload new shows to keep you well-informed. To start viewing these important broadcasts, absolutely free of charge, click here for direct access to MAM-TV. Or, go to MoneyandMarkets.com and click the MAM-TV banner. |
Government Borrowing Exploding …
Is the Fed Next?
The deficit numbers being thrown around — and the funding options for them — are spiraling out of control. The government racked up $455 billion in red ink in the fiscal year that ended September 30, 2008. And on Wednesday, we learned that the 2009 deficit is ALREADY at $401.6 billion — just two months into the new fiscal year!
The full-year 2009 deficit could be $750 billion … it could be $1 trillion … or it could be even higher. These numbers are truly staggering. We are literally talking about the biggest deficit in any country … ever.
So how are those deficits going to be funded? By a wave of Treasury issuance the likes of which neither you nor I have ever seen. Don’t take my word for it — listen to what Karthik Ramanathan, the acting assistant secretary for financial markets at the Treasury, said this week:
“Recent market estimates have suggested $1.5 trillion in net marketable borrowing in fiscal year 2009, with some raising the possibility of net marketable borrowing in excess of $2 trillion. While this uncertainty remains, it is our responsibility as debt managers to as transparently as possible meet these borrowing needs in the least disruptive manner.”
| External Sponsorship |
|
Free Report: This is the greatest buying opportunity of our lifetimes, but let me clarify: It’s not as simple as buying any old stock that’s cheap. It’s about owning a mix of the highest quality stocks. That’s why I’ve created my Action Plan for the Wipeout. Your first action? Sell every stock that fails my eleven-point safety test. Your second step: Buy these five blue chips that are still thriving now. It’s all in your Action Plan for the Wipeout. |
Yes, he did say that net issuance of U.S. Treasuries could hit $2 TRILLION this year! That’s another potential $6,539 of debt for each and every person in this country — in just one year. The Treasury could be forced to roll out 7-year notes, sell more 30-year bonds, or otherwise pursue “novel” approaches to finance the deficit.
Heck, I wouldn’t be surprised to hear about the sale of 50-year or even 100-year bonds!
Nuts, Right?
And Things Get Even
Wackier Than That!
Just consider: The U.S. borrows money via the nation’s Treasury Department. And government bonds are auctioned by the Treasury to investors. Meanwhile, the central bank — our Federal Reserve — has the authority to issue currency. It can print as much money as it wants. But it cannot sell its own bonds.
|
| The Fed is spreading around so much money to finance bailout programs, that it is now exploring the possibility of selling its own debt. |
Yet according to a Wall Street Journal report this week, the Fed is now exploring the possibility of selling its own debt. The reason: Its supply of Treasuries is dwindling fast because of all its bailout programs.
I’ve never heard of a central bank doing something like this. And the ramifications are potentially immense. You could have yet another huge source of quasi-government debt flooding the market at a time when the Treasury itself is selling bonds like they’re going out of style.
At times like these, it pays to continue playing things safe. That means staying away from higher-risk debt and stocks. It also means avoiding getting sucked in by bear market rallies, no matter how tempting they look. The actions by the Fed and Treasury, and these odd bond market developments, tell me the credit markets are far from fixed.
Until next time,
Mike
About Money and Markets
For more information and archived issues, visit http://www.moneyandmarkets.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Tony Sagami, Nilus Mattive, Sean Brodrick, Larry Edelson, Michael Larson and Jack Crooks. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Kristen Adams, Andrea Baumwald, John Burke, Amber Dakar, Michelle Johncke, Dinesh Kalera, Red Morgan, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau and Leslie Underwood.
Attention editors and publishers! Money and Markets issues can be republished. Republished issues MUST include attribution of the author(s) and the following short paragraph:
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
From time to time, Money and Markets may have information from select third-party advertisers known as “external sponsorships.” We cannot guarantee the accuracy of these ads. In addition, these ads do not necessarily express the viewpoints of Money and Markets or its editors. For more information, see our terms and conditions.
|
© 2008 by Weiss Research, Inc. All rights reserved. |
15430 Endeavour Drive, Jupiter, FL 33478 |
