I wish I could say I was the first to use this phrase, but the best I can claim is independent discovery. I think it is a great term for the multi-trillion-dollar global experiment being conducted by various governments and central banks, especially our own.
I realize the stock market is on a tear, and for all I know it could keep going another 20 percent or more. (No, that is not a recommendation to buy.) Still, I keep watching the yield on the 10-year — which moved by a full 25 bps today — and I have to wonder if something is amiss.
Just to convince you and myself that I am not a perma-bear, here is an article about an analyst named Mr. Bond (no, really) who says “What, Me Worry?”
Signs of an economic recovery, somehow, end up being interpreted as signs of impending economic doom.
Nowhere is this truer than of the prevailing fuss about the dollar and US treasury yields. Both asset classes have been losing the safe haven and liquidity premiums established during the market carnage of last year. This is an unambiguously positive development, confirming a revival in risk appetites, decreased fears about the financial system and a general improvement in economic expectations. However, after passing through the prevailing interpretative filter, these positives become negatives.
Personally, I would find this analysis more compelling if gold were not rocketing back toward $1000 and the 10-year were not flapping around like a screen door in a hurricane. But I have to admit, he could be right. Even Jansen thinks this is at least part of the story:
I also believe that we are seeing a reversal of the flight to quality. Investors had piled into risk averse government bonds and they are now fleeing them for equities and investment grade corporate bonds. The change of heart could not come at a worse time as it collides with the massive financing needs of the US Government.
…which brings me right back to being a little scared.
Our Secretary of Tax Evasion is in China right now, trying to convince them that everything is fine, no really, and we’ll gladly pay you Tuesday for a hamburger today.
China’s Yu Says U.S. Shouldn’t Be Complacent About Treasuries
“I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’,” Yu said in an interview yesterday. “The euro is an alternative. And there are lots of raw materials we can still buy.”
…
“You should not try to inflate away your debt burden.”
…
“Yes, some people say the euro is very weak,” Yu said. “Okay, weak is good, we’ll buy very cheap.”
Of course, these are just public statements. I do not know much about China, but I do know this: No Chinese official ever says anything in public just to express an opinion. All public statements are merely for effect. The serious conversations will occur with Secretary Geithner behind closed doors. Oh to be a fly on that wall…
To wrap up, Niall Ferguson takes some shots at Professor Krugman. (I had to work in an actual Keynes reference.)
Leave a Reply
You must be logged in to post a comment.