In case you haven’t heard, the US Treasuries are back in vogue, with everyone betting we’ll see an inflation-free, Japanese-style lost decade.But it wasn’t so long ago that everyone was betting on the opposite, as they were sure that the huge debt would cause higher interest rates, and debt monetization.
So, we thought we’d run through just a few of the big names over the past year or so who thought that shorting treasuries were a sure thing. The idea isn’t to mock, but just to point out how hard this all is.
On shorting long-term US Treasuries: 'Steepeners are a type of interest rate swap, where one party agrees to pay the other a fixed rate in exchange for a floating rate, which is derived from the difference between long and short term rates. Many of these products also use high leverage, where the difference between the two rates is multiplied by up to 50 times to produce a higher return.'
-- Julian Robertson on June 3, 2009
Marc Faber's predictions, summarized (the guy can be a bit loquacious):
-A stronger dollar will be positive for equities based on historical market data.
-The U.S. market will outperform emerging markets for the first half of 2010.
-Stocks and associated indices may have 10-20% correction, followed by another rally.
-The worst thing you can do for a long-term buy is purchase Treasuries.
-The private sector is de-leveraging while the government levers up. This process is expected to continue.
-- Marc Faber, Dec. 30, 2009
After downgrading the US in a self-written prospectus, Grant asserts that Treasuries (or 'certificates of confiscation') are a surefire way to lose one's invested money. The economics whiz also had some words to the wise for our Fed Chairman - '...watch your back, Ben Bernanke. Cycles turn.'
-- Jim Grant (The guy who tells it like it is), April 3, 2010
'...we are only in the early innings of this attempted recovery. Watch out when the recovery falters and policymakers come back and tell us that the problem was not an ill-conceived strategy, in the form of the stimulus package; the problem was that we didn't do enough of it and, therefore, should do more. If so, expect the dollar to plunge.'
-- Paolo Pellegrini, Feb. 12, 2010 (in other words, the expect-the-worst-and-back-out-of-your-Treasury-positions-NOW)
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