Some one who understands the financial markets....

Discussion in 'Random Ramblings' started by I have WHAT in my yard?, Oct 9, 2011.

  1. I have WHAT in my yard?

    I have WHAT in my yard? Chillin' With My Peeps

    Jun 24, 2008
    Eggberg, PA
    Something curious happened recently: for the first time in over a decade, perhaps ever, the US saw a record $25 billion worth of Treasury bond outflows from the Treasury's custodial account in the week ended September 28. Just as curious is that in the past 5 weeks we have seen relentless selling of Treasurys from the same custodial account which, with Treasury International Capital data 3 months delayed, and largely incorrect until its annual revision, is the only real source of recent (and somewhat accurate) foreign activity in US bonds. In fact, starting with the week ended September 7, through last Thursday, foreigners appear to have dumped a massive $56 billion worth of Treasurys (don't take our word for it - check it here, courtesy of the Fed). This is quite disturbing for two reasons. One explanation for this move would be to look back to the Quant crash in early August 2007, which preceded the market's secular (and all time) high, when various quant funds blew up for reasons still not completely known. The reason why this date is important is that it was the catalyst for the next biggest concerted dump of Treasurys, when in a subsequent span of 4 weeks, foreigners sold $47 billion in Treasurys... but at least the market's precipitous move lower was prevented, if only for a few brief months. Also curious is that the recent move is in direct contrast to the Custodial Account reaction to the Lehman implosion in 2008 when 20 weeks of consecutive UST inflows, beginning September 10, saw $300 billion in "safe haven" purchases. So while the market plunge back then was accompanied by a shift into Treasurys, this time around, the biggest market volatility since Lehman has seen a record sequential exodus out of bonds. Which begs the question: did Tim Geithner make a few phone calls, and tell foreigners to dump Treasurys (knowing full well Op Twist was coming and the Fed would backstop the entire curve), and to buy stocks instead in order to prevent the next relapse of the Great Financial Crisis?

    Of course, there is a far simpler explanation: the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise - China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived.

    Either way, if this is merely a function of money's fungibility (according to , as is all too well known, capital simply shifts from one asset allocation to another), and money was forcefully "funged" from bonds into stocks (with or without the prodding of one Tim Geithner) to create a "natural" bid into the bidless market, expect to see even more bond liquidations should stocks continue sliding lower. That may be a big reason to panic as it means that finally the US has tipped its hand that its survival (read: that of the Russell 2000, thank you Ben Bernanke), is dependent on the generosity of our trade surplus partners.

    If, on the other hand, the sell off is completely uncorrelated to any moves in the stock market, then the reason to panic is far, far greater, as it means that the international community no longer perceives US paper as a flight to safety...and has taken the first step to defect in the most important Nash equilibrium in modern history.

    Source: H.4.1

    I have probably a much better grasp of the markets than the average person, but I am still largely self taught so this piece still leaves me staring. Back in 2006 and 2007 I was studying the markets and they seemed insane. Nothing that was going on made sense people were betting against themselves. It is a very strange feeling to see when you are pretty sure you are right and the so-called experts are wrong. But, in the end it turned out I was right the experts were all insane.

    This, to me, seems like a pretty clear market manipulation. But, who has the ability to move this this way? If anybody can give me something to hang my hat on here I would be grateful.​
  2. Ridgerunner

    Ridgerunner True BYC Addict

    Feb 2, 2009
    Northwest Arkansas
    Is it something so simple that, with interest rates this low, bonds are no longer a safe haven? I don't really know what would trigger that realization, but I really don't know where a safe haven is anymore.
  3. bakerjw

    bakerjw Chillin' With My Peeps

    Apr 14, 2010
    Johnson City, Tn
    I know very little about bond markets or finance in general but from I observer of the markets each day believe that there is a lot of behind the scenes manipulation. To many people growth of the DJIA is perceived as a indicator of the health of the economy. The DOW goes up, on its own or by being manipulated, and John Q. Public gains confidence that things are getting better when in fact they are not. Foreclosures are still increasing and personal debt is still rising. Things do not look pretty and those that know the markets, both bond and stock, are trying to position themselves to take as little damage as possible.
  4. Happy Chooks

    Happy Chooks Moderator Staff Member

    Jul 9, 2009
    Northern CA
    My Coop
    It is market manipulation. Our interest rates would be really high right now if the government wasn't manipulating them to keep them low. Instead of taking a small amount of hurt now, we are going to have a MAJOR market correction coming - I think via high inflation. I wouldn't have a dime in the stock market right now as I see a big crash happening, probably bigger than the last one - it's just a matter of when.
  5. Ridgerunner

    Ridgerunner True BYC Addict

    Feb 2, 2009
    Northwest Arkansas
    I'm also very concerned about inflation. With interest rates so low, just a little change is a large percentage relative to bonds. That's why I do not see bonds as anything near safe.

    With the computers behind so much trading, a lot depends on how the programs are put together. I'm not sure what is manipulation and what is mindless activity. I do think there is also a lot more of following the crowd than I'd think healthy. Like a flock of sheep, blindly going wherever the flock goes.
  6. I have WHAT in my yard?

    I have WHAT in my yard? Chillin' With My Peeps

    Jun 24, 2008
    Eggberg, PA
    I've really come to the point where I think every american anyway should have to read The BIg Short by Michael Lewis. Or watch the movie Inside Job.

    If people understood how screwed up the system has become they would better be able to prepare themselves for what is coming. It isn't only John Q that is being fooled here. There is less out and out fraud going on as there is people who work in the finance industry who refuse to accept that their "models" aren't working. Business schools teach based on certain philosophies. You can shop around for economics departments based on what school of thought they teach there. That is nonsense.

    I knew we were going to get no where fast when Obama hired on as his economic advisors and policy gurus the very same people who had caused the problems in the first place.

    And I am worried to death about how skewed the market became by necessity when they put everyone's retirements in it. The market is supposed to be for investing money you can afford to lose. It is a gamble with good odds if you do your research and if you know what you are doing, it is not a safe place for your retirement money. Trying to safeguard that money then skews the market and makes policy responses to market moves necessary which further skews the market.

    But, this.... I am not sure what to make of this. We're really due for a major rout and I suspect the longer they hold it off, as Happy Chooks said, the worse it will be.
  7. Ridgerunner

    Ridgerunner True BYC Addict

    Feb 2, 2009
    Northwest Arkansas
    I haven't read that book or seen that movie, so I can't debate the pros and cons about how that information was presented, provide a judgment on what information was presented, or the accuracy of the info. But the retirement money in the market has fueled growth. That is where a whole lot of the money for investment in our economy came from. The market is volatile and there is a risk in investing in the market, whether stocks, bonds, or other places. There is a reason the suggestion is to balance your portfolio based on risk and how close you are to needing the money, whether for your kid's college, your retirement or whatever.

    I don't know where you got the idea that the market is supposed to be for investing money you can afford to lose. I don't have any money I can afford to lose, but I have money I can afford to use. If I don't spend it, my kids can inherit it. I'Il base certain decisions, such as a trip, on how much I have available and if I'd rather use it for something else, but I don't base it on how much I can afford to lose. I base it on how much I can invest in the pleasures or other benefits I gain from that trip. When you are young, you can afford to risk more for bigger potential growth since you have some time to recover. I fail to see a huge difference philosophically in using money, whether borrowed or you own, to invest in a new business start-up versus investing in the market. Both carry big risks and both have potential for return. If you have a mortgage or are making car payments yet have money to invest, you are in essence borrowing money to invest. A whole lot of us do that. I'm probably not explaining it very well, but I do not consider that only money you can afford to lose as what should go into the market or invested some other way, just what form those investments should take.

    I remember something my investment advisor mentioned when we were transitioning over from Bush to Obama. Some things had been passed and a lot of different things were being proposed. None of us had a clue what was actually going to be passed or what form it was going to be in, other than the first stuff Bush has already signed off on. She was totally frustrated because she did not know what they were going to do. She wanted them to pass what they were going to do then back off a while. Let things stabilize so she could at least have an idea of what to base her investment decisions on. Based on how the market and many other investors performed, she did a great job of protecting my asset base, but at that time she was really having problems. She never knew what was going to happen in Washington to pull the rug out from under any investment decision she made.

    While there are obvious connections, I don't see the economy and the stock market as the same thing. I base my thoughts on how strong our economy is on whether a family can support itself, not on the DOW Jones exchange. But I think both will do better based on stabilty more than how much we tax who or which spending is increased or decreased how much. I'm not dismissing these factors, they are important. But I think stability is even more of a factor and with what is going on in Europe and the Middle East, as well as our political polarization and whatever else is going on. We don't control all these factors any more than we control whether the Romanian grain crop fails and those affects on worldwide grain prices. I just don't see us having a tremendous amount of stability right now.
  8. frostbite

    frostbite Chillin' With My Peeps

    Sep 27, 2011
    Fairbanks, Alaska
    The reason some of us individual investors are still holding stocks is because as long as they are solid companies that can hold on through a depression and come back, they are an asset, rather than a promise of an asset. With the "quantitative easing" that the Fed has done, the dollar is getting worth less and less. If you can't trust the value of the dollar, and the interest rates you can get on savings are too low to anywhere near compensate for inflation, and the housing market is crashing still, then stocks are all you have left, especially stocks that have dividends. You just have to be careful to pick companies that will survive, and be able to hang on to them for as many years as it takes for the economy to crash and burn, and finally return.

    We're also striving to be wise in my choices, my investments, my spending, my voting. We're strong in oil companies and refineries right now, they've been pretty dependable for the past several years, and I don't think they'll crash, too necessary, and too rare, especially local resources. That, and I'm going to be investing in chicken feed in another 5 months....

    The other thing I'm doing is not keeping my confidence in gold or savings or stocks or the government. I am going to continue to have faith in God, give my anxieties to him, and continue to do what I can to make my little bit of the universe as kind, compassionate, generous, and entertaining as I can, and to be grateful for the good, rather than dwelling on the bad. It's nice to be able to feel some peace in the midst of a world gone mad. (As near as I can tell, it's been going mad for centuries now. Welcome to Bedlam!)

    Oooh! Economics and Philosophy on the same post. Does this violate a rule somewhere?
  9. JD4570

    JD4570 Chillin' With My Peeps

    I don't think it is question of if or even when, but who will be first to go down. Will it be United states, the European Union, or China? That's right I said China. China has been withdrawing their currency to increase its' value. But then again they're getting out of the dollar and into gold. But worldwide the food crop harvests have been anywhere from dismal to disastrous.If there is no food, gold becomes worthless. All I can say is trust in God and he will guide your path and provide.

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