The Last Bubble

U.S Treasury

Background Information
You need to know one thing. Yields on all the treasuries are at historic lows, very close to 30 years low. Yields for 3 month treasuries are negative. It means that you will lose money by putting money into it. It sounds very funny. But it is the way it is right now. From another perspective, U.S govt is getting money from you for nothing.

Deflation
The only reason I can think of to explain current situation is deflation. Supposed during deflationary times, people want to hoard cash. They will want to put into treasuries. Bonds will be more valuable even when yields are at record lows.

It is also pretty much a deflation scenario that we are probably facing right now. But here's the catch. What if it is a deflation now/inflation later scenario?Rates will go up or dollar will fall drastically. Whatever the case, it will force people to sell a whole lot of treasuries and that is going to drive inflation up into the stratosphere.

As Weird as it sounds...
Stock market picks up. Investors start to sell their treasuries with low yields. They go back into stocks. Yes, treasuries will still fall but at least it is a sign that the economy is picking up and money is going back into investment of goods. Ideally speaking, this sounds logical. So maybe it is a bubble that is worth having after all.

Greenspan/Bernanke put
I mention about Greenspan put previously. I think Bernanke has inherited his legacy. In a way, men believe that they can control things. In fact, men want to control things. But sometimes, you simply can't control them. Both are creating bubbles that they cannot control at all. For the current trouble with treasuries, with yields at record lows, Bernanke is making a crazy promise to held interest rates at such low level for a long period of time.

The implication is that should things pick up, Fed will be pressured to raise interest rates again. This will kill all the bond holders at today's low rate.

When the treasury market collapses…
It makes sense for a dollar collapse as well because there is going to be this huge supply of dollars lying around. Stocks will crash as well (again!?). I suppose this is the implication of a dollar collapse. But actually, stocks may bottom with this crash.

A straightforward thing is people will buy a true safe asset - Gold. It may be a new tentative money system while people are trying to sort things out.

Something about Great Depression

I wiki-ed recovery of Great Depression. It is a freaking short paragraph. But something interesting about it. It is said that some economists attribute the recovery to the devaluation of dollar against gold.

Maybe, Bernanke wants the dollar to collapse. This sounds very fuzzy. But supposed Bernanke realises that the current situation is so bad that to flush the whole system out, you have to flood it with more money. Let the dollar collapses and restarts. Maybe they are hoarding lots of gold. I don't know. Lots of conspiracy theories over there.

Nonetheless...
we can profit from this. It is the only four letter word that glitters. Starts with a G, ends with OLD. By the way, there is an incident that happened recently. It is called backwardation of gold. I still don't quite get it fully. But a permanent backwardation reflects a situation where no one will want to sell gold. Very interesting piece of stuff. Hope to share with you soon.