Government bond markets -crash imminent?

AARRRGH

From McWilliams:

But the real test is in the government bond markets. Are they prepared to accept our IOUs yet again? Hardly, which is why a crash in the global bond market in the months ahead is probably going to mark the next phase in the first Great Recession of the 21st century.

Do you think David is right in thinking there will be a crash in the global bond market in the months ahead?

If so, what do you think will be the outcome of that crash?

And, is there any way to profit from that crash?

TheInquisitor

AARRRGH wrote: »

From McWilliams:

But the real test is in the government bond markets. Are they prepared to accept our IOUs yet again? Hardly, which is why a crash in the global bond market in the months ahead is probably going to mark the next phase in the first Great Recession of the 21st century.[/qoute]

Do you think David is right in thinking there will be a crash in the global bond market in the months ahead?

If so, what do you think will be the outcome of that crash?

And, is there any way to profit from that crash?

Short bonds if you want to profit from a possible crash. Not going to happen though.

ionix5891

I posted on that here

http://www.boards.ie/vbulletin/showthread.php?t=2055576158



hes just parroting back what other economists and historians have been pointing out for few months now

no doubt if a crash does occur (and it will probably will as we have another "bubble") he'll make another 10 "i told you so articles"

its so very dave

is_that_so

I can't comment on his question although I notice his own justification for the conclusion is not particulary insightful. I also wonder does he read what he writes.

from that piece

Forget all the stuff about “green shoots”; what is in the balance here is the difference between a recession and a depression and the British authorities know it. They are printing money when possible and borrowing to keep the show on the road.

And his comments here- "The leaving the Euro" Indo article from the beginning of May.

...
As the Central Bank would do what the US, UK, Australia, Canada and Sweden are doing now and print money, the liquidity trap that we are in would evaporate. Clearly inflation would rise rapidly, and the State would need to introduce CPI-linked bonds to refinance itself.
But lots of successful countries have done that in the past -- Sweden, Finland and Israel come to mind.
...

So is it a good idea or not? Hard to say if you compare those two pieces.
In all honesty this is how I find McWilliams these days. he may have something to say and he may be right some of time but would you be bothered listening to him?

ixus

Oh, it will happen alright. McWilliams is picking up on other sources discussing this. I'd have been more impressed if he brought it up around the time Quantative Easing was being discussed.

Posted this last week:

ixus wrote: »

I've been openly bearish on the bond market for a while now. Things seem to be picking up pace. For those who are interested, it's well worth keeping an eye on the blog Across the Curve to help understand what is going on.

Two must read articles:

Treasury sell-off

The Treasury market, in a world no longer dominated by central bank reserve managers - By bsetser

The Bund (10yr German bond) appears to have no support.
http://futuresource.quote.com/charts/charts.jsp?s=GB-DT&o=&a=D&z=610x300&d=medium&b=bar&st=

Look at that 10yr US T-bill drop!
http://futuresource.quote.com/charts/charts.jsp?s=QTY&o=&a=D&z=610x300&d=medium&b=bar&st=

Also worth a read: It Is Failing: ALL OF IT
http://futuresource.quote.com/charts/charts.jsp?s=QTY&o=&a=D&z=610x300&d=medium&b=bar&st=

Hasschu

The Global Bond Market will not crash unless you are an American where the bond market will crash and since the centre of the universe is crashing you can be forgiven for believing that the world market is crashing. The Euro denominated bond market will remain stable because there is no sign of inflation and the Germans are standing on guard for thee. Skyrocketing inflation causes high interest rates and bond market collapse. The three countries most likely to have bond market collapses are #1 US budget deficit 13.5%, #2 Ireland 12.5% #3 Iceland 12.0%.In the case of Ireland and Iceland the damage will be mitigated by membership in the EMU. It should be noted that since Iceland is on the verge of entering the charmed circle of Euro currency countries its prospects have increased enormously. Let us not forget Japan that champion of managed currency exchange rates and monetary stability no sign of bond collapse there. And China fast becoming a trade heavy weight benefits from government by committee and technocrats who know more about Adam Smith and Keynes than their western counterparts. Brazil and some South American countries are benefiting from trade in minerals and food with China there is no sign of a bond collapse there. Other than the US and some select small countries outside the Euro currency zone there is no risk of a widespread bond collapse. We must now come to the realization that world commerce is centred along a line from South America to China. That is across the Pacific for the first time since the beginning of the slave trade and the Spanish gold trade. One word of caution the Argentinians are the Irish of South America a passionate, hard bitten, emotional and stubborn people who do not have the benefit of membership in a stable currency unit. They ride their economy like a race horse and about once a decade they ride it into the ground of economic collapse. Remind you of anybody you know?

eamonnm79

Hasschu wrote: »

The Global Bond Market will not crash unless you are an American where the bond market will crash and since the centre of the universe is crashing you can be forgiven for believing that the world market is crashing. The Euro denominated bond market will remain stable because there is no sign of inflation and the Germans are standing on guard for thee. Skyrocketing inflation causes high interest rates and bond market collapse. The three countries most likely to have bond market collapses are #1 US budget deficit 13.5%, #2 Ireland 12.5% #3 Iceland 12.0%.In the case of Ireland and Iceland the damage will be mitigated by membership in the EMU. It should be noted that since Iceland is on the verge of entering the charmed circle of Euro currency countries its prospects have increased enormously. Let us not forget Japan that champion of managed currency exchange rates and monetary stability no sign of bond collapse there. And China fast becoming a trade heavy weight benefits from government by committee and technocrats who know more about Adam Smith and Keynes than their western counterparts. Brazil and some South American countries are benefiting from trade in minerals and food with China there is no sign of a bond collapse there. Other than the US and some select small countries outside the Euro currency zone there is no risk of a widespread bond collapse. We must now come to the realization that world commerce is centred along a line from South America to China. That is across the Pacific for the first time since the beginning of the slave trade and the Spanish gold trade. One word of caution the Argentinians are the Irish of South America a passionate, hard bitten, emotional and stubborn people who do not have the benefit of membership in a stable currency unit. They ride their economy like a race horse and about once a decade they ride it into the ground of economic collapse. Remind you of anybody you know?

Iceland are in EMU? news to me.

ixus

Hasschu wrote: »

The Global Bond Market will not crash unless you are an American where the bond market will crash and since the centre of the universe is crashing you can be forgiven for believing that the world market is crashing.

Aren't foreign investors large holders of US debt? Won't they be affected by losses in their investment?
US bond market collapse will mean a dollar collapse. Export nations will be adversely affected by this.

The Euro denominated bond market will remain stable because there is no sign of inflation and the Germans are standing on guard for thee.

A collapse in US bonds will result in a loss of confidence in other international bond markets. The German bonds often track the movements of the US bonds, have a look at the 10 year charts for both.

Skyrocketing inflation causes high interest rates and bond market collapse. The three countries most likely to have bond market collapses are #1 US budget deficit 13.5%, #2 Ireland 12.5% #3 Iceland 12.0%.

Skyrocketing inflation will affect a majority of countries. Ireland/Iceland are insignificant.

Let us not forget Japan that champion of managed currency exchange rates and monetary stability no sign of bond collapse there. And China fast becoming a trade heavy weight benefits from government by committee and technocrats who know more about Adam Smith and Keynes than their western counterparts. Brazil and some South American countries are benefiting from trade in minerals and food with China there is no sign of a bond collapse there. Other than the US and some select small countries outside the Euro currency zone there is no risk of a widespread bond collapse. We must now come to the realization that world commerce is centred along a line from South America to China. That is across the Pacific for the first time since the beginning of the slave trade and the Spanish gold trade. One word of caution the Argentinians are the Irish of South America a passionate, hard bitten, emotional and stubborn people who do not have the benefit of membership in a stable currency unit. They ride their economy like a race horse and about once a decade they ride it into the ground of economic collapse. Remind you of anybody you know?

China has long been a heavy weight. What countries in South America are becoming forces apart from Brazil?Mexico?

Japan has been a zombie nation in banking terms for a long time. They are not an example to follow in terms of economic crisis.

Hard to comment on all this, would be better if you had paragraphed this. My thoughts in red

Hasschu

Eamon- Iceland is negotiating entry to the EMU, J. C. Trichet has made promising comments and their Scandinavian cousins are very supportive.

Ixus- "foreign investors large holders of US debt." The largest are China and Japan. Both countries have and are taking steps to mitigate the damage by moving to the short term end of the US money market. The US dollar will not fall off a precipice it has been drifting down slowly for a few years now. I remember being in Argentina in 2007 when I offered a hotel owner US dollars he asked me if I had Euros. The Argentinians are experts in currency collapses and I was surprised but I took careful note.

"Loss of confidence in international bond markets". The flight to safety instinct kicks in. Will I put the bills under the mattress or will I go to the Euro, Swiss franc. Brazilian real, buy precious metal, buy land. In any case billions will be seeking a safe haven. Out of US denominated assets and into whatever looks safest.

"Skyrocketing inflation" It is not likely that skyrocketing inflation will affect a large portion of the world. The Euro, Yen, Renmimbi, Real, Ruble will remain relatively stable. The US $ and the British pound are in real danger of getting out of control despite the efforts of their respective governments and the IMF to stabilize them.

"China a heavyweight" China has has just moved up to number two ahead of Japan and behind the US. China is dangerously dependent on continuing to export manufactured goods to its number one market the EU and its number two market the US. Extremely vulnerable to an out break of protectionism in the US-EU and equeally vulnerable to competive currency devaluations.

"Countries in Latin America". Brazil is the power house but all the members of Mercosur have been making good progress. That is in addition to Brazil there is Argentina, Uruguay, Chile with trade agreements between Mercosur and Bolivia, Peru, Venezuela. The important factor is that China is now a big market for South American minerals and foodstuffs. For example China gave the equivalent of $4 billion in Renmimbi to Argentina a few weeks ago. This is to be used to import manufactured goods from China and payment ot be made in foodstuffs exported to China. You can see how the US is being cut out not only in manufactured goods but the US dollar is nowhere in sight in that particular transaction.

I have been a long term admirer of the Japanese. Argentina is the country that has everything i.e. arable land, minerals, oil /gas, fish, temperate climate. Japan has little of everything and they are amongst the most successful nations on earth. They had their property explosion in the early nineties and they managed their way out of it without causing their population to suffer high unemployment or widespread poverty. Their birth rate is on par with Italy and Germany so their population is aging and declining. Their growth rate is not masked by an influx of Eastern Europeans or Mexicans so it cannot be expected to be over 2% at the best of times. I was first in Japan in the sixties and at that time it was a highly developed and prosperous country. Their corporations dominate a number of industries the most notable being autos and electronics. Only Germany comes close in terms of industrial strategy and success.

I have worked in a lot of countries so my viewpoint is not shaped (or maybe it is) by what the Americans or Europeans promulgate as the righteous gospel. I have no problem with disagreements as Oscar Wilde said "contention is better than loneliness".