tag:blogger.com,1999:blog-4815867514277794362.post4815909540789036694..comments2024-03-08T06:18:28.125+11:00Comments on Bronte Capital: Lessons from shorting JGBs – the credible promise to be recklessJohn Hemptonhttp://www.blogger.com/profile/03766274392122783128noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-4815867514277794362.post-62764313845175463332012-03-26T23:49:55.998+11:002012-03-26T23:49:55.998+11:00are we there yet?
Seems like people are finally s...are we there yet?<br /><br />Seems like people are finally starting to believe that Bernanke will be "credibly reckless"<br /><br />As of this morning, the intelligentsia is all abuzz about bernanke being "behind the curve on the economic recovery". <br /><br />when do you short treasuries? seems like now to me.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-47069898888581860642009-01-14T17:18:00.000+11:002009-01-14T17:18:00.000+11:00How about some kind of expiration date on money......How about some kind of expiration date on money.... like a coupon. Granted this would totally throw off the theoretical underpinnings of money as a store of value and push us towards hot potato monetary velocity but maybe something more moderate like stimulus accounts that expire if not spent within 18 months?Claytonhttps://www.blogger.com/profile/12496358961702798312noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-16115613842226760822009-01-13T22:19:00.000+11:002009-01-13T22:19:00.000+11:00Hi John,This is one of the best blogs I read - kee...Hi John,<BR/><BR/>This is one of the best blogs I read - keep up the good work.<BR/><BR/>Have you read Richard Koo's "The Holy Grail of Macroeconomics: Lessons from Japan's Recession"?<BR/><BR/>Koo presents some pretty interesting evidence that bonds are not in a bubble until private sector credit demand rises (he points out that M0, M2 and domestic credit disconnected from each other shortly after the bubble burst). The crux of the argument was that the savings that get trapped in the banking system as individuals & corporates pay down ended up being parked in JGBs because there was no private alternative (nobody wanted to borrow). So the government can borrow and spend as much as it likes, and the central bank can employ increasingly "exotic" policies, but it won't generate inflation. It's interesting that M2 continued to grow at ~2% rate in Japan but there was no inflation (indeed, if you compare M2 and domestic credit, if the "textbook" economics relationship continued, M2 would have fallen by 37% (vs 33% for the Great Depression) were it not for the Government's fiscal actions.<BR/><BR/>I must admit that I believed that short USTs here could be a lay-up trade, but the above makes me think twice. I guess we need to see what happens to loan demand.<BR/><BR/>Cheers,<BR/>CPcphttps://www.blogger.com/profile/08593205721892670374noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-74927632140521138342009-01-13T12:23:00.000+11:002009-01-13T12:23:00.000+11:00nice post -- i have been enjoying your blog.as it ...nice post -- i have been enjoying your blog.<BR/><BR/>as it would be politically unsavvy for bernanke to drop dollars from the sky anywhere in the US, how about chartering a helicopter and dropping them from the sky somewhere in china?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-72070617914776252142009-01-13T10:28:00.000+11:002009-01-13T10:28:00.000+11:00... when the velocity of money >1 is probably g...... when the velocity of money >1 is probably going to be the most reliable signal. Thanks for sharing the history lesson JH, cheers, JL.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-73326677895383190362009-01-13T04:28:00.000+11:002009-01-13T04:28:00.000+11:00Demographics may also aggravate the cash-is-king m...Demographics may also aggravate the cash-is-king mentality as Japan's "baby boom" population bulge is older than the comparable American baby boom cohort.<BR/><BR/>If now in the US baby boomer grow tired of being burned in dot.com, properties, etc., then in America cash may be king as well as the boomers age.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-10798955103200275612009-01-13T01:41:00.000+11:002009-01-13T01:41:00.000+11:00"The maximum loss would obtain if the seven year J..."The maximum loss would obtain if the seven year JGB suddenly traded – like cash – at a zero yield" <BR/><BR/>0% yield isn't the floor for yields. They can go negative, even deeply negative. I think your maximum loss is much more than 10%. With a duration of 10 years, a move to -3% would be a 30% loss. There is nothing stoping them trading at $1300.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-60126830876853804312009-01-13T00:57:00.000+11:002009-01-13T00:57:00.000+11:00Chesire:TBT is an ETF that is synthetically short ...Chesire:<BR/><BR/>TBT is an ETF that is synthetically short Treasuries, there are several others. Because it's an ETF you can invest in it in any brokerage account (IRAs etc.)Joehttps://www.blogger.com/profile/09816232003568487172noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-26927103450798522262009-01-12T23:27:00.000+11:002009-01-12T23:27:00.000+11:00correction: $8t, not $8b========================Th...correction: $8t, not $8b<BR/><BR/>========================<BR/>There is another very important angle. And it's cultural. <BR/><BR/>My best guess is that U.S. bonds will ultimately decline or even collapse. Japanese bonds are less likely to do so. All the explanations are rooted in different mentalities of the two nations.<BR/><BR/>Japanese work through their problems slowly and "surprise" is a bad word. U.S. cleans it's house quickly and move on with little emotional attachment to the failures of the past. In Japan they have savings rate of 30% or so, in U.S. it is close to zero. In U.S. the central bank seems to be afraid of deflation as a prerequisite to depression. In Japan they don't seem to mind, unless it gets too damaging. <BR/><BR/>It is a big difference how you respond to losses. If major players act in accord and decide to write down, say $8t in losses, gradually in 10 years ... or 15, or may be 20 ... then you are likely to talk about Japan. If major players present competing ideas and ultimately write down the same amount of loss in 1 year ... then it sounds more like U.S. <BR/><BR/>Besides, even if all the Japanese housewives again divert 1/5th of household investable assets to fund a new massive global carry trade, it still has little bearing to savings & inflation in Jap.Aighttps://www.blogger.com/profile/11243768733855184326noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-33600685436168641632009-01-12T22:43:00.000+11:002009-01-12T22:43:00.000+11:00John, thank you for the article, extremely useful!...John, thank you for the article, extremely useful!<BR/><BR/>Intellectually I fully agree. Coincidentally, my mechanical TY (US 10yr T-note) trading system is short full position. However, I've NOT yet turned off long signals either due to some lingering doubts ...<BR/><BR/>1. If Fed has pumped in the system about $2t while the aggregated losses in the markets are $8b ... there needs to be much more $ than one can load in helicopters before it leads to inflation. <BR/><BR/>2. I model money supply for all major currencies. The model implies strong USD, JPY, particularly against GBP and AUD. Strong currency is conducive to low inflation and strong bond market. We've to see JPY and USD fundamentally weaker before we see bond prices to go down.<BR/><BR/>3. As Keynes noted, "market can remain irrational longer than you/me/anybody can remain solvent". Perceptions can drive prices elsewhere. Including the perceptions about Jap real estate market outlook ...<BR/><BR/>Those are the reasons I've not yet turned off long trades for TY (but I'm close to it).Aighttps://www.blogger.com/profile/11243768733855184326noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-44681003496216646702009-01-12T22:11:00.000+11:002009-01-12T22:11:00.000+11:00Instead of helicopters, or given the size of the p...Instead of helicopters, or given the size of the problem leasing the US air force B-52 fleet, Uncle Ben could just send every American household a cheque for $10.000,- courtesy of the Fed and redeemable for a limited period of time. That should get people to spend. If not, he can always reload and send $20.000,- next time, then $30.000,- and so on. Paper cash is so last century.<BR/><BR/>But this begs the question, will Uncle Ben be permitted to use such extreme actions or will the Mellonists get their way and liquidate all assets? If the latter, a treasury short will lose money. <BR/><BR/>I may short treasuries when I know who wins the great policy debate, liquidationists or Kenyesians.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-66240419009344463422009-01-12T20:55:00.000+11:002009-01-12T20:55:00.000+11:00Mr Cheshire. Two words: bond futures.Mr Cheshire. Two words: bond futures.John Hemptonhttps://www.blogger.com/profile/03766274392122783128noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-21508004650162064062009-01-12T20:49:00.000+11:002009-01-12T20:49:00.000+11:00Currency is the biggest risk or gain from taking o...Currency is the biggest risk or gain from taking on trades like this.<BR/><BR/>For folks wishing to short from a regular brokerage account, what it the most effective way to do this? I don´t believe that Treasury Bonds can be shorted in a regular account. From what I have read inverse ETFs like the double short TBT have tracking problems (leakage) over longer time periods. Is shorting the ETF like TLT the way to go? But isn´t the carry a lot higher because in addition to paying the monthly dividends you have to pay around 8% for margin interest to the broker. Any ideas on how to do this more effectively?Mark Cheshirehttps://www.blogger.com/profile/10866953145126117214noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-40465306234425338062009-01-12T18:08:00.000+11:002009-01-12T18:08:00.000+11:00There is another way out of this mess. That is for...There is another way out of this mess. That is for governments to start buying assets and set a floor on the price. If governments started buying real estate at distressed prices and promised to be a buyer of last resort once prices had fallen to a certain level, then a floor would be set and people would have the confidence to start trading once more. It would be a hell of a lot cheaper and simpler than throwing money out of helicopters.Mark Brinkleyhttps://www.blogger.com/profile/03473684038478246288noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-81725203252430672862009-01-12T18:00:00.000+11:002009-01-12T18:00:00.000+11:00Chairman Ben S. Bernanke, Quantitative Easing Can'...<B>Chairman Ben S. Bernanke, Quantitative Easing Can't Work.</B><BR/><BR/>In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0. <BR/><BR/>Hence, the Keynesian paradigm I = S is not verified.<BR/><BR/>The purpose of Quantitative Easing being to lower the yield on long-term savings and increase liquidity <I><B>it doesn't create $1 of investment.</B></I> <BR/><BR/>In a Liquidity Trap the last thing the Market needs is liquidity. This is why, Mr Chairman, we call it a Liquidity Trap, <BR/><BR/>Force-feeding the Market won't achieve anything useful.<BR/><BR/>If short-term risk free interest rates are at 0.00% doesn't that mean that credit is worthless?<BR/><BR/>Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on long-term savings.<BR/><BR/>Those purchases maintain the demand for long-term asset in an unstable equilibrium.<BR/><BR/>When this disequilibrium resolves the Market turns chaotic.<BR/><BR/>This and other issues are explored in my tract:<BR/><BR/><B>A Specific Application of Employment, Interest and Money<BR/>Plea for a New World Economic Order</B><BR/><BR/><BR/>Abstract:<BR/><BR/><I>This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit. <BR/><BR/>It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development. <BR/><BR/>It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labor, Stagflation, Greenspan Conundrum, Deflation and Keynes' Liquidity Trap... <BR/><BR/>It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.</I><BR/><BR/><B>A Credit Free, Free Market Economy will correct all of those dysfunctions.</B><BR/><BR/><BR/>The other option would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust.<BR/>It will be either awfully deadly or dramatically long.<BR/><BR/><B>In This Age of Turbulence People Want an Exit Strategy Out of Credit,<BR><BR/>An Adventure in a New World Economic Order.<BR/><BR/>We Need, Hence, Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.</B><BR/><BR/><BR/>✔ <A HREF="http://edsk.org/" REL="nofollow"><B>Exit Strategy Out of Credit</B></A><BR/><BR/>✔ <B><A HREF="http://edsk.org/interest.html" REL="nofollow">A Specific Application of Employment, Interest and Money <BR/>[Intended for my Fellows Economists].</A></B><BR/><BR/><BR/>Press release of my open letter to Chairman Ben S. Bernanke:<BR/><BR/><I><B><A HREF="http://www.prlog.org/10165667-chairman-ben-bernanke-quantitative-easing-cant-work.html" REL="nofollow">Chairman Ben S. Bernanke, Quantitative Easing Can't Work!</A></B></I><BR/><BR/><BR/>Yours Sincerely,<BR/><BR/>Shalom P. Hamou AKA 'MC Shalom'<BR/>Chief Economist - Master Conductor<BR/><A HREF="http://edsk.org/" REL="nofollow">1776 - <I>Annuit Cœptis.</I></A>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-25787812149799894132009-01-12T17:17:00.000+11:002009-01-12T17:17:00.000+11:00How do you square an idea of shorting treasuries w...How do you square an idea of shorting treasuries with the fact that Bernanke's currently announced method of quantitative easing is for the fed to purchase treasuries? I suppose as you stated in the post it is a manner of timing...epicaricacyhttps://www.blogger.com/profile/09088302264276282108noreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-1277770064100869692009-01-12T16:27:00.000+11:002009-01-12T16:27:00.000+11:00How is shorting treasuries different from signing ...How is shorting treasuries different from signing a 30 year fixed mortgage? Could the country already be net short treasuries? Pretty crowded trade...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4815867514277794362.post-13964983443183972052009-01-12T15:17:00.000+11:002009-01-12T15:17:00.000+11:00The time here says 5am, perhaps that is why I can'...The time here says 5am, perhaps that is why I can't stop laughing..., but it's something about the image of the most powerful people in the lands sitting around a table with serious faces when the big boss goes: "I know what to do: we'll let the air force drop cash from helicopters. Problem fixed!".<BR/><BR/>Wonder what Obama would sayAnonymousnoreply@blogger.com