The board will discuss aspects of the epic American credit and bond bubble and it's ramifications for investors. Emphasis will be on how to profit from (or at least survive) a bond bear market and/or a credit collapse. Basic entry prerequistes to take this lab: 1. the knowledge that bond prices move inversely to interest rates. 2. an understanding that bonds can lose value if credit conditions deteriorate.
Food for thought:
"A sound banker, alas, is not one who forsees danger and avoids it, but one who, when he is ruined, is ruined in a conventional and orthodox way along with his fellows, so that no one can really blame him".
- John Maynard Keynes
"Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang.
-John Kenneth Galbraith writes in his book "A Short History of Financial Euphoria"
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one."
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, Charles Mackay, - 1841
"I can calculate the motions of heavenly bodies, but not the madness of people."
-Issac Newton 1721, after being ruined by the South Sea Bubble
"To combat depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection or production, we want to create further misdirection- a procedure which can only lead to a much more severe crisis as soon as the credit expansion comes to an end."
-Fredrich Hayek, 1933
Once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities will not cease to rise, everybody becomes eager to buy as much as possible and restrict his cash holdings to minimum size… If the credit expansion is not stopped in time, the boom turns to crack-up boom: the flight into real values begins, and the whole monetary system founders.”
-- Ludwig von Mises (1949)
"The truth is that liquidity, the only significant weapon remaining in the central bank's arsenal as decision making moves to the markets, will not necessarily go where you want it to go when you need it to go there."
--Martin Meyer writes in The Fed
‘Ponzi’ finance units must increase its outstanding debt in order to meet its financial obligations.”
A transition occurs over the course of an expansion as increasingly risky positions are validated by the booming economy that renders the built in margins of error superfluous - encouraging adoption of riskier positions. Eventually, either financing costs rise or income comes in below expectations, leading to defaults on payment commitments.
"The length and severity of depressions depend partly on the magnitude of the 'real' maladjustments, which developed during the preceding boom and partly on the aggravating monetary and credit conditions."
- Gotfried Haberler, Prosperity and Depression, 1937
Glossary of terms common to this site:
Terminology important to understanding the impending US-Asian maladjustment Train Wreck:
Economic releases and data (NBER):
Treasury rates and Agency spreads:
Bloomberg interest rate quotes:
Libor and Constant Maturity Treasury yields, used to price "house as ATM card" reset costs on Adjustable Rate Mortgages:
Treasury Dept Auction Announcements and Results:
Paul Kasreil's (Northern Trust) presentation "Inevitable Rebalancing of the US Economy". A must read.
Tracking the consumer liquidity trap, Steve Church:
Bank of Japan:
Daily Treasury Statements:
Assets (loan data) and Liabilities of US commercial banks, released Fridays:
Fed govt securities bought outright (monetized) and FCB activity:
Federal Reserve Economic Data: St. Louis Fed
Company conference call transcripts:
Committment of traders (COT) reports:
Prudent Bear commentaries; key on Doug Noland's Credit Bubble Bulletin (updated weekends), Marshall Auerback, and Richard Duncan:
Financial Sense Online (Jim Puplava), some very good weekend interviews and links to other sites:
Excellent commentary and graphics from Contrary Investor:
Bank Credit Analyst:
Rasmussen Consumer polls:
Ild's charts and graphs:
Russ Winter's, Calculated Risk's, Mish's and Bart13 blog sites, good articles, and links to relevant sites:
Ben Jones housing Bubble Blog:
Mortgage Lender Croak-o-meter :http://br.endernet.org/~akrowne/ml-implode.html
Excellent overview of the endgame of fiat