This makes no sense, unless a depression significantly worse than the Great Depression is upon us.
A year or two from now, you'll be amazed, that there were idiots out there willing to PAY the US to hold their dollars.
Cats sleeping with dogs.
The end of the world.
And probably one of the best shorting opportunities of a lifetime. (right? I mean, someone try to explain this to me. Is Bernanke buying up t-bills? Is the market trying to tell us something?)
Treasury Bills Trade at Negative Rates as Haven Demand Surges
Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.
The Treasury sold $27 billion of three-month bills yesterday at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.
If you invested $1 million in three-month bills at today’s negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.
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33 comments:
Aren't there money market funds that only invest in T-Bills? Doesn't this guarantee they'll break the buck before long? Are MMFs still insured by the Treasury?
Keith, didn't you say that Bernanke intends to do precisely that: buy t-bills? Isn't that why this is not the shorting opportunity of a lifetime, despite how much it appears to be one?
Otherwise, a little investment in PST is like free money.
wow. maybe this is our way out of debt. the rest of the world will pay us to keep their money.
i bet congress is already pondering how to spend the new revenue stream.
now, if only i could get a mortgage based on the 3 month tbill
We saw the housing bubbble
We saw the chinese stock bubble
We saw the oil bubble
We saw the food bubble
Now we see the t-bill bubble
So, how do we make money on this madness?
Bubbles last longer than you'd ever expect, so be careful shorting the dollar or t-bills. But oh, man, when this one blows, watch out below
This is insane! What the hell are investors thinking? Cash is King not bonds!
T Bills at this price are selling for a premium. And, when the rates go up, and you can be sure they will, T Bills will take losses!
This effective rate for T Bills is what it was back in 1929! LOL!!!
Dogs are definately sleeping with the cats on this one.
Is it the fed doing all this buying to bring mortgage rate down?
Housing prices are going to fall no matter what the fed inflates.
I think Helicopter needs to go back to school.
http://tinyurl.com/6xrp5g
I must be missing something, what is the risk to selling these bonds short? Worst case, you hold them to maturity and buy them back at par.
Why not short these, buy insured CD's or the gov backed CP and earn the spread?
"now, if only i could get a mortgage based on the 3 month tbill"
There already is - it is the old MTA loan. These are not offered anymore in the "new reality", but let me tell you, I bought some of my rentals based on this mortgage, and the cash flow right now is amazing. The trick is to be responsible and understand how they work. It tracks to the "monthly treasury average". That simply means that whatever the T-Bill (3 month) is averaging, that is what your rate is plus a margin. Mine are at 2%. Not bad in this environment.
I did not over leverage, put plenty down, and also bought in 2001 (lucky). The bad part is that when the T-bill bubble bursts, the rates will go up, however since it is an average, I can hedge against it with my stock holdings through ETF's. Basically like hedging gas back in the last few years by buying a 100 shares of USO. The amount of cash I have been able to hoard from my tenants though has been more than enough to either put towards principal or invest at the low stock values right now to offset the coming bond implosion.
I am not advising the average joe try this, but my point is that these "exotic" mortgages, used by non-lemmings can be very effective ways to hedge against economic storms. The real problem was that too many used them as an excuse to over leverage and buy Hummers.
Thank you George W. Bushco, Dick Cheneyburton, Alan Greedspan, Ben Bernanke and Henry Paulson.
Thank you, GOP.
America is DEAD.
I can honestly say this was predicted and it came true. WOW! Just like so many other observations have come true, so did this. It's kind of amazing.
That being said, I had a wild idea today:
Why don't we get GE to build a nuclear power plant in Iraq? Maybe 2.
It would create jobs. It would counter Iran and the Soviet Unions' attempt at building something (competition). It would help GE's stock. It would give us a legitimate platform for a forward military base in the middle east (good reason to be there) and it would supply lots of electricity to Iraq (Maybe even a secrete weapon program in the basement).
What the heck, let's build lots of them in a bunch of emerging markets. Seriously. There have to be a lot of places we can bury the waste and if not, France can recycle it to help them out of their economic slump.
Negative rates on t-bills...that's funny.
what a bunch of morons buying this crap.Mortgage rates to the moon when this bubble bursts.Fire up those printing presses.The treasury is looking for printer operators.Pay based on experience with interns and pages.
No place left to hide.
is there an etf that shorts treasuries?
made a nice little profit today shorting the Dow and S&P; bought short etfs for both yesterday near the close and bought to cover near the end of today's session.
this market can fun!
but watch it...you can get creamed easily too. if you've never shorted before, especially naked, don't do it on what i say. talk to a reputable broker first.
we need to get busy and lock in a 10 Trillion money bomb at 0% interest!
party on!
Supply and demand.
The big money players are willing to pay storage on their money as they know the private system is insolvent.
In the great depression those who held t-bills were the only ones that were not wiped out other than those with cash under the mattress.
When I bought Cornelius Vanderbilt's soul, I told him to pile as much money as he could into treasuries. As a result he preserved his wealth and was able to buy the country in the depression.
I'm having trouble understanding why losing $25 every 3 months is not better than the hundreds and possibly thousands of dollars leaking out of peoples' 401Ks. I have seriously seen a lot of old people back in the job market lately and I can only imagine it's because they're running out of money. The only people getting rich on investments are the people getting paid fees and bonuses for managing to lose other peoples money. How much longer can people make money by just passing it around instead of actually producing something.
But oh, man, when this one blows, watch out below.
I'm seriously bond-challenged. When it blows, what would happen?
I think that negative rates of return will force the movement of trillions of dollars from the treasury to the equities markets. Get ready for a sudden market drop , to levels below 7,000,followed by a very large bear market rally. This bear market rally will occur next spring and will carry the Dow Jones to 12,000 + levels.
The financial markets will break when the Fed will be forced to raise rates, remember Iceland, in order to attract investments.
The BIG money, people and institutions with billions if not trillions, doesn't have a place to park their cash right now, so they're buying t-bills
Also, foreigners holding currencies that are blowing up are rushing into dollars. Euros, Pounds and Rubles are all getting whacked. So holding negative-rate t-bills vs. declining value Rubles is actually a wise trade.
But yes, this is nuts. And that point about shorting the bonds is interesting, because 0% is 0%, and it can't get lower.
I wish we had a bond trader on this board because this one is for the ages. Anyone know a bond trader? Get him on the horn and have him come by and tell us what the f*ck is going on with this madness, or find some sage advice and post it here.
0%
Can't believe it.
From bernanke's helicopters speech:
"Lower rates over the maturity spectrum of public and private securities should strengthen aggregate demand in the usual ways and thus help to end deflation.
Of course, if operating in relatively short-dated Treasury debt proved insufficient, the Fed could also attempt to cap yields of Treasury securities at still longer maturities, say three to six years. Yet another option would be for the Fed to use its existing authority to operate in the markets for agency debt (for example, mortgage-backed securities issued by Ginnie Mae, the Government National Mortgage Association)."
Also, if you read the speech, you'll see that Bernanke saw this whole thing coming, and had a plan to do exactly what he's doing.
It's as if they whole thing was pre-arranged.
It's unreal.
And no, don't fight the Fed.
Keith,
I've posted this a few places. I thought with the S&A thing you could help. I apologize if I overstep. If you could I would ask you make a post on this issue. Thanks.
I read a sad article this past weekend.
http://seattletimes.nwsource.com/html/localnews/2008478478_toysfortots07m.html
I am not from Seattle.
I am not a Marine.
But I know Toys 4 Tots is hurting.
Their receipts are 90% off target YoY! In addition, I also know many decent parents could use some help.
To speak the obvious, the retailers (as well as everyone else) are getting killed. I thought through a couple of toys I would approve of.
Today, I called the manufacturers.
F*** Walmart.
I negotiated a discount on some Lamb and Giraffe doll blankees (T4T biggest need is age 0-2). UPDATE - I got wholesale prices for 100+ units at $3 and discontinued items for $1. They retail for $10+. Each one of these a kid will treasure for years - trust me - my daughter does.
If you want - I can give you name. Otherwise, there are other folks you could help.
There are food banks. I'm also working on a few grocery store gift cards - so folks can eat. (Kroger would only give me a slight discount on those). I haven't closed on this yet. Any other thoughts are welcome.
HPers/SAers are smart. You get it. You know how to get things done. And you've made it through the first phase of the debacle.
I would ask everyone on the thread to at least "think about" (note I say think - you don't have to do anything) how you could do something SMALL to help someone in the next few weeks. Maybe do something extremely creative that can make one kid or one poor family a little happier.
HP and SA have helped us all.
Just asking folks at this time of year to take a little of our "gambling money" and perhaps do something good.
Just give it a think.
Maybe Hank cut a deal with off-shore holders of MBS (in lieu of lawsuits against 'former' Wall Street IBs) and they are being 'redeemed' at above-market value under the condition that the funds are 'converted' into t-bills...
Did you hear Buffett's joke about that? Pretty funny.
“This should be bullish for Berkshire. With great foresight, I long ago entered the mattress business in a big way through our furniture operation. Now mattresses have become fully competitive as a place to put your money, and sales will soon take off.”
- Warren Buffett emailed this note to the directors of his company, Berkshire Hathaway (BRK.B), yesterday after he heard that the U.S. Treasury sold $32 billion in 4-week bills at a yield of 0%.
Keith,
Doing a little research, I did find an ETF that invests in 1-3yr treasury's, ISHARES BRCLY 1-3YR(NYSEArca: SHY).
I don't think this is a good short treasury solution since it's a little longer term and pays a distribution monthly (shorting it means you'll have to pay) also, since it's a fund, you won't be able to play the arbitrage that you could if you were a big institution. I'm afraid that this might be a "big boys only" trade.
If you want to bet against longer term treasurys there are 2 ultra short etf's : TBT and PST
**remember, these are ideas, not advice. If you buy stocks based solely on blog tips, you've got an I.Q lower than G.B.
You discount the reason why people are willing to invest in our country. The U.S. of A. is the greatest nation on the face of this earth. People have faith in us.
Our country will become even more prosperous after this short recession.
Boom!
Mr. Sandman,
Yes, folks are seriously hurting this year, so make sure that you are kind this Christmas, and make a donation to your local midnight mission or whatever. There are homeless families living on skid row now, according to the radio. This is urgently required this year -- don't consider it an option, and don't think that somebody else will do it. We should all be grateful to have a roof over our heads.
"You discount the reason why people are willing to invest in our country. The U.S. of A. is the greatest nation on the face of this earth. People have faith in us.
Our country will become even more prosperous after this short recession."
Shut up!
Great article that clearly explains why we do not have inflation.
http://globaleconomicanalysis.blogspot.com/2008/12/huge-demand-for-treasuries-as-banks.html?ref=patrick.net
Buy some puts on the TLT etf? Hmm....
"Is there an etf that shorts treasuries? "
Man this is crazy talk. Shorting T-bills is like shorting the U.S.A.
Treasuries to 0%. I guess it's better then leaving your money in a declining asset. Wait, treasuries are declining in purchasing power, thanks Ben.
Who would have thought? All of this is becoming as unreal as the housing insanity of the past decade.
The bobble head dolls at CNBC, Bloomberg, etc. would have you believe we're on the cusp of a sustained bear run that will take the S&P north of 1100, and yet there's this enormous flight to treasuries (with negative returns in some instances), staggering unemployment numbers, constantly (downward) revised guidance and vastly reduced orders. WTF is going on here?
This is cognitive dissonance at its best, my friends. The MSM bull brigade is attempting to assuage investors, convincing them that despite the absolutely vicious nature of this downturn, there is a light at the end of 2009 and brother Obama will ease our pain along the way. This is so much utter bullsh*t that one can barely fathom the depths of their depravity.
If you think that by putting us ever deeper into debt we'll alleviate problems caused precisely by too much, then I've got a bridge to sell you.
It would appear that the media outlets have successfully convinced us that "deficits don't matter", carpe diem and it's always onward and upward. Irrationality is pulling this bull by the nose ring.
The best thing that could happen to this country is a prolonged period of suffering. That we are trying to avoid anything resembling true repentance for our 25-year credit-based consumer binge just proves to me that we are F'ing toast - whether now or later.
We're toast because our moral compasses still point to hell. Market fundamentals may improve, but our mentalities are frozen in a dystopian consumerist mindset.
That we'll make it through this latest predicament I have no doubt, but make no mistake - it will come at the price of our credit rating, our currency, our standing in the world, and much, much more.
We have used our last get out of jail free card and the rest of the world has grown tired of us. When the IOUs come due and we're forced to debase our currency or default outright, don't expect the Arabs, Asians or even the Europeans to come riding to our rescue by propping up our sham of a tertiary/quaternary-based economy through more treasury auctions.
Understand something: people still want to consume things - problem is, we don't make anything of value. See GM, Ford & Chrysler. Yeah, deficits don't matter. Whatever.
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