Seeking Alpha
View as an RSS Feed

Daniel Pfaendler  

Latest  |  Highest rated
  • Treasury Bonds: Here Comes the Bull Market Flattener [View article]
    Thanks for the comment. I believe that it will take a long time before any meangingful inflationary pressures are developing. We still have too many goods and not too much money. Yes the Fed has been increasing its balance sheet by an incredible amount but that money is not being lent out by banks and credit creation remains weak. I am convinced that it is long-run nominal growth which matters for long-run yields and here my outlook is for a period of limited real growth (amid a lower trend growth rate) and of limited inflation. In turn nominal growth will be significantly below what we were used to in the past and with that nominal yields can also be lower for a prolonged period of time.
    "The only political certainty we can count onis the continued exponential growth in the supply of government bondsof all maturities." Agreed. Supply of government bonds will remain high for a long time as well. The question is though what happens to demand. I think that in an environment where households restore their balance sheets via a higher savings ratio, the demand for government bonds rises. Furthermore, we are likely to see pension funds holding a lower strategic share of equities in their portfolio as their risk-taking capabilities have been diminishing. Finally, banks (which dont lend) are likely to increasingly play the carry trade which also incorporates getting funds from the Fed for almost free and investing that along the curve.

    On Sep 29 12:00 PM Mad Hedge Fund Trader wrote:

    > ond Reviewing the current political and monetary landscape, I would
    > beremiss, irresponsible, even negligent, if I didn’t revisit one
    > of myfavorite ETF’s, the Proshares Ultra Short Treasury Trust (
    > This isthe 200% leveraged bet that long Treasury bonds, the world’s
    > mostovervalued asset, are going to go down. While the Fed is going
    > to keepshort rates low for the indefinite future, it has absolutely
    > no directcontrol over long rates. The only political certainty we
    > can count onis the continued exponential growth in the supply of
    > government bondsof all maturities. Like all Ponzi schemes, their
    > eventual collapse isjust a matter of time. It’s simply a question
    > of how many greater foolsare out there (sorry China). Look at how
    > they are trading now. Wecurrently have the greatest liquidity driven
    > market of all time, andthe ten year is only eking out a 3.40% yield,
    > pricing in near zeroinflationary expectations. The average yield
    > on this paper for the lastten years is 6.20%, a double from the current
    > level. Get the yield backup to 5%, a distinct possibility in 2010,
    > and that takes the TBT fromthe current $45 to $70. Sure, we may get
    > a sideways grind in yields fora few months, which will be expensive
    > due to the mathematicidiosyncrasies of the 2X ETFS. But a security
    > that is unchanged if I amwrong, and doubles if I am right is the
    > kind of risk/reward ratio thatI will take all day. And I believe
    > that in my lifetime Treasuries maylose their vaunted triple “A” rating
    > and be priced closer to subprime(warning: I am old). That could enable
    > the TBT to deliver the holygrail of trades, your proverbial ten bagger.
    Sep 29, 2009. 12:16 PM | Likes Like |Link to Comment
  • Treasury Bonds: Here Comes the Bull Market Flattener [View article]
    Agreed, economists aren't great forecasters. What I find interesting though is that the longest part of the curve where there is the least buying activity by the Fed itself (and the programme has almost been completed by now) and where the supply fears as well as long-run inflation fears should hit the hardest is technically sending a bullish signal (which has now been followed by 10y USTs which just yesterday closed below the double-bottom in yields around 3.305% formed on July 10 and September 2). This technical situation is at least supportive of my belief that we are headed for a prolonged period of low nominal growth.
    I agree with the 30y strips proposition as that provides one with even more duration. Just one caveat: I am not an expert on the UST strips market but my experience with trading German strips suggests that liquidity that far out the curve is suboptimal even in principal strips.

    On Sep 29 11:39 AM djackson wrote:

    > No comment on your bull flattener, but your perspective on the purity
    > of the 30 yr is intriguing. You feel it incorporates long term outlooks.
    > Given economists and others seem to have great difficulty forecasting
    > even a year or two out, one can presumably say the same for 10 yrs
    > and maybe even shorter. As for your statements about distorting
    > forces, yes/no. I will grant that the further in the curve you come,
    > the more intrusive the government policies for setting levels becomes.
    > But you don't need to move all the way to 30 yrs to avoid these.
    > What it really comes down to if you believe the bull flattener case
    > is how much duration do you want. That determines you risk reward
    > profile. If you are into your beliefs, I presume you are buying
    > 30 yr strips.
    Sep 29, 2009. 12:07 PM | Likes Like |Link to Comment
  • Switzerland's Green Shoots Are Stronger than the U.K.'s [View article]
    Thanks for your comments, I really appreciate it.
    For your interest even though I have been living in Germany over the past years, I am a Swiss national and lived for most of my live in Switzerland. What I find interesting when talking to my colleagues here in Europe (mostly those in Germany & the UK) is that they regard the Swiss banking secrecy as about to die and with that the Swiss financial industry hugely oversized and the fate of the Swiss economy over the medium term as very poor. I disagree with that notion (see above). Furthermore, I find it interesting that Swiss rent-to-price ratios for houses are higher than for example in Germany even though mortgage rates are lower (this is probably because 2/3 of the Swiss population rent rather than own their houses/flats). From an investment perspective this gives an interesting medium term outlook...
    Jul 14, 2009. 12:15 PM | Likes Like |Link to Comment