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Not a shocking consensus, but primary dealers as a group see higher Treasury yields in 2013. Of...

Not a shocking consensus, but primary dealers as a group see higher Treasury yields in 2013. Of the 21, just 3 expect the 10-year yield to end 2013 lower than the 1.7% it sits at today. The world's most hated asset class looks like it will eke out another year of gains, TLT +1.8% YTD. A favorite of the Treasury shorts, TBT -14.6% YTD.
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  • TheMONYReport
    , contributor
    Comments (20) | Send Message
     
    Are primary dealers right? Or is the above news stream a contrary indicator for long-term US treasury yields in 2013? This was taken from my TLT Blog post on Friday, December 14th, 2012,

     

    “This is the golden question with many sub-questions extending from the main focus – can central banks stop deflation?

     

    If yes, then inflation is sure to come. How do they plan to control it? Managing reserves? Good luck with that, US securities and MBSs will get slaughtered in the open market.

     

    If no, then the global economy is in deep trouble over the next 15-20 years. Evidence from Japan says that we can’t stop deflation. They have been deflating for 17 years since their growth peak in 1996. Their QE has obviously been ineffective.

     

    It’s clear that the Fed has created this monetary policy monster which no one really knows what type of impact it will have on the economy over the long-term. Why or how they did this is irrelevant in 2013.

     

    Ben [Bernanke] is a glorified economist, not a hedge fund manager, not an experienced individual investor, not a successful macro analyst. He learned these policy tactics at Harvard where they studied the 1930′s deflationary collapse at length. At Harvard and at various business schools across the country, there is no historical model to use as a forecasting tool for the current capital market environment. This is one GIANT monetary policy experiment with unrecognizable consequences.

     

    I go back and forth between inflation and deflation. Which is stronger? I’m leaning towards deflation now but that can quickly change with higher interest rates and a lower USD.

     

    We haven’t even talked about trying to control employment with monetary policy. That’s like trying to control what Emeril Lagasse cooks at his restaurants by only shipping him certain types of food. He is going to cook what he wants to cook regardless of what we ship him. Companies are only going to hire if they feel like it’s in the best interest for their business. Why would you try to expand your business in this type of economic environment (a stagnant 2.5% GDP growth)? For a business owner, there’s no reason to take on more payroll risk right now. Take on debt to expand operations? Same rational. Especially if they are already profitable.

     

    I feel that there is only one certainty over the long-term (~5 years). Yields and spreads on US securities will be dangerously high. If I was a long-term investor, I would be building large short positions in these areas. This is a generational $$$$$ making opportunity.”
    19 Dec 2012, 04:36 PM Reply Like
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