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So You Think US Treasuries are Rock Solid Then?

 Well here's an interesting article(May, 2010) from The World Currency website on the current state of US Treasuries. Their take on the current US Treasury situation is well argued and there opinions on the dollar very detailed. 

Tiny Yields & Sinking Dollar: Fun Times on the U.S. Treasury Ranch…

Treasury yields continue to inch higher and higher. It’s almost as if they are looking for the pressure point that will cause the U.S. / Fed and Treasury too much pain. In the meantime,

Treasuries are losing value. Of course if you hold them to maturity you still get their principal back.

But how many investors who bought Treasuries in the past year as a “flight to safety” plan are holding them to maturity? My guess is very few… And so it goes for those who thought they were making a flight to safety!

And of course, the dollars they bought to make those Treasury purchases have lost quite a bit of ground since March, which means the Treasury holders are getting hit with a double whammy. First your bond prices are dropping, and the currency they’re valued in is dropping in value. 
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Fun times at the old Treasury ranch, eh?

Recall that I’ve gone out on the limb (no worries, I picked a big strong limb!) recently and told you inflation is on the way. In fact, I believe once the current deflationary asset price scenario clears out of the market, we’ll see inflation that rivals the inflation we saw in the late 70’s, early 80’s. This type of inflation will absolutely kill the price of bonds.

Dr. Marc Faber agrees. In fact, he’s now predicting we’ll see “Zimbabwe-type hyperinflation” because the Fed won’t be able to raise rates.

The Perfect Storm for the Dollar Could Already Be Here…

Now, I think Dr. Faber mentioned Zimbabwe to illustrate his “hyperinflation” call… Myself? I think that just what I said above– that inflation will rival that seen in the late 70′s, early 80′s.

However, Dr. Faber has a point, and that is… When a Central Bank raises interest rates, they have to issue new Treasuries with higher yields, than previous ones issued. That makes the previous Treasuries less valuable.

So, what will the Fed do, when the first signs of run-away inflation show up? Do they bite the bullet and raise rates causing all their previous issues to lose value (hello, China, I’ve got bad news for you), or will they do nothing, absolutely nothing?

And what’s this all got to do with currencies? Ahhhh grasshopper…

Everything has to do with currencies! When Treasury holders sell off those dollar-dominated Treasuries, they will also be selling off the dollar. That will lower the dollar’s value.

And then throw in what I’ve been talking about lately with China already signing six currency swap agreements with countries that allow them to take dollars out of their trade equation with these countries, and put renminbi into wider use, and you’ve got the “Perfect Storm” forming for the dollar, folks.

Keep in mind: This is just my prediction. It’s not a fact per se – at least not yet. But, it’s staring us right in the face! I don’t know why more people aren’t talking about this!

Okay, let’s go somewhere else, all this talk is starting to give me a rash!

Free Markets? Not if the Central Banks Have Anything to Say About It

There were rumors yesterday that Asian countries like Singapore, India, and Japan had to intervene in the markets because of the dollar’s decline. It’s likely that Asian Central Banks had to sell their currency and buy dollars to keep the fall in the dollar to a minimum.

I really, truly don’t like when Central Banks get into the markets. It’s manipulation… And as long as they can do that, and print money… There really is no such thing as “free markets” right?

If Alan Greenspan can manipulate interest rates to allow the stock market to run higher for years, was it the stocks that were the “root” of the rally, or was it the Fed Reserve manipulation?

Yes, I’m sure you know the answer…