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The Case Against Treasury Bonds.

by John Thomas on DECEMBER 5, 2012 in DIARY DIARY OF MAD HEDGE FUND
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If you want to delve into the case against the long-term future of US Treasury bonds in all
their darkness, take a look at Foreign Affairs, the establishment bimonthly journal read
by academics, intelligence agencies, and politicians alike, which I am sure you all have Welcome to the Mad Hedge Fund Trader’s
sitting on your nightstands. In a well-researched and thought-out article penned by Roger blog. Here you will find posts every day
C. Altman and Richard N. Haas, the road to ruin ahead of us is clearly laid out. about the current state of the economy
and market trends. This is also the place
The US has no history of excessive debt, except during WWII, when it briefly exceeded where John’s upcoming events, new
100% of GDP. That abruptly changed in 2001, when George W. Bush took office. In short podcasts and book recommendations are
order, the new president implemented massive tax cuts, provided expanded Medicare announced. Please subscribe to receive
benefits for seniors, and launched two wars, causing budgets deficits to explode at the new posts in your email inbox.
fastest rate in history. To accomplish this, strict ‘pay as you go’ rules enforced by the
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previous Clinton administration were scrapped. The net net was to double the national
debt to $10.5 trillion in a mere eight years.

Another $5 trillion in Keynesian reflationary deficit spending by president Obama since

then has taken matters from bad to worse. The Congressional Budget Office is now
forecasting that, with the current spending trajectory, total debt will reach $23 trillion
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by 2020, or some 160% of today’s GDP, 1.6 times the WWII peak.

By then, the Treasury will have to pay a staggering $5 trillion-a-year just to roll over CURRENT POSITIONS
maturing debt. What’s more, these figures greatly understate the severity of the
problem. They do not include another $9 trillion in debts guaranteed by the federal TRADING RESULTS
government — such as bonds issued by home-mortgage providers, Fannie Mae and Freddie
Mac. State and local governments owe another $3 trillion. Double interest rates — a LONG TERM PORTFOLIO
certainty if commodity price inflation returns as I expect in the 2020’s — and our debt
service burden doubles as well. WEBINARS

It is unlikely that the warring parties in Congress will kiss and make up anytime soon. It is LEARN TO TRADE
therefore likely that the capital markets will emerge as the sole source of any fiscal
discipline, with the return of the ‘bond vigilantes.’ They have already made their
predatory presence known in the profligate nations of Europe, and they are expected to
arrive here eventually. Such forces have not been at play in Washington since the early
1980′s, when bond yields reached 13%, and homeowners paid 18% for mortgages. Since
foreign investors hold 50% of our debt, policy responses will not be dictated by the US,
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but by the Mandarins in Beijing and Tokyo. They could enforce a cut-back in defense
spending from the current annual $700 billion. They might even demand a retreat from
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our $150 billion-a-year commitments in Iraq and Afghanistan.

Personally, I think the US will never recover from the debt explosions engineered by Bush
and by ‘deficits-don’t-count’ vice president Chaney. The outcome has permanently
lowered standards of living for middle class Americans and reduced influence on the
global stage.

But I’m not going to get mad, I’m going to get even. I am going to make a killing profiting
from the coming collapse of the US Treasury market through buying the leveraged short
Treasury bond ETF, the (TBT). Everyone who has been early on this trade has already had
their head handed to them, as this fund carries a hefty cost of carry of nearly 0.5% a
month. But when the right time comes, fortunes will be made.
 Looks Like I Can’t Afford the Next War

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