Posted on 08/29/2010 8:00:09 PM PDT by blam
August 30, 2010 – The Great Bond Market Crash of 2010
August 30th, 2010
1) The Great Bond Market Crash of 2010. OK, maybe it hasn’t really crashed yet. But the two day, 3 ½ point sell off in the futures for the 30 year Treasury bond (TBT), at the end of last week was the sharpest drop in 18 months. Winston Churchill’s great 1942 quote, which marked the turning of the tide for Britain in WWII, comes to mind. “This is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning.”
In my recent piece on the extreme overvaluation of government debt, I pointed out that the last time rates were this low, Treasury bonds brought in a miserly 1.9% yield for a decade (click here for the piece). Professor Jeremy Siegel at the Wharton School at the University of Pennsylvania has one upped me. After yields bottomed in 1956, bonds suffered negative returns for 30 years!
This should have occurred to me, as the first mortgage I took out on a Manhattan coop in 1982 carried an 18% interest rate. That was then Federal Reserve governor Paul Volker was waging a holy war on inflation and eventually won. I took out one of the first ever floating rate mortgages, and by the time I sold it three years later, the rate had melted down to only 11%. I tell this story to kids buying their first starter homes now and they look at me like I’m some kind of dinosaur.
I have always believed that markets will do whatever they have to do to screw the most people. [snip]
(Excerpt) Read more at madhedgefundtrader.com ...
I had a fixed 13% rate in 1980. My next door neighbor had a 17% at that time.
An excellent observation...
We bought our first house in the early 80’s. We had been living in a small apt. for 8 years and had saved a sizable down payment so we talked the seller into holding an 8 year mortgage on the balance for 10 percent interest. We were amazed he accepted...but it saved us lots of money.
The amazing thing to me about high interest rates is this. Back then we were sure to pay our cc off each month because the interest was 21 percent. But now with interest rates so low, I think cc rates are still up there. We still pay it off each month, so I have no idea what interest they charge.
Peter Schiff On CNBC 08_27_10 - Monetary vs Fiscal Policy Fix
Bought my first new car in ‘81. 10.9% interest and it was a bargain!
BUMP
I don't like the markets doing the high-speed wobs thing.
Wonder if that posting over at Zerohedge is going to be closer to the mark than we think:
I got my mortgage in 1976 for 9% and considered myself pretty lucky as the next few years went along.
Peter Schiff was never a Fed Chairman.
Thanks for catching that.
I'm with you, volatility isn't a good thing in this economic environment and could well be a harbinger for something bad.
TBT is not a future for Treasuries. TBT is an inverse ETF. TBT goes up when Treasuries go down, and down when Treasuries go up.
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