Skip to comments.DYLAN GRICE: The Next Crisis Will Be Born Out Of The US Treasury Market
Posted on 07/01/2012 6:09:53 AM PDT by blam
DYLAN GRICE: The Next Crisis Will Be Born Out Of The US Treasury Market
Jul. 1, 2012, 6:23 AM
SocGen investment strategist Dylan Grice does not think "safe-haven" assets are very safe.
In Grice's latest note to clients, he compares the illusion of safety created by faulty regulation before the 2008 financial crisis to the new, impending wave of financial regulation on the table like Dodd-Frank in the U.S. and Basel requirements on a global scale.
Grice warns "madness is going on in the government bond markets" today, furnishing this long term chart of US Treasury yields going back to 1800:
From the note:
The regulations which told banks that AAA-rated bonds were risk free were designed to make markets safer. But they created an artificial demand for such bonds, which created an incentive for issuers to dress up bonds as risk free when they were anything but. The regulations effectively incentivized ratings agencies to rate them as risk free when they clearly weren't. And today, the same madness is going on in the government bond markets.
It's very difficult to see how government bonds are anything other than risk assets (lets face it, all assets are). Yet insurers are buying them because they've been told to take less risk (whatever that means) by the regulators. So they are taking more risk, and they will one day suffer the consequences. Banks in the eurozone are bust because they own so much of their local sovereigns' debt. But they were told it was OK to do that by the regulators. So they let their guard down.
Indeed, having told banks that they were of sound balance sheet before the crises (Lehman Brothers Tier 1 risk-weighted capital ratio was 11% five days before bankruptcy),
(Excerpt) Read more at businessinsider.com ...
Best news I’ve read all week. Bring on the reboot.
So what is the alternative? Maybe these guys had it right: http://www.bloomberg.com/news/2011-04-15/texas-university-endowment-holds-almost-1-billion-in-gold-bars.html
So, many of these geniuses are buying treasuries that are deemed to be “risk free” while we dimwits in fly-over country ask, “When will the government run out of money?”. When will they be unable to roll over their trillions in short term debt that come due each year?
We’re not Greece. We don’t have an EU to bail us out.
I suspect they'll be proven correct....
But, only time will tell.
we’re on the very last “leg” of our trip down.
China as a savior?
More like China as a victor. China as champion, except with only Chinese participating.
That must stop.
Everything else must wait.
China is not going to save anyone.
China s debt-to-GDP higher than Portugal s ratio: China likes to say its debt-to-GDP ratio is 17%. Not so fast. The respected Beijing-based research firm Dragonomics says it is 89% of GDP, worse than Portugal s 83% of GDP, and the U.S. s 79% by 2015. Stephen Green, China economist at Standard Chartered Bank, figures China s total debt, including contingent liabilities, is 77% of GDP. China s balance sheet is notoriously murky.
If anyone is going to come out on top it is Russia and the few other post USSR republics that instituted sensible flat tax economies.
Generally I think the entire world will be in a economic free fall because today no country is an economic island.
China continues to build positive trade balances, quarter after quarter.
China isn’t shrinking.
China is busy, building the next superpower. Quickly.
And we are helping.
That does not mean that they are not building debt as well.
China is expanding their navy and army at a phenomenal rate at the same time. All that is necessary to generate debt is to spend more than your income.
Looks like war on the horizon. Will Israel bomb Iranian nuke facilities and a powder keg break out? Graph suggests war.
“China continues to build positive trade balances, quarter after quarter.”
“That does not mean that they are not building debt as well. “
Doesnt matter. China’s population is over-saving and under-spending. If they have trade surpluses, they can fund their debt. If they keep growing, they can pay it down easily later on. They are doing both.
China is one-focused.
We were perhaps over-confident. Perhaps naive.
China got it all. Access to our technology. Access to our manufacturing. Our plants.
And our methods.
China is making all the money now, and we do nothing.
Except buy things on import.
On ever-shrinking lines of credit.
We really need to get our debt under control.
And bring back manufacturing. To America.
True, and unlike Greece we can print money and slowly or rapidly inflate out way out of debt.