Despite all my hunches, and what I think is bullish bias on USD/CAD in terms of main street economics, I'm interested in the interpretation of the latest from the economist on the treasury bond market:

American Treasury bonds | Too much of a good thing | Economist.com

In particular, this is ominous:
"If private credit continues to revive and there is no sign budget deficits are coming down, investors may worry that America will attempt to inflate its debts away. Then the storm really will hit Treasuries."

Any interpretations of what the tie-in to USD/CAD is in real terms?

Real terms? I would say this is going to be a REAL tsunami type storm where something really big will happen

Yes, something BIG, but with respect to USD/CAD, prospectively what?

Inflationary measures (the economist is recently in love with the term "quantitative easing") are being taken on by the Canadian at per-capita the same proportion as in the US, but a crash in USD/CAD would imply a relative safe-haven status accruing to $CAD. That is believable, but it would seem that a completely irrational market move would be required (i.e. $USD becomes the anti-safe-haven, which would seem to do more for Gold than $CAD).

If the market is unaware of the extraordinary measures being taken on by BoC (i.e. blanket purchase of bad assets... called "other", and also mirroring the Fed rate cuts) this could magnify things, but is that plausible?

Anyway, any other thoughts peoples?

As I stated last week ... since this Market has broken above the 1.2543 High posted on Feb 6th ... probabilities are that this Market will continue to climb into month end. A simple Chart observation will reveal the buying strength coming in on Tues Feb 10th (accompanied by Volume) after the three previous Days of the 1st Weeks retracement ... setting up for this continuation to the upside. Perhaps a good Time now to buy in on obvious pullbacks ... as I'm expecting the Jan 21st High of 1.2769 to be challenged.

What I take from that article is that The Economist is saying that Treasuries could ultimately fall very sharply because there will be a complete lack of demand. Theoretically, this would be negative for the US dollar because of the decline in cash flow from abroad to the US for the purchases of Treasuries.

In my own personal opinion, I think that in the very long-term this could be a threat to US dollar strength. However, in the near-term/medium-term, I think the odds remain in favor of currency remaining a "safe haven".

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Terri Belkas is the author of Daily Fundamentals, Global Central Bank Comments, and Forex Trading Weekly Forecast on DailyFX.com.

Yes Terri, that certainly is the point, although I'm more cynical about economist articles; I tend to take the economist as a consensus view reported a week too late. Is the economist alluding to some powerful interests that are quietly moving their hands closer to the eject button?

This seems reasonable, but I think the article establishes the notion of a "treasury bubble". If there isn't a bubble (efficient markets etc..), then, as the article points out, a big deflationary episode is coming, and I'll reconsider buying a home safe (again...)

A bubble, once accurately defined, would seem to force the market to expect a crash (well that's my take). It will happen and it will either happen violently (fast) or more slowly. The economist is suggesting that it will happen fast. And I don't argue with the economist (or the Rothschilds).

Basically, the USD/CAD run up seems firmly rooted to me, to you, and to everyone but the people talking to the economist. How do you price that in?

I think that The Economist often makes for interesting reading, but they have a spotty track record for predicting markets.

As for the safe haven now? Clearly it's that four letter word about which I've spoken here the last couple of months... gold.

you should be very very careful with that one right now..
it should be crashing these days, sentiment is off the hook!

Besides which, gold is speculation distilled to its purest form: I can't really buy gold to store in my home safe, which is what I would want when gold and silver are really the only currency left. So I can only buy it, in order to sell later, and in that sense I'm completely speculating (the exact opposite of the sentiment that drives gold up)...

Bubblenomics all around it seems.

Articles in the Economist and written by economists are generally not reasonable trading fodder. Most of the analysis they do is a wrap up or a forecast for weeks, months and years ahead - not the kind of time frame we can work with in retail forex trading.


I think we are looking at a Treasury bubble. Not just US treasuries; but global government debt. Look at the bunds, gilts and JGBs. They are all pushing near-record highs; and it is all facilitated by government buying, along with investors looking to safe guard their portfolio - but that opens them up to capital losses on a turn around (which is why we see most of the interest in the short end of the curve and why we are hearing the Fed talking about buying long-dated notes). Since this is largely a government bubble (and they are well aware of it), they aren't likely going to let it pop or even deflate rapidly. That would merely create excess volatility that could led to another seizure in financial markets and undermine the efforts they have made to this point.

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John Kicklighter is the author of Dynamic Carry Trade Basket, Watch What The Fed Watches, and Forex Trading Weekly Forecast on DailyFX.com

So to prevent a pop or disorderly deflation of treasuries, the US government will have to make the Fed print heaps of money with which to buy treasuries. But will that still work when one day China says, "Bid wanted for 3 trillion dollars of US treasuries". Everyone figures that can't happen anytime soon, but it's likely to happen some day, and such events can sneak up faster than expected.

Depends on your time horizon. Will it be higher next year than today? I think so, as most nations are in a race to print paper currency. Sure gold is overdue for a correction after its recent 38% increase over USD (especially the gold stocks which have doubled in 3 months), but the upside potential overwhelms the downside risk over a longer time horizon, at least in my opinion.

In most countries you can store gold bars or coins in your home safe or bank, or maybe hidden in the ground up by your cabin in the woods with your dehydrated food and shotguns to fend off the masses during the coming age of anarchy, haha j/kidding... although some confiscatory government could force you to turn-in your gold, like the US did.

Geez i hate being a nouveau-gold-bug... it feels miserly, lol

Referencing just about any gold chart right now, it seems that gold is what everyone is buying. It has had the strongest most sustainable rally, almost no dips from the $700 all the way up almost to its all time highs. I have been expecting a dip in price for a while, I thought maybe IMF would come out and liquidate their gold holdings like they said they would. After a while though I felt as if there are no signs of this trend taking a breather and I finally jumped in 2 weeks ago. Despite huge spread involved in taking delivery of the physical gold, I believe it is the investment of choice. But I only plan to hold it as a long term storage of value, not a speculative instrument. What about you? Are you trading the metal or related stocks/funds?

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"Kids, go get grandpa's old shotgun and all the tinned food that we were going to use for Y2K, cos we're all going to live up in the woods. Forget school, your friends, everything, because this time it's for real!! I'll be ready when "they" come! Don't worry, I've got the gold bars. Yeeeehaaaa"

This is why I have an aversion to both this stupid piece of yellow metal and people who love this stupid piece of metal. This commodity stuff that everyone adores, but it won't keep anyone warm nor fill any empty stomachs. This precious metal that is extracted from mines deep underground, only to then be stored in safes deep underground. The yellow stuff with very little in way of solid fundamentals to support its inflated price, even jewellery demand is plummeting globally, meaning we could be looking at a dangerous asset bubble forming here, where an increase in risk appetite, even on a temporary basis, could wipe hundreds of bucks off the price in a very short space of time, leaving lots of retail gold bugs nursing very sore losses, wondering why their safe haven investment wasn't so darn safe after all.

Only my hysterical opinion there, much of it, I am sure, based on prejudice and an aversion to everything connected with yellow metal. I respect your opinions and posts, skibunny, so absolutely no offence intended. Although, seeing as you're probably sitting on a handsome profit from your longs, I doubt whether my rant will matter one iota. Either way, it's just a light-hearted interpretation of my view...

Good luck!

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When the facts change, I change my mind. What do you do, sir?

John Maynard Keynes

Gold is valuable because people think it has value. Same with any other "currency." The only 'real' exchange medium is in a barter economy, I would think, right? Hey, I'll trade you 1 computer program for a tin of pork and beans! lol

Yo Bryan,

Give you one tin of beans and some condensed milk for that computer programme, as I will need to keep in touch with all the conspiracy theories while I'm hiding in the woods....

But other currencies have a clear fundamental story backing up their value, or lack of (an underliying economy, interest rates and associated assets that are denominated in that currency, trade flows, political system etc...) There is a clear need to hold, buiy and sell various currencies. I can just about get my head around this fact and make a little sense of the movements in forex - well, some of the time, anyway!

Whereas gold, in my mind, only has people's fear and paranoia holding its value so high, particularly as jewellery demand has gone through the floor and is unlikely to recover any time soon with the price so high. Even a temporary change in investors' sentiment could see the price drop substantially.

Anyway, my opinion matters not on such matters while the price of the metal remains so elevated. And I am not yet willing to back up my half-baked opinions by standing in front of the express train, so I shall grumble quietly on the sidelines and start accumulating tinned food, just in case I'm wrong!!

Hope things are good with you, my friend!
Paul

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When the facts change, I change my mind. What do you do, sir?

John Maynard Keynes