tag:blogger.com,1999:blog-3310402797768514899.post206074715015690835..comments2023-11-05T03:39:11.575-05:00Comments on The Technical Take: Maybe The Bond Market Is RightGuy M. Lernerhttp://www.blogger.com/profile/09198161809721597881noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-3310402797768514899.post-48283823724718419082009-01-16T11:06:00.000-05:002009-01-16T11:06:00.000-05:00Let me get the link correct.Zip: I hear what you a...Let me get the link correct.<BR/><BR/>Zip: I hear what you are saying and I am aware of this scenario, and as weakness spreads across the globe, countries are likely to take care of their own instead of taking care of US debt. Obviously, China is the biggest risk in this scenario.<BR/><BR/>However, I came across a good analysis to suggest that just maybe the buying is Treasuries is for real -i.e., there is true demand. This was the point of my article. And because of this demand, the lack of buying from China will not make a difference.<BR/><BR/>The link to that article can be found by clicking <A HREF="http://blogs.cfr.org/setser/2009/01/12/the-us-government-has-already-proved-it-can-raise-over-15-trillion-in-a-year/" REL="nofollow">here.</A>Guy M. Lernerhttps://www.blogger.com/profile/09198161809721597881noreply@blogger.comtag:blogger.com,1999:blog-3310402797768514899.post-5967345791425442692009-01-16T10:57:00.000-05:002009-01-16T10:57:00.000-05:00This comment has been removed by the author.Guy M. Lernerhttps://www.blogger.com/profile/09198161809721597881noreply@blogger.comtag:blogger.com,1999:blog-3310402797768514899.post-17540648405584969772009-01-16T04:32:00.000-05:002009-01-16T04:32:00.000-05:00There is one crucial area that you have not covere...There is one crucial area that you have not covered that supports your bearish stance. In my recent market commentary (see http://www.slideshare.net/jamesvinall/global-financial-market-review-presentation) we noted the following.<BR/><BR/>"Every economy in the world has been hit by the recession, but countries that are leveraged to Western consumer (like China) have been hit hardest and fastest. Social and labour unrest is increasing and there have already been strikes and protests in Guangdong (China’s export manufacturing region) as workers have been laid off following the collapse of consumer spending. China now holds US$650 billion of US Treasuries, which is up US$190 billion over the last year, but their recent purchases have slowed considerably. If you add in other known holdings, analysts suggest that China owns $1 of every $10 of America’s entire public debt. <BR/><BR/>The most pressing question is what the Chinese government will do? The number one guiding principle of the Central Committee of the Communist Party of China is to retain power and control over a vast and diverse population. Domestic interest will always come before foreign consideration. Beijing could maintain the status quo by keeping the Yuan low against the US$ to make their goods affordable and keep lending money to the USA. However, the Sino-bashing camp in Washington could be the tipping point for China to sell some of their bonds to finance domestic stimulus. China will need time to adjust to domestic market manufacturing, but will probably be the first global economy to embark on recovery. All of this will become clear over the next three months. Look for signs of Chinese domestic stimulus coupled with heavy selling of US$ Treasuries and a declining US$".<BR/><BR/>Therefore, the US$ yield curve is likely to steepen as the Fed stimulus keeps short rates low and overseas investors who have better use for the cash sell bonds and repatriate the US$. <BR/><BR/>What do you think?EquityBellhttps://www.blogger.com/profile/11349806679086517961noreply@blogger.com