Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Has Next UK Financial Crisis Just Started? Bank Accounts Being Frozen - 21st July 19
Silver to Continue Lagging Gold, Will Struggle to Overcome $17 - 21st July 19
What’s With all the Weird Weather?  - 21st July 19
Halifax Stopping Customers Withdrawing Funds Online - UK Brexit Banking Crisis Starting? - 21st July 19
US House Prices Trend Forecast 2019 to 2021 - 20th July 19
MICROSOFT Cortana, Azure AI Platform Machine Intelligence Stock Investing Video - 20th July 19
Africa Rising – Population Explosion, Geopolitical and Economic Consquences - 20th July 19
Gold Mining Stocks Q2’19 Results Analysis - 20th July 19
This Is Your Last Chance to Dump Netflix Stock - 19th July 19
Gold and US Stock Mid Term Election and Decade Cycles - 19th July 19
Precious Metals Big Picture, as Silver Gets on its Horse - 19th July 19
This Technology Everyone Laughed Off Is Quietly Changing the World - 19th July 19
Green Tech Stocks To Watch - 19th July 19
Double Top In Transportation and Metals Breakout Are Key Stock Market Topping Signals - 18th July 19
AI Machine Learning PC Custom Build Specs for £2,500 - Scan Computers 3SX - 18th July 19
The Best “Pick-and-Shovel” Play for the Online Grocery Boom - 18th July 19
Is the Stock Market Rally Floating on Thin Air? - 18th July 19
Biotech Stocks With Near Term Catalysts - 18th July 19
SPX Consolidating, GBP and CAD Could be in Focus - 18th July 19
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

U.S. Treasury Bonds Set to Crash, Heres How to Make a Killing

Interest-Rates / US Bonds Nov 09, 2008 - 07:29 AM GMT

By: Money_and_Markets

Interest-Rates

Best Financial Markets Analysis ArticleA new president … new ideas … and an old problem: How to pay for it all!

Mike Larson writes: It's been one heck of a week in American politics. We have a new president-elect in Barack Obama … a new approach to governing this country … and lots of new ideas about how to get the economy off its back.


For instance, Obama has proposed investing billions of dollars on infrastructure —

• New bridges,

• Improved roads, and

• Better schools.

But that could get darn expensive … really fast.

In fact, the American Society of Civil Engineers estimates the U.S. would need to spend $1.6 TRILLION over five years to get the nation's infrastructure into ideal shape.

President-elect Obama will need more than Superman's powers to put the economy back together again.
President-elect Obama will need more than Superman's powers to put the economy back together again.

Obama is also considering a second economic stimulus package. The number being bandied about is $175 billion — including tax checks for Americans and a tax credit aimed at creating jobs.

Another proposal calls for spending $150 billion over 10 years to develop cleaner sources of energy, while still another is aimed at reforming the U.S. health care. The potential cost? As much as $65 billion a year.

Many of these new ideas have merit.

There's just one old problem: How the heck are we going to pay for it all?

Uncle Sam Is Tapped Out …

What's the prudent way to manage your money?

Many of Obama's ideas are good in concept. But where will he get the money?
Many of Obama's ideas are good in concept. But where will he get the money?

Sock away funds during the good times so you have a cash “kitty” you can tap into when times get tough.

The same goes for governments.

Ideally, they run budget surpluses during the good times. Then when growth tanks, they can spend more — even run budget deficits for a while — to help rev up the economy again.

Unfortunately, we've been operating in the red for years on end — good economy OR bad. The last budget surplus was $127 billion in 2001. Since then, we have racked up a cumulative 2.1 TRILLION in budget deficits. That includes a record $455 billion in fiscal 2008 alone.

Moreover, there is no sign of ANY let up on the horizon.

Even BEFORE Obama was elected, and even BEFORE the total costs of the latest $700 billion banking bailout were taken into account, the administration was predicting a $482 billion deficit for fiscal 2009.

Now, with the costs of the Troubled Asset Relief Program (TARP) included, private analysts are estimating a budget deficit of as much as $1 TRILLION. And that number could ultimately prove too low depending on how many new programs make their way from the drawing board to the new President's desk.

The result:

Our Borrowing Needs Are Shooting Through The Roof!

The Treasury just announced that it will have to borrow an estimated $550 billion in the October-December quarter. That's almost FOUR TIMES what officials were projecting just a few months ago and MORE THAN DOUBLE what we borrowed in the first quarter of this year.

The Treasury will sell $25 billion in 3-year notes on November 10, the first time the government has sold debt with that maturity since May 2007. The sale will be followed by a $20 billion auction of 10-year notes a couple days later, and $10 billion in 30-year bonds the day after that.

But that's just a start!

Goldman Sachs estimates that the government will soon have to borrow TWO TRILLION DOLLARS — to finance the $850 billion federal deficit … to buy $500 billion in bad assets … and roll over $561 billion in maturing Treasuries securities … plus more.

And we believe that as the U.S. economy sinks, and tax revenues fall, even that shocking estimate could prove to be too low.

Supply, Supply, Supply

You don't need a Ph.D. in economics to understand the law of supply and demand. If supply rises enough to overwhelm demand, prices fall. That's true for cars, houses AND … U.S. Treasury bonds.

We have already seen long bond futures drop in price — from a high of 124 23/32 in mid-September to a recent low of 112 17/32. That's a decline of just over 12 points. Ten-year Treasury yields have jumped from a low of 3.39% to a recent high of 4.08%.

In the months ahead, we'll likely see more of the same. That's true no matter what the Federal Reserve does with the federal funds rate .

Remember: The Fed can only control very short-term rates directly — and even that process isn't always perfect, as we recently saw with LIBOR.

An Important Point to Remember …

Long-term rates move up and down based on investor perceptions of bond supply, inflation, and credit risk. They are driven by the “buy” and “sell” decisions of millions of investors. And those “sell” tickets have been piling up on Wall Street and in the interest rate pits in Chicago.

So if you're shopping for a fixed-rate mortgage, lock in your rate now. And if you're invested in sectors vulnerable to rising long-term rates (housing, REITs, etc.), sell.

Or if you're more aggressive, consider hedging or profiting from rising long-term interest rates. There are mutual funds and ETFs that allow you to do so. You can find more details on our favorite investment vehicles in my ETF trading service .

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules