More Bond Drama Brings Morning Selling

fed lossesWorries about the stabilization of Government debt is increasing, as there continues to be a lowering demand for Treasuries. Today, the Treasury issued $19 billion worth of 10-year bonds for 3.99%, which in turn has brought down stocks with the Dow trading down over 100 points this morning. This is by far the highest yield of the year and shows the continuing weakness of our government debt. This is a problem I have been discussing for the past couple weeks, especially on the podcasts in more detail. The fate of these Treasuries has such a strong influence on the overall debt markets as a whole, which makes it very scary to see the jump in yields in such a short period of time. Like I've said before, it begins with the Treasuries, then sprinkles down to all of our consumer loans: home mortgages, auto loans, school loans, credit cards, etc. In addition to this, the bid to cover ratio was 2.62, which although was slightly better, is still rather depressing for such high yields.

At this point, unfortunately, this isn't the Fed's only problem (them being the largest holder of government debt, so such recent movements have to be killing them). They also are absorbing the losses from Bear Stearns and AIG, which are totalling over $5 billion. Bernanke is still refusing to identify the banks, corporations and other financial institutions that have received "emergency loans", saying that by doing so he fears would cause for a run on the banks, which he is exactly right, since probably most financial institutions are on that list.

I do feel we are hovering on the crest of the rally as of now and that sentiment is slowly shifting. The government worked very hard to prop up markets the last several months, which has paid off and been reasonably successful, however, my concern was always is it sustainable? I believe not, which is why we are seeing the beginning of the consequences that come from massive government spending mixed with government printing. I think we should see some downward moving with the S&P, so SH or SDS is the option I'm looking at (I already have many shares of SDS). I also wanted to show a short informative video on deflationary/inflationary graphs. It's a great resource talking about some recent indications. Although, it talks about the probable upward moving inflationary signals, I still feel that we are not out of the woods for deflation, and that the severe problems of inflation will hit us in 2010 and 2011. Click here for the video. Happy Trading.

6 comments:

  1. Lin Lin Says:

    Hey FF, You posted earlier that you use Zecco Trade right? How are they in your opionion? It's kind of scary to think it's only $4.50 a trade and you get 10 free trades a month with a $25,000 account or doing 25 trades. Sounds too good to be true. But you seem happy with it so I guess there is no catch.

    I am currently using Scottrade and desprate for a change. $7 is too much compared to $4.50 + 10 free trades a month. I love their service though. That's for sure.

  2. Finance Fanatic Says:

    Zecco's commission, which serves a purpose for portions of my portfolio, is their strength. I also like Schwab to, who has some great tools, however, they're commission is a bit pricy.

  3. Lin Lin Says:

    Do you have any problems with them?

  4. Finance Fanatic Says:

    I haven't, they had a bit of a hick up with accounts back in April that was quickly resolved, but that didn't affect me

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