A Seesaw Battle

A billion here, a trillion there, after a while it almost becomes like real money. Since Thanksgiving of 2008, I have been pounding the table that since the Federal Reserve has placed the federal funds rate at 0%, it could go no lower. Brilliant, you say! That would be like saying that since one end of the teeter-totter was on the ground, it could go no lower. Any schoolchild could make that deduction.

But focus on the other end of the teeter-totter, McFly! Since one end could go no lower, the other end could go no higher. And so it is with Treasury bond prices. Since interest rates were at zero, that meant that the maximum value of short-term paper had been achieved. The ten-year treasury was 2% at the time. I use this piece of paper as my standard because that interest rate could also go to zero. But the likelihood of that happening was one in a million, a bet that I was, and am willing to take. Therefore, like the teeter-totter that was on the ground, interest rates have only one way to go from zero, and that is up.

The other end of the teeter-totter, the prices of bonds, have only one way to go, and that is down. Now, it won’t be straight down, but the ultimate direction will most assuredly be down. I have said continually, and will continue to say: Short treasuries, short treasuries, short treasuries! As Obama, Geinther, and Congress flood the world with the bailout plan, it requires a payment which would be made in printing and flooding the markets with treasuries. Any person who has attended an auction knows that when there is more supply than demand, prices fall, and very dramatically. Short treasuries, short treasuries, short treasuries!

It’s been many years since I’ve seen something so obvious. It’s an early Christmas present from the new administration. Thanks, Mr. President.

Till next time,

Bill


Long – GLD, SLV, and TBT



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