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Bonds & Interest Rates

Artemis On Volatility At World's End: Deflation, Hyperinflation And The Alchemy Of Risk

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Posted by ZeroHedge

on Tuesday, 10 April 2012 10:02

"Artemis Capital Management, whose latest epic letter is an absolute must read for all" - ZeroHedge

Imagine the world economy as an armada of ships passing through a narrow and dangerous strait leading to the sea of prosperity. Navigating the channel is treacherous for to err too far to one side and your ship plunges off the waterfall of deflation but too close to the other and it burns in the hellfire of inflation. The global fleet is tethered by chains of trade and investment so if one ship veers perilously off course it pulls the others with it. Our only salvation is to hoist our economic sails and harness the winds of innovation and productivity. It is said that de-leveraging is a perilous journey and beneath these dark waters are many a sunken economy of lore. Print too little money and we cascade off the waterfall like the Great Depression of the 1930s... print too much and we burn like the Weimar Republic Germany in the 1920s... fail to harness the trade winds and we sink like Japan in the 1990s. On cold nights when the moon is full you can watch these ghost ships making their journey back to hell... they appear to warn us that our resolution to avoid one fate may damn us to the other.

....read it all HERE

Screen shot 2012-04-10 at 9.57.15 AM



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Bonds & Interest Rates

Sovereign Bond Yields Sharply Higher in Spain, Italy, Portugal

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Posted by Mike Shedlock - Mish's Global Economic Trend Analysis

on Thursday, 05 April 2012 05:33

Sovereign Bond Yields Sharply Higher in Spain, Italy, Portugal   Curve Watcher's Anonymous has an eye on European sovereign bond yields. In the absence of another huge LTRO program from the ECB, and perhaps even with another LTRO program, yields in Spain, Portugal and Italy should head North. The LTRO is not going to trump long-term fundamentals which are downright horrible.

Here are a few charts to consider.  

Spain 10-Year Yield    

sovereign debt  Spain 2012-04-04

Italy 10-Year Yield  

sovereign debt  Italy 2012-04-04

Portugal 10-Year Yield    

sovereign debt  Portugal 2012-04-04



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Bonds & Interest Rates

"Fascinating Interview With Martin A. Armstrong on the Sovereign Debt Crisis

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Posted by Steve Saville via 321Gold.com

on Friday, 30 March 2012 00:51

The Hera Research Newsletter is pleased to present a fascinating interview with Martin A. Armstrong, founder and former Head of Princeton Economics, Ltd.  In the 1980s, Princeton Economics became the leading multinational corporate advisor with offices in Paris, London, Tokyo, Hong Kong and Sydney and in 1983 Armstrong was named by the Wall Street Journal as the highest paid advisor in the world.
 
As a top currency analyst and frequent contributor to academic journals, Armstrong’s views on financial markets remain in high demand.  Armstrong was requested by the Presidential Task Force (Brady Commission) investigating the 1987 U.S. stock market crash and, in 1997, Armstrong was invited to advise the People’s Bank of China during the Asian Currency Crisis.
 
Based on a study of historical gold prices and financial panics, Armstrong developed a cyclical theory of commodity prices, which lead to the pi-cycle economic confidence model (ECM), used to make long term forecasts.  Using the ECM, Armstrong predicted both the high-water mark of the Nikkei in 1989, months ahead of time, and the July 20, 1998 high in the U.S. equities market, as well as a major top in financial markets on February 27, 2007.  The ECM was called “The Secret Cycle” by the New Yorker Magazine and Justin Fox wrote in Time Magazine that Armstrong’s model “made several eerily on-the-mark calls using a formula based on the mathematical constant pi.” (Pg 30; Nov. 30, 2009).

.....read the whole interview HERE (scroll down a bit)

sovereign debt crisis countriesindangerzone



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Bonds & Interest Rates

The Crucial Question You Must Ask Now + Marc Faber's Advice on How to Play This Situation

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Posted by Marc Faber

on Thursday, 29 March 2012 14:39

marc-faber

The Key Points:

"The crucial question over the next decade is not “where will my returns be highest?” but “where will I lose the least money?. The inevitable crash, or “rebooting the computer,” will simply have to be endured. He advises how investors should play this situation:

Equity-like corporate bonds - 25% of a portfolio. Another 25% made up of stocks, especially in emerging markets, with a further 25% in precious metals (which tend to be severely underweighted in a typical pension fund). Real estate in certain areas (such as Asia) for the remainder. He added that US house prices are looking decidedly cheap and that an investment in remote farmland could pay off, as growing social tensions could make urban life intolerable.

Marc Faber: Continuing Financial Crisis Must Be Endured - (The Entire Article)

Marc Faber, editor of “The Gloom, Boom and Doom Report,” kicked off the CFA Institute  Middle East Investment Conference by quoting Ernest Hemingway who said, “The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring permanent ruin.” On this downcast note, Faber attacked short-term Keynesian spending and reviewed the implications for investors of the accelerating shift of world economic and political power from the developed countries to the developing world.

Central bank action to cut interest rates, whilst intended to boost consumption and hence economic growth, has had unintended and severely negative consequences. Faber argued that “dollar bills dumped by helicopters” all over the US have not been channelled into housing, as hoped, but into other more speculative asset classes, particularly commodities such as precious metals and oil. He added that expansionist monetary policies have contributed to higher financial and economic volatility, in addition to inflation. Since greater money supply does not flow evenly across sectors, this gives rise to asset bubbles, which are not easy to identify.

For Faber, at the start of any bubble, “promoters have the vision, and investors have the money.” But the reverse occurs as the bubble bursts: the promoters end up with the money, while most people lose out. Current negative real interest rates, which make cash a safe, but poorly-returning investment, penalize savers, and encourage them to speculate.  But Faber asked, “Is deflation such a bad thing?”  During deflationary periods in the nineteenth century, real per capita income apparently increased faster than it does now.

Faber also noted that excessive debt always contributes to risk. For example highly leveraged US developers became insolvent when the housing bubble burst, in contrast to their more conservative Hong Kong counterparts who managed to remain solvent. Borrowing has increased just to maintain a standard of living.  In 1980, US debt/GDP stood at 140%.  Now it is approaching 400%, if unfunded liabilities such as social security and Medicare are taken into account.  As a result, adjusted US government debt now exceeds $15 trillion, and continues to rise.  US spending is up, but taxes are down. Faber contended that the vast majority of tax revenue goes to mandatory expenditures such as medical care, social security and interest expense rather than to capital formation.  Given these imbalances Faber is unsurprised that the quality of US government bonds has been called into question.

By slashing interest rates, governments have also contributed to higher commodity prices, especially oil prices, according to Faber.  Any intended boost to consumption is undone by higher energy prices which act as an additional tax on the consumer.

Adding that the G7’s exports continue to decline, Faber contrasted this with climbing developing world exports, resulting in rapidly growing reserves among emerging economies.  These reserves will be spent on scarce resources such as precious metals and other commodities.  Faber believes that oil demand among the emerging economies now exceeds that of the developed world.  China is increasingly absorbing the world’s resources to feed its growth.  It is positioning itself carefully as a global economic and political power, assiduously dominating shipping lanes, forging alliances with neighboring states, and investing heavily, so much so that Faber argues China has now got its own domestic credit bubble.  Faber sees parallel scenarios being played out in India, Southeast Asia and Latin America. The growing economic power of these nations will inevitably lead to further geopolitical tensions where the MENA region is a potential powder keg.

So how should investors play this situation?  Faber states that diversification is key alongside low leverage.  His recommendations are as follows: cash and bonds are not hugely attractive, given negative real interest rates, but equity-like corporate bonds could form 25% of a portfolio.  Another 25% could be made up of stocks, especially in emerging markets, with a further 25% in precious metals (which tend to be severely underweighted in a typical pension fund).  Real estate in certain areas (such as Asia) could make up the remainder.  He added that US house prices are looking decidedly cheap.

Faber closed his speech by emphasizing that the crucial question over the next decade is not “where will my returns be highest?” but “where will I lose the least money?” In fact, he believes that losses of 50% should be considered as a relative success. He advised that an investment in remote farmland could pay off, as growing social tensions could make urban life intolerable. In his view the welfare state has evolved from the many helping the few to the few helping the many and that the inevitable crash, or “rebooting the computer,” will simply have to be endured. Whether this crisis occurs soon, as further credit expansion is voluntarily abandoned, or occurs later, as the currency system meets final and total catastrophe, Faber cannot predict.



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Cdn. Mortgage rates - Spring cycle repeat?

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Posted by Dustan Woodhouse

on Thursday, 29 March 2012 09:23

  Due to an overwhelming number of inquiries over the past few days I am sending out this brief market update, which I know is a few weeks overdue for sure.

  The Spring market for purchase and sale has been extremely busy, as has the refinance side of things, as such finding the time to put something detailed together has been a challenge.  My apologies.

   Every Spring for the past three years we seem to have the same situation, it is starting to feel like that Bill Murray Movie ‘Groundhog Day’.

   A few Big Banks get their economists on the news telling folks that rates are moving up and they had better lock in, get out of the ‘risky’ (non-profitable) variable and into a nice ‘safe’ (profitable) fixed rate product.

   Then each year we see rates trickle back down to the same or lower levels as they were at before.  Lately all of the media attention has been on a 4 year fixed rate product that has in fact been around for months, and on a very limited ‘no-frills’ 5 year special – which ironically enough was available in November 2011 through the broker channel but received no fanfare.

   This Spring feels no different than the last three because bond markets, stock markets, and the world economy is not what is being talked about as the impetuous for a rate increase, instead it is the Banks ending a 4 year fixed rate special…

   There is still a 3 year 2.79, the 5 year rate remains at or near 3.19 with most lenders.

   You can watch the long version at this link and gain a better understanding as to just what is going on.

http://youtu.be/9KZg-k8ksVY

   Or the short version;

Prime is going nowhere, enjoy the variable.  Fixed rates will move around a little bit, however have a strong likelihood of staying very close to where they are.

   Kind Regards

   Dustan

   www.dustanwoodhouse.com

Dustan Woodhouse - horz


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