The great bond market crash of 2009 (Asia Times)

[Up2Late]

(Sorry, this in not a happy story)

Nov 12, 2008

THE BEAR'S LAIR

The great bond market crash of 2009

By Martin Hutchinson

Investors have spent the past few weeks bemoaning the devastation to their portfolios caused by the stock market downturn, which if it does not produce recovery by year-end will have made 2008 the worst stock market year since 1937. Their misery would be compounded if they knew that next year, while it may avoid more than moderate stock market mayhem, is likely to produce the worst bond market carnage in US history.

By bond market carnage, I am not referring to carnage in the market for securitized subprime mortgages, defaulted credit card receivables, Russian subordinated debt and Venezuelan trade paper. That has by and large already happened, although only a portion of the losses in those markets have already been admitted to, no more than US$600 billion of the eventual total of perhaps $2.5 trillion to $3 trillion in losses.

The rest of the market is taking Blackstone's Steven Schwarzman's approach of demanding that "market-to-market" accounting rules be reversed immediately. Tough, guys, you were happy enough to have the spurious mark-ups from mark-to-market in good years, which enabled you to pay yourselves fat bonuses without actually having earned anything. It's only fair that the inflated prices at which your portfolios were valued at the top of the bubble should be marked down to reflect the new and unpleasant reality.

Next time, perhaps we can stick to the old rule that assets don't get marked up in value until they are sold, but that clear impairment in value results in a mark down. It will mean fewer bonuses for Wall Street traders, but never mind, they'd only have to pay them all away in taxes - making Wall Streeters pay more tax was the principal "change" president-elect Barack Obama and his supporters have been calling for....

(More at link) <http://www.atimes.com/atimes/Global_Economy/JK12Dj07.html>

[slipslidingaway]

1. Thanks and as far as it not being a happy story, being aware of

what may happen is more important.

A couple of additional articles on the same topic that may be of interest...


Fun With Funding

September 1, 2008

http://contraryinvestor.com/2008archives/mosept08.htm

"...But perhaps another major issue that is not being given enough attention is the fallout consequences due to the one balance sheet not destined to shrink during this process of deleveraging we have described, and that's the balance sheet of the Federal government. While the financial markets, the household sector and in good part the corporate sector engage in long overdue deleveraging, a natural offset to avoid either the reality or perception of collapse will be the continued expansion of the government's balance sheet. And this process of expanding the Federal balance sheet, as you know full well, has already begun in full force...


...Enough of the ranting and raving. Let's get to the point. As this process plays out and the Federal government is continually forced to expand its balance sheet as an offset to the leverage contraction occurring largely throughout the remainder of the economy and domestic financial markets ahead, THE big question becomes, where will the funding for this balance sheet expansion come from and what will it ultimately cost? A question near and dear to the hearts of US taxpayers everywhere, to say nothing of the investment community. This, we believe, is now and will continue to become one of the most important questions for our investment activities. We cannot take our eye off of this ball as we move ahead..."



The "Other" Consumer Confidence Survey

October 1, 2008

http://contraryinvestor.com/2008archives/mooct08.htm

"The "Other" Consumer Confidence Report...What the heck are they thinking now? You know who we mean, the foreign investment community. Who else? Hopefully without wildly belaboring the point, we remain convinced that the US is ultimately going to face a funding issue down the road. Maybe not a funding issue in terms of being able to borrow funds, but rather the issue is the cost at which funds will ultimately be made available to the US. This is exactly what we addressed when we penned the Fun With Funding discussion last month...

...As a quick counterpoint to what we see as enhanced risk to foreign capital committing to US assets at the moment, be sure to keep your eye on many of the major European financial institutions. In terms of the raw numbers, leverage ratios for many of Europe's largest financial behemoths make former US investment bank outfits look like choirboys and girls. IF the European financial sector encounters meaningful credit issues ahead, as have their financial sector brethren in the US, we could indeed see Treasuries continue to be the safety trade of choice. A confusing time with a lot of moving parts globally as really global credit cycle reconciliation plays out? You better believe it.

Point blank, the US cannot afford to lose the confidence of the foreign investment and central banking communities in US financial asset markets. Now more than at any other time in recent memory, the US financial sector and real economy need access to relatively inexpensive foreign capital. We would just remind you of one truism we have repeated in these pages for years. Liquidity/Capital is a coward..."

[Up2Late]

2. Yup, best to know what's might be coming from all these "solutions"

Hopefully this part of the story will get more attention in the next few months.:kick:

[slipslidingaway]

3. Yes hopefully...Treasury Market and Mortgage Rates

http://mortgage-x.com/general/treasury.asp

Found this chart back in September when I posted the Fun with Funding article in GD.

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4053996&mesg_id=4053996

"...In the past we have suggested that perhaps THE most important chart we can think of is the long term chart of the 30 year US Treasury bond. What we have described above simply puts an exclamation point behind this thought. The following is nothing but an update of the non-logarithmic 30 year UST. To suggest the red rising bottoms trend line is important is a multi-decade understatement. Will the whole forward funding question ultimately be the straw that breaks the proverbial camel's back for the US bond market? Or in this case the back of the rising bottoms trend line?..."

[slipslidingaway]

4. Bonds are headed for an early 2009 high

"Bonds are likely to rally possibly for the last time into early 2009, thus ending the 30 year Bull market that started in 1980. The cycle low of October 14th and support near 112 from the trend line is likely to give us a move higher into February but it will probably be very choppy as the financial crisis turns this 30 year trend down."

http://www.safehaven.com/article-11784.htm


We'll see, chart at link along with other charts and comments, including the full moon chart for 11/13.