US: Do you trust that current "short" rally in T-Bonds?
Since we recommended this short on 22nd December, it has rocketed an amazing 22%. Too good to be true? We proffer suspicion on this ETF's short-term strength - and belief in its medium term strength.
David Hale is an international economist truly worthy of your time and brains. Have a look at his work! He has great perspective, particularly with his strong background in (mainly American) economics history.
In today's Financial Times, p. 9, he writes that "government bond yields .... could rebound when conditions normalise." He prefaces "normalise" view with his alert idea that "The U.S. economy could be the first to emerge from recession this year because it appears to be headed for a far more aggressive macroeconomic stimulus programme than any other country."
Well, David's thinking is spot-on: people believe in Mr. Obama's stimulus package - so they are selling Treasury bonds. So far, so good...
But what happens once "we" discover that once Mr. Obama has taken the oath, "change" becomes as stale as ever, and humdrum politics lurch back from the photographers behind the lens - and to politicians in front of the lens?
This is where our suspicion is coiled in the near term: I just cannot see "Mrs. Normal" shopping again because her "hubby" got a tax break, can you?
However, the very roots of our "optimism" on shorting Treasuries are embedded precisely in any stimulus package. Each root in this pit is called "rising budget deficits".
Currently, markets are in shopping mood: "anything to get us out of this mess" seems to be the buyers' mantra.
And once the cash register has rung its siren and the credit card company debits your account...?
