In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else

bobbyw24 · 12-27-2009, 10:16 AM

Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else

Submitted by Tyler Durden on 12/25/2009 17:31 -0500

As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our 'intellectual superiors' and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 - the biggest ever bonus season (forget record bonuses in 2010... in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur).

If someone asks you what happened in 2009, the answer is simple - two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed's equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition.

In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here. Luckily, so far securitization and CDOs have not made a dramatic entrance. They likely will, at which point it will be time to buy a one-way ticket for either our southern or northern neighbor, both of which, in the supremest of ironies, transact in a currency that will survive long after the dollar is dead and buried.

Back to the math... And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to "drain duration" from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that.

http://www.zerohedge.com/article/bra...enfold-or-else

SevenEyedJeff · 12-27-2009, 12:16 PM

They will just have to keep QE.

jclay2 · 12-27-2009, 01:04 PM

So basically, this next year is going to get very crazy. Interest rates are going to have to go to the moon if QE ends. Like SevenEyedJeff said, QE will have to continue just to prop up the scam. However, that can only go on so long before you start seeing big time inflation numbers. Gosh I need to secure a job before all this hell brakes loose.

stilltrying · 12-27-2009, 01:31 PM

Although I dont understand QEs or what zero hedge stated, I did read the comments and this looks to be scary however we all know the system will end its just a matter of when.

Original_Intent · 12-27-2009, 03:40 PM

Quote:

Originally Posted by stilltrying

Although I dont understand QEs or what zero hedge stated, I did read the comments and this looks to be scary however we all know the system will end its just a matter of when.

QE = quantitative easing = firing up the printing presses and buying our own debt.

http://en.wikipedia.org/wiki/Quantitative_easing

SevenEyedJeff · 12-27-2009, 04:52 PM

Quote:

Originally Posted by jclay2

So basically, this next year is going to get very crazy. Interest rates are going to have to go to the moon if QE ends. Like SevenEyedJeff said, QE will have to continue just to prop up the scam. However, that can only go on so long before you start seeing big time inflation numbers. Gosh I need to secure a job before all this hell brakes loose.

The thing I'm wondering is: if you secure a job and inflation brakes loose, will the wages even go up much? How are the American people going to negotiate wage increases during a period of high unemployment? If a majority of the people had leverage (i.e. decent quantity of gold and silver, and/or other significant investments) and could afford to walk away and demand higher wages, it would be a different story. But...most are broke. I fear that wages will fail miserably in attempting to keep up with inflation.

Dunedain · 12-27-2009, 05:12 PM

Quote:

Originally Posted by SevenEyedJeff

The thing I'm wondering is: if you secure a job and inflation brakes loose, will the wages even go up much? How are the American people going to negotiate wage increases during a period of high unemployment? If a majority of the people had leverage (i.e. decent quantity of gold and silver, and/or other significant investments) and could afford to walk away and demand higher wages, it would be a different story. But...most are broke. I fear that wages will fail miserably in attempting to keep up with inflation.

Wages generally rise in a period of inflation as the price of labor is affected by inflation the same way the price of other services is.

surf · 12-27-2009, 05:20 PM

demand will increase elevenfold when prices decrease to a level that meets demand.

i'm sure you all know this, but prices and interest rates move inversely on fixed-income securities.

Thread Tools
Show Printable Version Email this Page
Display Modes
Linear Mode Switch to Hybrid Mode Switch to Threaded Mode

12-27-2009, 10:16 AM	#1
bobbyw24 Herr Auskunft Join Date: Sep 2007 Location: Florida Posts: 9,175	In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else Submitted by Tyler Durden on 12/25/2009 17:31 -0500 As everyone is engrossed by assorted groundless Christmas (and other ongoing bear market) rallies, and oblivious to the debt monsters hiding in both the closet and under the bed, Zero Hedge has decided it is about time to present the ugliest truth faced by our 'intellectual superiors' and their Wall Street henchman who succeeded in pulling off Goal #1 for 2009 - the biggest ever bonus season (forget record bonuses in 2010... in fact, scratch any bonuses next year if what is likely to transpire in the upcoming 12 months does in fact occur). If someone asks you what happened in 2009, the answer is simple - two things. There was a huge credit and liquidity crunch, and then there was Quantitative Easing. The last is the Fed's equivalent of band-aiding a zombied and ponzied corpse, better known as the US economy. It worked for a while, but now the zombie is about to go back into critical, followed by comatose, and lastly, undead (and 401(k)-depleting) condition. In 2009, total supply of all USD denominated fixed income, net of maturities, declined by $300 billion from $2.05 trillion to $1.75 trillion. This makes sense: the abovementioned crunches stopped the flow of credit from January until well into April, and generally firms were unwilling to demonstrate to the market how clothless they are by hitting the capital markets until well into Q2 if not Q3. What happened was a move so drastic by the Fed, that into November, the worst of the worst High Yield names were freely upsizing dividend recap deals (see CCU) - the very same greed and stupidity that brought us here. Luckily, so far securitization and CDOs have not made a dramatic entrance. They likely will, at which point it will be time to buy a one-way ticket for either our southern or northern neighbor, both of which, in the supremest of ironies, transact in a currency that will survive long after the dollar is dead and buried. Back to the math... And here is the kicker. Accounting for securities purchased by the Fed, which effectively made the market in the Treasury, the agency and MBS arenas, but also served to "drain duration" from the broader US$ fixed income market, the stunning result is that net issuance in 2009 was only $200 billion. Take a second to digest that. http://www.zerohedge.com/article/bra...enfold-or-else __________________ Follow me on Twitter for news about Ron Paul, The Fed, & American Economy and Polity AbolishTheFed

12-27-2009, 12:16 PM	#2
SevenEyedJeff Senior Member Join Date: May 2007 Posts: 994	They will just have to keep QE.

12-27-2009, 01:04 PM	#3
jclay2 Senior Member Join Date: Nov 2007 Posts: 1,620	So basically, this next year is going to get very crazy. Interest rates are going to have to go to the moon if QE ends. Like SevenEyedJeff said, QE will have to continue just to prop up the scam. However, that can only go on so long before you start seeing big time inflation numbers. Gosh I need to secure a job before all this hell brakes loose.

12-27-2009, 01:31 PM	#4
stilltrying Banned Join Date: Feb 2008 Posts: 279	Although I dont understand QEs or what zero hedge stated, I did read the comments and this looks to be scary however we all know the system will end its just a matter of when.

12-27-2009, 05:20 PM	#8
surf Senior Member Join Date: May 2007 Location: Redmond, WA Posts: 1,713	demand will increase elevenfold when prices decrease to a level that meets demand. i'm sure you all know this, but prices and interest rates move inversely on fixed-income securities.