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The Bond Bubble Collapse Thread; Reset Time. This is the End of the Line for All the Rolling Bubbles Propped Up in the last 30 Years
Topic Started: 21 Aug 2016, 04:02 PM (11,438 Views)
b_b
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createdby
15 Sep 2016, 01:51 AM
Ratings matter for assessing exchange rates.
Maybe - perhaps you have some data or links that support this? Yen seems to stay pretty strong despite downgrades. USD has rallied since the S&P downgrade in 2011.
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Of course the GBP fell after its downgrade. Seems pretty random.
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If the the Aus dollar tanks, bond investors will be wiped and no amount of currency hedging can make up for the losses.


Incorrect. The currency hedges offset the losses. That is the point of a hedge. However the cost of the hedge is generally the difference in IR. Do you understand how financial institutions provide currency hedges without exposing themselves to currency risk? I'm happy to explain.
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QE at it's root was founded off the writings of Keynes who suggested notes be buried on the ground for people to dig up and spent to get out of a depression.

He never said exactly that. That is a bit of a misquote as the Statement related to the idea that not all govt spending was justified. And there is nothing in General Theory that comes close to discussing QE (unless you are confusing QE with fiscal policy ?? perhaps you are). The idea of QE comes firmly from the monetarist school (Friedman). Almost the opposite to Keynes.
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They are not printing money. QE is not money printing. QE is debt printing.

Interesting perspective. I see it as a swap. Private sector sells highly rated securities to the CB and get reserves / cash in return. Zero net financial assets are created or lost. I see Credit creation as printing debt (and deposit).
Edited by b_b, 15 Sep 2016, 04:50 AM.
(S – I) + (T - G) + (M - X) = 0
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createdby
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b_b
15 Sep 2016, 02:50 AM
Maybe - perhaps you have some data or links that support this? Yen seems to stay pretty strong despite downgrades. USD has rallied since the S&P downgrade in 2011.
Nigga please we're talking about the Pacific Peso here. Please don't compare it to the #1 and 2 top economies of the world. The rules of assessment are different for banana republic currencies
b_b
15 Sep 2016, 02:50 AM
Incorrect. The currency hedges offset the losses. That is the point of a hedge. However the cost of the hedge is generally the difference in IR. Do you understand how financial institutions provide currency hedges without exposing themselves to currency risk? I'm happy to explain.
The writing's on the wall. Nobody will insure the Pacific Peso for less than 1.5 points. Too much risk, interest spikes and Aussie crashing, over a 30 year bond. The hedge fund that insures it would probably have gone bankrupt anyway by the time anyone stupid enough to buy Aus treasuries makes the claim.
Edited by createdby, 15 Sep 2016, 09:45 AM.
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Rufus
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createdby
15 Sep 2016, 09:20 AM
Nigga please we're talking about the Pacific Peso here. Please don't compare it to the #1 and 2 top economies of the world. The rules of assessment are different for banana republic currencies

The writing's on the wall. Nobody will insure the Pacific Peso for less than 1.5 points. Too much risk, interest spikes and Aussie crashing, over a 30 year bond. The hedge fund that insures it would probably have gone bankrupt anyway by the time anyone stupid enough to buy Aus treasuries make the claim.
I expect the new 30 year issue to be fully subscribed.
The $AUD is one of the highest traded currencies by volume.

But I'm sure you won't change your mind. Facts are just an inconvenience.
Take risks - if you win you will become wealthy, if you lose you will become wise
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createdby
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b_b
15 Sep 2016, 02:50 AM
He never said exactly that. That is a bit of a misquote as the Statement related to the idea that not all govt spending was justified. And there is nothing in General Theory that comes close to discussing QE (unless you are confusing QE with fiscal policy ?? perhaps you are). The idea of QE comes firmly from the monetarist school (Friedman). Almost the opposite to Keynes.
Did I say QE "as it is today" bitch? I said QE "at its root". Modern QE is a bastardised version of Richard Werner's QE anyway, where CB's loan out directly to businesses and government and government borrows directly from commercial banks. Anyway, I'll just show you the direct quote from General Theory. Tell me this isn't a similar idea to Friedman's helicopter drop (or helicopter dig). Only it's real money. Once the gold is dug (or notes recovered from the ground as in Keynes proposal), it's in the hands of the digger, debt free. By contrast, QE is just spreading debt which can never be paid. A zero interest 1 million loan doesn't mean it's free money. You still have to pay back 1 million!

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines
which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried
principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by
tendering for leases of the note-bearing territory), there need be no more unemployment and, with the
help of the repercussions, the real income of the community, and its capital wealth also, would probably
become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the
like; but if there are political and practical difficulties in the way of this, the above would be better than
nothing.

The analogy between this expedient and the goldmines of the real world is complete. At periods when
gold is available at suitable depths experience shows that the real wealth of the world increases rapidly;
and when but little of it is so available our wealth suffers stagnation or decline. Thus gold-mines are of

the greatest value and importance to civilisation. Just as wars have been the only form of large-scale
loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for
digging holes in the ground which has recommended itself to bankers as sound finance; and each of
these activities has played its part in progressfailing something better. To mention a detail, the
tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery,
because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which
is payable.

In addition to the probable effect of increased supplies of gold on the rate of interest, gold-mining is for
two reasons a highly practical form of investment, if we are precluded from increasing employment by
means which at the same time increase our stock of useful wealth. In the first place, owing to the
gambling attractions which it offers it is carried on without too close a regard to the ruling rate of
interest. In the second place the result, namely, the increased stock of gold, does not, as in other cases,
have the effect of diminishing its marginal utility. Since the value of a house depends on its utility,
every house which is built serves to diminish the prospective rents obtainable from further house-
building and therefore lessens the attraction of further similar investment unless the rate of interest is
falling pari passu. But the fruits of gold-mining do not suffer from this disadvantage, and a check can
only come through a rise of the wage-unit in terms of gold, which is not likely to occur unless and until
employment is substantially better. Moreover, there is no subsequent reverse effect on account of
provision for user and supplementary costs, as in the case of less durable forms of wealth.

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed
two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of
which, since they could not serve the needs of man by being consumed, did not stale with abundance.
The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as
good as one; but not so two railways from London to York. Thus we are so sensible, have schooled
ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the
'financial' burdens of posterity by building them houses to live in, that we have no such easy escape
from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the
conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to
pile up claims to enjoyment which he does not intend to exercise at any definite time.

Rufus
15 Sep 2016, 09:29 AM
I expect the new 30 year issue to be fully subscribed.
The $AUD is one of the highest traded currencies by volume.

But I'm sure you won't change your mind. Facts are just an inconvenience.
I expect hedge funds to buy anything and everything under the sun (and keep losing money) so they can justify charging their clients 2 percent.

Clients will wake up one day and pull their money out of these useless f***ers and just buy gold.

Edited by createdby, 15 Sep 2016, 09:53 AM.
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Rufus
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createdby
15 Sep 2016, 09:30 AM
I expect hedge funds to buy anything and everything under the sun (and keep losing money) so they can justify charging their clients 2 percent.

Clients will wake up one day and pull their money out of these useless f***ers and just buy gold.
Then why did you say that it will be undersubscribed?

You were quite definite on that point.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Terry
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createdby
15 Sep 2016, 09:30 AM

I expect hedge funds to buy anything and everything under the sun (and keep losing money) so they can justify charging their clients 2 percent.

It's not just hedge funds that need to invest for the sake of looking proactive. The whole financial industry is like Feed Me Seymour from Little Shop of Horrors. The suburbanites are mot much more than lambs for slaughter.
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b_b
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createdby
15 Sep 2016, 09:20 AM
Nigga please we're talking about the Pacific Peso here. Please don't compare it to the #1 and 2 top economies of the world. The rules of assessment are different for banana republic currencies

The writing's on the wall. Nobody will insure the Pacific Peso for less than 1.5 points. Too much risk, interest spikes and Aussie crashing, over a 30 year bond. The hedge fund that insures it would probably have gone bankrupt anyway by the time anyone stupid enough to buy Aus treasuries makes the claim.
Ok - so you don't understand how a FI offers a currency hedge while eliminating currency risk . Do you want to know or are you happy to stay ignorant.
createdby
15 Sep 2016, 09:30 AM
Did I say QE "as it is today" bitch? I said QE "at its root". Modern QE is a bastardised version of Richard Werner's QE anyway, where CB's loan out directly to businesses and government and government borrows directly from commercial banks. Anyway, I'll just show you the direct quote from General Theory. Tell me this isn't a similar idea to Friedman's helicopter drop (or helicopter dig). Only it's real money. Once the gold is dug (or notes recovered from the ground as in Keynes proposal), it's in the hands of the digger, debt free. By contrast, QE is just spreading debt which can never be paid. A zero interest 1 million loan doesn't mean it's free money. You still have to pay back 1 million!

If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines
which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried
principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by
tendering for leases of the note-bearing territory), there need be no more unemployment and, with the
help of the repercussions, the real income of the community, and its capital wealth also, would probably
become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the
like; but if there are political and practical difficulties in the way of this, the above would be better than
nothing.

The analogy between this expedient and the goldmines of the real world is complete. At periods when
gold is available at suitable depths experience shows that the real wealth of the world increases rapidly;
and when but little of it is so available our wealth suffers stagnation or decline. Thus gold-mines are of

the greatest value and importance to civilisation. Just as wars have been the only form of large-scale
loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for
digging holes in the ground which has recommended itself to bankers as sound finance; and each of
these activities has played its part in progressfailing something better. To mention a detail, the
tendency in slumps for the price of gold to rise in terms of labour and materials aids eventual recovery,
because it increases the depth at which gold-digging pays and lowers the minimum grade of ore which
is payable.

In addition to the probable effect of increased supplies of gold on the rate of interest, gold-mining is for
two reasons a highly practical form of investment, if we are precluded from increasing employment by
means which at the same time increase our stock of useful wealth. In the first place, owing to the
gambling attractions which it offers it is carried on without too close a regard to the ruling rate of
interest. In the second place the result, namely, the increased stock of gold, does not, as in other cases,
have the effect of diminishing its marginal utility. Since the value of a house depends on its utility,
every house which is built serves to diminish the prospective rents obtainable from further house-
building and therefore lessens the attraction of further similar investment unless the rate of interest is
falling pari passu. But the fruits of gold-mining do not suffer from this disadvantage, and a check can
only come through a rise of the wage-unit in terms of gold, which is not likely to occur unless and until
employment is substantially better. Moreover, there is no subsequent reverse effect on account of
provision for user and supplementary costs, as in the case of less durable forms of wealth.

Ancient Egypt was doubly fortunate, and doubtless owed to this its fabled wealth, in that it possessed
two activities, namely, pyramid-building as well as the search for the precious metals, the fruits of
which, since they could not serve the needs of man by being consumed, did not stale with abundance.
The Middle Ages built cathedrals and sang dirges. Two pyramids, two masses for the dead, are twice as
good as one; but not so two railways from London to York. Thus we are so sensible, have schooled
ourselves to so close a semblance of prudent financiers, taking careful thought before we add to the
'financial' burdens of posterity by building them houses to live in, that we have no such easy escape
from the sufferings of unemployment. We have to accept them as an inevitable result of applying to the
conduct of the State the maxims which are best calculated to 'enrich' an individual by enabling him to
pile up claims to enjoyment which he does not intend to exercise at any definite time.


I expect hedge funds to buy anything and everything under the sun (and keep losing money) so they can justify charging their clients 2 percent.

Clients will wake up one day and pull their money out of these useless f***ers and just buy gold.
2%!!!! Those days are long gone.
Rufus
15 Sep 2016, 09:29 AM
I expect the new 30 year issue to be fully subscribed.
The $AUD is one of the highest traded currencies by volume.

But I'm sure you won't change your mind. Facts are just an inconvenience.
Of course it will be fully subscribed! That is a no brainer.

As per any bond auction, the rba will conduct OMO on the day and acquire all the necessary repo's to ensure the banks have adequate liquidity to settle the bond purchases on behalf of themeselves or their customers. So long as the rba continue to target interest rates, australia will never have a failed bond auction in its own currency.
Edited by b_b, 15 Sep 2016, 11:18 AM.
(S – I) + (T - G) + (M - X) = 0
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Terry
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b_b
15 Sep 2016, 10:50 AM
Ok - so you don't understand how a FI offers a currency hedge while eliminating currency risk . Do you want to know or are you happy to stay ignorant.

Actually, retail banks can pass on on currency risk on foreign bond issuance to its own customers. They do it all the time.

While you're trying to sound clever, suggesting that the banks can hedge currency risk is not particularly clever or insightful. Ultimately, all risk can be hedged to some degree, but the greater the risk, the greater the return.
Edited by Terry, 15 Sep 2016, 12:42 PM.
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createdby
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b_b
15 Sep 2016, 10:50 AM
2%!!!! Those days are long gone.
Long gone? LONG GONE? BULLSHIT! 2 and 20 model was for a long time hedge fund industry standard fee and still is to some extent today. It's only in the last year or two where many funds have discounted. But long gone?

https://www.bloomberg.com/gadfly/articles/2016-08-25/och-ziff-capital-puts-another-nail-in-2-and-20-coffin
Edited by createdby, 15 Sep 2016, 03:21 PM.
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Jon Snow
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b_b
15 Sep 2016, 10:50 AM
Ok - so you don't understand how a FI offers a currency hedge while eliminating currency risk . Do you want to know or are you happy to stay ignorant.

What's an FI?
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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