Technical Difficulties/ Open Thread

September 29th, 2009 11:22 am | by John Jansen |

Once again we are experiencing technical difficulties here at the Across the Curve headquarters.  Blogging will resume as soon as the issue has been resolved.  Please feel free to discuss below (though if you are new to the site, your comments won’t appear because I won’t be able to approve them).

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  1. 9 Responses to “Technical Difficulties/ Open Thread”

  2. By anon on Sep 29, 2009 | Reply

    Pimco’s Gross Buys Treasuries Amid Deflation Concern

  3. By Tyler K on Sep 29, 2009 | Reply

    3.29 … Maginot line still intact

  4. By Chicken on Sep 29, 2009 | Reply

    That wouldn’t be good.

  5. By Alex on Sep 29, 2009 | Reply

    Is 2s/10s 230 bps?

  6. By gorgeous on Sep 29, 2009 | Reply

    Pimco claims MBS are expensive but bonds are cheap. I thought MBS-treasury spreads were not outrageous. Does 5% mbs really look worse than 3% 7-year bond? Surely new government regulation will ensure AAA is AAA and spreads will get even tighter, no? 🙂

    Anyhow says they are buying insurance against deflation. I think the issue is the premium they are calculating.

  7. By mcooganj on Sep 30, 2009 | Reply

    what happens when the fed slows it’s MBS buying but the economy picks up so that origination increases? MBS goes wider to govvie, that’s what.

  8. By Cedric on Sep 30, 2009 | Reply

    gorgeous, (is that your real name?)

    It is known that there is another wave of “stealth” foreclosures coming. BA says so, they just don’t know how big. See Calculated Risk for posts the last couple days.

    The default rate on existing AAA rated MBS has greatly increased, and this would mean the default rate would continue to increase.

    So we are back to the semantics of are we talking about “debt” deflation or “price” deflation.

    I heard the CBO is forecasting a 1% rise in CPI next year, which is some disinflation from where they say we will end up this year.

    I think the problem Pimco has is they have too much money and a charter that says it must go into bonds of some sort.

    The Black Swan is that all this torturing of the dollar by current government policy results in external inflationary forces.

    To me that makes 3% look bad, 5% look bad, etc….

  9. By gorgeous on Sep 30, 2009 | Reply

    Cedric, many thanks for the thoughts. If you don’t mind on this board I would like to stay as gorgeous or maybe ggs to make it less silly.

    My understanding of the mess that we are in is that we are saving the banks by buying their massive junk via this group of private investors (let’s be honest here), the treasury (who needs approval from the congress to lift a finger) and the fed (who will do the heavy lifting). Correct me if I am wrong but that means we are nationalizing the losses primarily by printing. Fed may get the other money it put into the system but the stuff going into the above mentioned purchase isn’t coming back. That will be inflationary because there is a lot of it. Adding further foreclosures only makes it worse. 

    So we have two forces: people who lost their jobs, those who will not be able to spend away their home’s increased values, etc., who make the deflationary group, the benefactors of the loss nationalization, 8k per home, %5 mortgages, …, who are inflationary. I think the second group involves more money. It will hurt the dollar more, we will have to borrow more, and IMO yields will go up. I am not fanatical, I am not saying 10%. But more than 4% on the 30? Hell yes.

    Pimco can buy as they please. They are not that impressive (the clowns running my 401k are returning better (30%) than pimco’s 18 in 2008).

    So I think the end game is kinda known but people will pull it around as we travel there. What do you think?

    Also I would like to learn from the deflation folks where the deflation is. Please cite non bubble related prices and factor in we just went through a confidence crisis (I naturally delayed my Ferrari fleet plans, but will be back as soon as I have some confidence in the economy 🙂



  10. By Cedric on Sep 30, 2009 | Reply

    ggs, (I like gorgeous better. There is nothing silly about gorgeous.)

    You have noted above pretty much what is happening. The main point of argument in econ and financial circles is how long do we go before inflation may become a problem, and does the Fed have a workable exit strategy and will they get the timing right. My opinion is it will be unlikely that they get the timing right, either by design(waiting for employment to come back, or slow increases in rates to allow markets to adjust) or by accident (the money multiplier and velocity come back faster than they can withdraw a trillion in liquidity).

    But the ones talking deflation are usually not specific whether they mean asset deflation or CPI deflation. We have one but not the other. Conversely, I’m not sure if loose money will lead to CPI inflation or asset inflation. It could be that BRIC equities become the new asset bubble… or oil, gold, baseball cards,art or US banks making loans in emerging economies.

    The reason that rates are low now is that USG demand for money made up for a drop in private demand for money. So far the USG has had no problem getting investors, domestic or foreign, and its certainly hard to tell how long that can go on.

    p.s. If the dollar tanks, Ferraris will get expensive!

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