Tuesday, May 07, 2013


When everyone is calm, its time to review your exit plan.  Once banks fully recapitalize and China slows down considerably, inflation will make a return.  This should happen in 2-3 years, but the warning signs will manifest themselves (in some rather interesting term structure patterns) within 24 months.  That will be the signal for "everybody" to get back into Real Estate and start this merry-go-round over again.

Bond investors are gaining confidence that Federal Reserve Chairman Ben S. Bernanke will unwind the central bank’s unprecedented $3.3 trillion balance sheet without sparking a crash similar to 1994, when Alan Greenspan surprised the market by doubling benchmark lending rates in 12 months.
Though sovereign debt levels have more than quadrupled to $23 trillion, yields for 10-year Treasuries (USGG10YR) are 5 percentage points lower than they were in 1994 and forward measures show the current 1.74 percent level rising only to 2.04 percent in a year. Policy makers’ forecasts of no rise in the target interest rate for overnight loans between banks until 2015 are damping yields in a market dominated by the Fed’s $1.84 trillion, or 15.4 percent of the $11.94 trillion in marketable U.S. debt.

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