Tuesday, January 6, 2009

Are You Listening, Neo?


"Were you listening to me Neo, or were you looking at the woman in the red dress?"





You may recall this line from the movie "The Matrix", when Morpheus points out to Neo that all is not what it seems. Red herrings have always been used to snatch attention away from what is truly important.

Here's one bright red herring everyone is focusing on right now:

Effective Fed Funds Rate

Fed Funds are set in a range of 0%-0.25%, the lowest ever if I am not mistaken. A pretty darn exciting red herring, eh?

And how about this one?

Ten Year Treasury Bond Yield

Ten year treasury bonds are yielding a measly 2.50%, the lowest in (at least) 45 years.

But what's the importance of the fish above, compared to reality? Take the red pill Neo, because... Reality is the rates at which everyone else gets to borrow. For example, the vast majority of US businesses, as exemplified by Moody's seasoned Baa-rated corporate bond yield, currently at a rather forbidding 8.10%.

BAA Corporate Bond Yield

And if the spread between corporates and treasuries remains as atrociously high as it is now (see chart below)...

... pretty much, this is the way things are going to go: the Treasury will borrow at near zero rates (assuming it can) to recycle the money into tax cuts, social benefits and make-work (a.k.a. Keynes-work). Revenge of the socialist nerds, big time.

What's next, the Five Year Plan?

15 comments:

Jesse said...

It's a nice profit generating setup for the banks once they get their spines together and lend again.

Edwardo said...

If I were evil minded, I'd say the goal is to cause continued severe economic weakness with an attendant markdown in assets and businesses for the purposes of allowing the banks (well those who are actually still alive) to swoop in and buy the aforesaid assets and businesses for pennies on the dollar.

You see we have two choices here, either policy makers who protest that "they are here to help", but are exacerbating, via their actions, economic collapse, don't know what they are doing, OR they do know what they are doing. Have I missed something?

dougiefreshhh said...

I agree with Edwardo.

Business's will suffer...
The banks (with a lot of govt $/control in them) will come in and buy up businesses...

This with combo of tax cust, social programs,...is just setting us up for all out socialism. Vive' la USA!

Cottonbloggin said...

Speaking of a distraction in RED, here's one for ya:

The first lines of the US Constitution read: "We, the people, to form a union, to establish peace, equity, and order..."

According to some historians those words were appropriated from, "The Great Law of Peace." which was the oral constitution creating the Iroquois Confederacy.

The Iroquois had a representative democracy from 1150, until the white man brought his whiskey. Women had real power and even had the penultimate veto over all decisions.

Conquered nations were assimilated and given full citizenship.

So far, better than the Greek system! It gets more interesting when you look at their economy--

everything was communally owned (including tools and land), there was division of labor by gender and talent, and it relied on a GIFT based trade economy.

I smell socialism!!

Except it worked, and seems to have because they valued the individual's USEFULNESS to society above all else. And since usefulness / responsibility was the highest value, it gave them the motivation to WORK well communally (the carrot was in their head, and the stick was all around them), and develop as an individual.

Value systems guys, value systems... change that and you'll change everything!

last thing--

Jefferson is a well known proponent of an "agrarian Democracy" is this what he meant?

And either way, I thought Thai would be interested since it seems to be one example of a real life solution to his dreaded Tragedy of the Commons.

That and I kinda felt like stirring up all those who think Hell's idea of "sustainability" is a downward spiral to socialism and destruction.

Besides if all else fails, it might be fun to dress the old lady up in a buckskin skirt and play indians for a little while!

might be fun anyway?

(google economy of the iroquois for more info, I don't know how to add links)

aprilzi said...

is there a relation that the low yield of treasuries are driving the yield on corporate bonds higher?

Anonymous said...

Be carefull on EXB
DBMSII
Focus Cash to Market.

New bull market is still in its infancy and may yet face a significant shakeout to make its final bottom. The winter of the K-wave is upon us.
Professor Nickolai Kondratieff
( pronounced "Kon-DRA-tee-eff") Shortly after the Russian Revolution of 1917, he helped develop the first Soviet Five-Year Plan. Today, we are faced with another Kondratieff Winter (depression) when the majority of the world anticipates economic expansion. Each individual needs to weigh the risk of depression in light of Kondratieff's work. As for Washington 5 year plan. I will leave that blank as the reality they obsure to today's avarice...

I bring this up since the Nasty Bear is after gas lines. Georgia was one and we know who was the other as we warned on TNR. Good hunting since they already are moving the fulcrum.

Anonymous said...

Jan 6 (Reuters) - Canadian energy company TransCanada
Pipelines Ltd. (TRP.TO) on Tuesday sold $2 billion in two
parts, according to IFR, a Thomson Reuters publication. Citigroup and HSBC were the joint bookrunning managers for
the sale.
BORROWER: TRANSCANADA PIPELINES LTD
AMT $750 MLN COUPON 7.125 PCT MATURITY 1/15/2019
TYPE SR UNSEC NTS ISS PRICE 99.977 FIRST PAY 7/15/2009
MOODY'S A3 YIELD 7.128 PCT SETTLEMENT 1/9/2009
S&P A-MINUS SPREAD 460 BPS/ PAY FREQ SEMI-ANNUAL
FITCH N/A MORE THAN TREAS MAKE-WHOLE CALL 50 BPS
AMT $1.25 BLN COUPON 7.625 PCT MATURITY 1/15/2039
TYPE SR UNSEC NTS ISS PRICE 99.148 FIRST PAY 7/15/2009
MOODY'S A3 YIELD 7.698 PCT SETTLEMENT 1/9/2009
S&P A-MINUS SPREAD 460 BPS/ PAY FREQ SEMI-ANNUAL
FITCH N/A MORE THAN TREAS MAKE-WHOLE CALL 50 BPS

You cannot join the party just pay your taxes and be good little serf's United States Socialist Reprobats. Lend are kidding...

debt relief said...

It's hard to argue with facts when it is staring us right in the face. Thanks for the work you put into this post.

Marcus said...

Maybe not revenge of the nerds but I'll take a bit of Danish socialism any day over this horror show plutocracy created by the Reagan/Bush ideologues.

Marcus said...

Maybe not revenge of the nerds but I'll take a bit of Danish socialism any day over this horror show created by the Reagan/Bush ideologues.

Thai said...

Cottonbloggin, you make a good point and you might get Greenie going ;-)

Marcus, if you really did, I would think you would see things like I do. Our earlier 'disagreement' made me realize that even I have not been 'fractal or 3d' enough when it comes to thinking about Scandinavia.

The wealth of the Scandinavian countries obviously not only come from the fact they all look out for each other in their socialist collective (which they clearly do and is 1/2 their success), their wealth also clearly comes from the collective's enforcement of very strict norms. Lifestyle behaviors which are very expensive are simply not tolerated. And if they don't spend money on things like preventing violent crime, etc... then can spend it on primary schools, etc...

Check out for yourself whether there are national differences in things like the incidence of Down' syndrome birth rates (I wonder why?) or crime (I wonder why?) or health care rationing (I wonder why?). I did and while I won't bore you with the details, my paper and pen calculations say the numbers all add up.

It is not just how you spend your money that counts. It is also how you don't spend your money that matters just as much.

Anonymous said...

Very thoughtful post.

J said...

I have been thining about this dissonance between interest rates, and my conclusion is that is something temporary. The banks are not working as they should. Maybe a new way of distributing money will have to be created.

Thai said...

I thought they already came up with it. Didn't they call it the helicopter?

Anonymous said...

Interesting article at
www.eurointelligence.com/article.581+M5f964ea3344.0.html

'Elimination of CDS as the necessary prerequisite for recovery' by by S.Boyarchenko and S.Levendorskii.

On why buying up of CDSs won't work, what to learn from Russia and the importance of 'stubborn Cassandra's' (Hell?).

Betty