tag:blogger.com,1999:blog-7905515.post326301719223343295..comments2024-03-14T11:09:32.759-05:00Comments on Falkenblog: Where the Risk Premium Thinking Leads YouEric Falkensteinhttp://www.blogger.com/profile/07243687157322033496noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-7905515.post-14504680403595847982010-10-31T19:13:46.727-05:002010-10-31T19:13:46.727-05:00T-bonds are liquid. Default risk is zero. There is...T-bonds are liquid. Default risk is zero. There is no proprietary information that enters into the pricing of these assets. They are essentially money bearing a return premium over T-bills to cover interest rate risk.<br /><br />It is not surprising for T-bonds to carry a negative real interest rate when T-bills have a negative real interest rate. The markets understand as well as anyone what the fed has done, will do and might do - maybe better than the fed itself.<br /><br />So we see the prospect of QE2 of unknown duration and unknown magnitude translate immediately into lower prices for T-bonds.Charleshttps://www.blogger.com/profile/00607057013050715435noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-47961391605995471262010-10-30T23:30:33.272-05:002010-10-30T23:30:33.272-05:00There is another factor: The Fed is also playing t...There is another factor: The Fed is also playing the foreign holders of treasuries.Jhttps://www.blogger.com/profile/05676167615981895061noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-30948023196534585912010-10-30T18:17:23.059-05:002010-10-30T18:17:23.059-05:00Are we supposed to believe that gold investors are...Are we supposed to believe that gold investors are more rational than bond investors? Consider that the former is a much smaller group. It takes a lot less dumb money to create a bubble in gold than a bubble in bonds.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-2226935946822432402010-10-29T14:37:44.077-05:002010-10-29T14:37:44.077-05:00More buyers of a object, in this case, treasuries,...More buyers of a object, in this case, treasuries, will cause the price of that object to rise. Higher prices of treasuries = lower yields. This outsized buying (not to mention the associated frontrunning/spec trading) is overwhelming any sort of inflationary expectations. That is the point that i read.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-7905515.post-34367170579854782982010-10-29T10:33:32.793-05:002010-10-29T10:33:32.793-05:00I think inflation expectations are actually about ...I think inflation expectations are actually about 1.7% (I wish I knew where to find a good TIPS inflation graph). Also no offense, but you macro writing is your weak spot. "Considering, they have an infinite supply of capital to do this (they create the money when they write the check), the market is not going to offset this via expectations of future inflation." is complete nonsense; are you really suggesting that changes in the money supply plays no role in determining inflation? Your macro thinking is bad because you don't take money seriously as a good that people hold for a reason.jsalvatihttps://www.blogger.com/profile/16509764680257537430noreply@blogger.comtag:blogger.com,1999:blog-7905515.post-9542176689943866432010-10-29T08:17:31.256-05:002010-10-29T08:17:31.256-05:00Wasn't gold really high in the 1980s just befo...Wasn't gold really high in the 1980s just before infltion came down? <br />Why would we think that Gold is a predictor of inflation ... rather than just an indicator of perceived system stress?Anonymousnoreply@blogger.com