Is it too obvious?
Are you figuring U.S. Treasuries are set for a fall? Seems so obvious, doesn’t it? Maybe too obvious, I wonder.
Bill Bonner cited a litany of Treasury-bashers in yesterday’s DR:
“US Treasuries are my least favorite asset,” says Mohamed El-Erian with Pimco. “My least favorite asset is US Treasury bills…and I don’t like the dollar either,” say Tim Bond of Barclay’s Capital. “Outside of a Treasury bond,” adds the aforementioned Jim Paulsen, “it is a remarkably good time to buy risk assets.”
A couple of those quotations appeared over the weekend in the cover story of Barron’s. Sure enough on Monday, the volume chart for TBT, a double-inverse Treasury ETF, spiked to an all-time high. Cramer couldn’t have done a better job.
It all sounds too simple, and I say that knowing full well that people far, far wiser than I — like Marc Faber — believe the play of the year will be to short Treasuries “really massively.”
I’ve searched high and low for an opposing point of view. There aren’t many. I wrote last week about Niall Ferguson’s mother of all soft landings scenario, in which the dollar retains its second-half-of-2008 buoyancy and foreign demand for U.S. Treasuries remains robust, no matter how many of them are issued. No, it doesn’t make much sense to me either.
But here’s something that at least sounds plausible. Follow along with David Ashley’s mother of all short squeezes scenario:
As soon as enough people are selling the Treasuries short, the Fed will go into overdrive printing dollars and buying Treasuries. They’ll drive the price up higher, and higher, and higher. And then the short sellers will panic, and attempt to buy back the Treasuries they sold short…
The Fed will likely just keep buying and buying and buying US Treasuries, all the way through hyperinflation. And at some point they’ll have bankrupted all the short sellers (who will wish they’d stayed away and instead bought physical gold + silver). They’ll own all the US Treasuries, and the rest of the world will hold vast hoards of US dollars, which will be worthless. But all along the crooks will have been dumping their dollars to buy things of real value. Such as gold and silver!
When the dollar collapses, the US Treasuries will be meaningless. So will all bonds denominated in dollars. They’ll cease to be an indicator of wealth, and besides the Federal Reserve will probably hold them all anyway.
Maybe the Fed will demand the US Government pay them back for the Treasuries — it’ll just be a staged act, as the US Government is staffed by the Fed, Goldman Sachs, JP Morgan officials — all the same scum. But the Fed and the banking masters can use the fact that they hold all these US Government IOU’s to demand repayment. Instead of being repaid in worthless dollars, they’ll want to be repaid in stuff of real value. Gold, land, roads, national parks, timberland, resources, mining concessions.
Mr. Ashley is biased toward gold. For that matter, so is Bill Bonner. He said nothing yesterday about buying TBT or shorting Treasuries. He did say all this Treasury-bashing makes a rising gold price about the “surest bet” in a world where certainty is hard to come by. And if that’s not enough to convince you, maybe this will.