30 year Bond Results - Beware

30y Bond Results: Beware

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The auction results make absolutely no sense under "conventional wisdom."

Median yield down, primary dealers took about half and indirect bidders took the other half, basically.

What? 50% take for foreign central banks on 30y debt at a 4.6ish coupon?

That makes no sense given what we're being told is coming: massive inflation, maybe even hyperinflation, commodities ramping to the moon, the stock market going to the moon in a hyper-inflationary printing explosion.

The stock market rocketed on the release. I couldn't make sense out of the initial FX moves, especially in the DX and Yen. Someone was front-running in the financials bigtime as well, with a big ramp for an hour or so prior to the results.

Folks, if you think hyperinflation is coming, or even serious inflation, you're going to get your head cut off on a 4.6% 30y bond. In fact you could easily lose half or more of your investment, should you need to sell, and your coupon will be half or less of what it should be.

So how does this make any sense?

There is only one reason for the FCBs to want this sort of exposure:

They expect a ramp in the dollar and crushing DEFLATION, as this is the only way that bet will pay off.

If you're on the other side of this trade in any way, I hope you are putting on some sort of hedge.

Remember, foreign central banks can FORCE a pull in liquidity and make their desires a self-fulfilling prophecy.

Care to bet against someone who can make their bet pay off?

That's what I thought.....

Oh guess what - the primary dealers would like this outcome too......

PS: If this analysis is correct then we're in for some really NASTY trouble, quite soon. If you're short Ts, short dollars or long equities, your neck is in the guillotine. Better move before the blade falls!

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You stop the printing the DX goes up, bonds go up in price (down in yield) debt is forced to default and unwind and both equities and commods get smashed to dust.

They MAY be about to execute on the correct thing to do that will clear the system - recognition may have finally occurred that the path they were on can't possibly work.

If so, those who are on the wrong side of this are going to get destroyed, as these folks CAN make it happen.
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Other people HAVE to be seeing the same **** we are -- why is the reaction still so positive? Are we missing something? How much dumb money can there be in the bond market?
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Its not dumb money in the bond market.

If you believe there will be massive deflation you buy the **** out of the long end of the curve.

Something CHANGED this morning Asi. You don't buy long bonds if you think printing is going to take place (or continue to take place); that's suicidal as the value change is "coupon change x duration" - you can literally lose half in a few months. Levered, you're dead in a day.

The PDs are long Ts up to their necks. If the selloff continues they will ALL blow up. Every one of them. It ain't gonna happen.

The only thesis that makes the buying logical is the belief that the values will INCREASE. That means the DX must rise and/or coupon must come down, and both require that the hyperinflationary thesis be WRONG.
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What about the thesis that the bond market buyers (however misguidedly) believe that we are in for a gradual, non-hyperinflationary, non-deflationary recovery?

Wouldn't that support 30yr bond successful auction @ 4.6%? *************
Fnord, no. Such a recovery requires modest dollar devaluation which would skull**** the buyers.

Ain't happening. These guys just placed a big fat-ass deflation bet and they are the ones who can make it happen.

Bet against that if you want, but the tape tells me what they intend, and they're the ones in front of the buttons.
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How does this happen overnight, after such poor results on the 10 year auction? Did all the PDs have a worldwide conference call with the foreign central banks, and they all decided on a course of action? How else could everybody conclude overnight that treasuries are now a good buy, 24 hours after concluding they weren't? ************************
Mondo, I think the FCBs have been watching QE and have seen it doesn't work.

The decision was made.

Look, come up with a different explanation that makes sense, ok? I'm all ears - but I can't come up with one.

There is no possible reason for China or Japan to eat half of the value of those bonds, which is exactly what they will do if we get any meaningful amount of inflation over the next 5-10 years.

The floor is about to disappear folks. **************************
"There is only one reason for the FCBs to want this sort of exposure:"

"Look, come up with a different explanation that makes sense, ok? I'm all ears - but I can't come up with one."


OK I'll bite: the simplest explanation of all, which is collusion. CB's know that the whole shebang is on the table and will do whatever is required, including coordination of activities. I have stated more times than I can remember, we are experiencing the greatest coordinated global reinflation effort of all time, and no effort will be spared. The CB's may represent "competitor" nations, but at their core are all statist institutions and who all have an overriding stake in seeing the existing international system continue intact. If America blows up, the world turns to chaos, and it is easy for them to imagine themselves doing all of this for our benefit, with the added benefit that they get to stay on top of the pile.

FOREX exchange rates are meaningless when all currencies are being debased simultaneously. USDX = meaningless. The fact that foreign CB's bought half of the offer merely indicates that they are team players, and the teams are "Banksters and governments" and "taxpayers and debt slaves". It all makes perfect sense. Ben will print some more and do some more currency swaps; ho hum.
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Stock, it is simply about why a FCB would buy 50% of a long issue if we are going to continue to print and debase the currency.
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Raingod: CNBC reported that it was the government buying through a back door that gave the good results -- A one time "rebalancing of the index" or some bull**** like that.

If that's the case -- it's actually considerably worse than a failed auction, because the gov UNSUCCESSFULLY tried to cover up a failed auction. If it's true, when word circulates about it.... Well. I guess the word horrific might sum it up nicely.
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Does anyone know if Barclays got any AIG bailout money?

From Reuters - $8.5 billion. I was also thinking that this might have been a favor called in by Ben.

Who knows what kind of under-the-table deals and maniplations have been going on these last few weeks with the bond markets?

Maybe Obama and company finally got a strong message behind closed-doors from the bond traders. Remember what Bill Clinton said, "my re-election hinges on the Federal Reserve and a bunch of ****ing bond traders?"

Net US household worth is off $14 trillion from the 2007 peak, and continues to drop like a rock. That sounds like deflation to me.
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Median home prices drop below 1989 levels in some parts of Southland

Properties in several areas are selling for less than they did 20 years ago, and that's not including inflation. Some first-time buyers are nabbing houses for less than what their parents paid.

By Peter Y. Hong

June 10, 2009

In parts of Southern California, the housing crash has upended a basic tenet of the American dream: that home values always increase over the long term.

Properties in several areas are selling for less than they did 20 years ago, and that's not even counting the effects of inflation.

The reversal is a bonanza for some first-time buyers. They're nabbing houses for less than what their parents paid in the late 1980s, jumping into a real estate market that has become a kind of economic time machine.

To return to the past, take a stroll down Mulberry Avenue in Lancaster. John A. Beatrice, 55, bought his spacious two-story Spanish-style house there brand-new for $120,000 in 1989. It was a price he could comfortably afford, and he planned on staying through retirement, so he wasn't worried about price swings.

"I always knew real estate goes like this," said the aerospace engineer, moving his hand in an undulating motion like bell curves on a graph.

But he never imagined his neighborhood would drop off the charts. In April, a slightly larger home two doors away sold for $66,500. That's just over half the $130,000 it went for new in 1992. In 2005, that house sold for $330,000.

Beatrice's 29-year-old daughter is now shopping for Lancaster houses priced lower than when she was a kid.

Home prices across most of Southern California have not fallen nearly as far. The median price in the six-county area was $247,000 in April, about what it was in 2002.

But in 14 Southland ZIP Codes, mainly desert communities in the Antelope Valley and Inland Empire, median prices have fallen below levels recorded in April 1989, according to MDA DataQuick, a San Diego real estate information service.

That means thousands of homes in those neighborhoods -- even houses barely 20 years old and in decent shape -- have lost every dime of their appreciation, giving back not just the gains of the recent bubble but steady increases logged over a generation.

The April median price in Beatrice's Lancaster ZIP Code of 93535, for example, was $87,000. That's down 74% from a $334,500 peak price in 2007. Even worse was the 92410 ZIP Code in the city of San Bernardino, which covers several older neighborhoods. Its $61,000 April median represents an 84% drop from the peak of $370,000 in 2007.

Prices also tumbled below 1989 levels in neighborhoods in Palmdale, Hemet, Barstow, Desert Hot Springs, Victorville, Highland, Santa Ana and Oxnard, according to DataQuick. Several other inland communities, including parts of Moreno Valley, Banning and Rialto, had median prices that were only slightly above 1989 levels and below the April 1990 median.

The median price is the point at which half the homes sell for more and half for less.

Losing two decades' worth of gains in a single downturn "has never happened," said UCLA economist Edward Leamer, who has studied local areas during booms and busts. "You're seeing something that's abnormal."

What's abnormal this time, Leamer and other analysts said, is the easy credit that pumped up demand and inflated home prices in those communities to unprecedented highs.

Armed with risky subprime mortgages and fearful of being priced out of the market forever, buyers flocked to the outer reaches of the Antelope Valley and Victor Valley. Those distant suburbs became the only option when areas closer to job centers soared out of reach, said John Husing, an economist who specializes in the Inland Empire.

"The families who were buying out there were the ones who couldn't get in anywhere else," Husing said. "They were paying stupid prices."

They were among the first to default when the economy crumbled, bringing real estate prices crashing down. Demand for those far-flung houses vanished when prices dropped for homes closer to workplaces. Riverside and San Bernardino counties have registered more defaults and foreclosures per capita during this downturn than other Southern California counties, according to ForeclosureRadar, an online seller of default data.

These foreclosures, sold at cut-rate prices by banks eager to be rid of them, represent the bulk of the sales activity in some communities.

In the 1990s housing bust, "you had a foreclosure here, a foreclosure there. You did not have almost entire neighborhoods being foreclosed," UCLA's Leamer said.

The fire sales have stoked demand. In April, 237 homes sold in Beatrice's ZIP Code, more than in any other area in Southern California. Most of those properties were foreclosed.

Stable homeowners such as Patricia Hynes have watched their hard-won equity rise and fall, leaving them roughly where they started a generation ago.

Hynes bought her three-bedroom home in Lancaster brand-new for $119,000 in 1989, when Milli Vanilli was riding high on the charts. The poplar, willow and ash saplings she planted in front now tower over the lawn, shading her home from the desert sun.

"It's my little oasis," said Hynes, a 62-year-old public health nurse.

Her home is an island in a sea of repos. Houses on both sides have fallen into foreclosure; one is priced $10,000 less than the amount she paid 20 years ago.

Nearby, a four-bedroom, 2,100-square-foot home sold in May for $89,000. That's less than the construction costs of $100 to $125 a square foot, according to Patrick S. Duffy, principal of Metrointelligence Real Estate Advisors in Los Angeles.

The retro prices are attracting a new wave of speculators. In April, investors bought nearly 1 in 5 homes purchased in Southern California, according to DataQuick. That figure is around 30% in some inland communities.

Mohammed Hafeez, 52, a Culver City electrician, has bought four houses in Lancaster since January.

Hafeez said he paid $49,000 for the least expensive house and $70,000 for the priciest of his investments. He's now renting them for $1,000 to $1,300 a month, and all four houses are occupied and generating positive cash flow, he said.

Still, he's holding off on more purchases. Rents are falling along with home prices as investors like him snap up foreclosures and turn them into rentals.

"I don't know how much or how far down it will go," he said.

He has reason to worry. Another tsunami of foreclosures is threatening to swamp an already saturated market. In Palmdale and Lancaster, 903 homes were sold in April, but according to ForeclosureRadar, more than 7,500 are in some stage of foreclosure.

Some buyers who thought they were getting bargains didn't. In Lancaster, Beatrice's eldest son, Daniel, bought a house near his father's for $175,000 in April 2008; comparable properties are now selling for about $95,000.

To home buyer Al Rossi, timing isn't everything. The 59-year-old bought his first house in February in Lancaster for $140,000. An administrator at the Los Angeles Mission downtown, he wanted a roomy place where he could live with his son-in-law and two grandsons. His mortgage payment on the four-bedroom house is $1,050, just slightly above the $900 a month he was paying for a one-bedroom apartment in Norwalk.

The house was in good shape when Rossi bought it, though the lawn had died. The family will be planting new greenery soon. They've just installed a new hot tub and bought a gas barbecue grill as well.

If neighborhood property values fall further, so be it, Rossi figured. The improvement in his quality of life is gain enough.

"I did not buy a slot machine," he said. "I am not an investor.

"That's what got us into this mess -- greed," he said of the housing crash.

"Greed messed everything up."