The near disaster of the recent attempt to sell $16 billion of 30 Year Treasuries was a wake-up call; yields popped from 4.54% to 4.70% within twenty four-hours of the news coming in. So was that the sign for the start of the death rattle of the latest of a long line of comic-tragedy experiments with fiat currency?
Plenty of people think so. I thought so last September, then in November and December all the banks all started to say yields on the 30 are going to go to sky-rocket to as much as 7% by the end of 2010. Now, the cherry on the cake, Nassim Taleb of Black Swan fame recently broke with his rule, “I never make predictions”, and joined the herd, and declared that shorting America is the next great play.
It’s pretty obvious really. The American government is committed to selling a lot more debt, so supply is going up; the buyers (particularly foreigners) are saying:
“We don’t want to pay the price you are selling at, and also we have this sneaky feeling you are going to fall off your bike soon”.
Supply and demand – that’s Adam Smith or someone isn’t it? Even a simple-minded cattle herder knows that one; turn up to the market with your cow and the place is swimming with cows, you get that sinking feeling that something has to give.
Every fiat currency is like a drunk on a bicycle, it needs momentum to keep going, and it wobbles, and every one will have its day of reckoning, at least that’s what happened in the past.
But be careful placing a bet on when it’s going to fall off. In case you didn’t notice there has been a game-changer recently, all the cards got thrown in the air, and it’s hard to figure out where they will land.
For most of my life, the way to make money was to borrow. If you had a business or a roject, that’s how you turned 12% IRR into 20%, and if there was inflation, so much the better, and the more you could borrow the more you could make.
I have fond memories sitting up all night in front of the Excel sheet polishing the drivers on the model for some fifteen year…
