re: Money people - what is your view of the economy?

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There will soon come a time when the US treasury will have to rely on domestic investors to buy up bonds. It is absolutely maniacal to see bond yields and the s&P where they are right now.

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Which is likely a driver of foreigners selling fully appreciated T's and reinvesting the money in somewhat riskier less fully priced assets with higher expected returns. I look at multiple 6-figures in individual TIPS in my portfolio and contemplate the same thing every week. It could take 10-years to earn the aggregate 12-month return they currently are at based on coupons/CPI-U adjustments. Then I would have to deal with reinvestment risk as that money is not going into equities or other overvalued bonds. It's not unusual behavior, nor is it "ahhhhh, the US is blowing up and can't sell debt to anyone" WTF scenario.

I have read numerous times that emerging market inhabitants/investors with increasing income gains/excess savings over the past few years have, and continue to buy, gold as they are limited by law to really limited bad investment options in their respective countries, which has been a significant driver of gold buying the past few years. I don't envision hedge funds buying significant amounts of gold currently, they would have been in that trade 2-3 years ago, and most individual investors are concerned by the run up of gold and its past history. YMMV.

Brah you can't argue with an internal corporate investment banker on items like this.

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Brah you can't argue with an internal corporate investment banker on items like this.

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Can you link to the spawn of this awesome burn? I want to read it.

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by ich1baN (Posted on 2/24/12 at 7:04 a.m. to TheHiddenFlask)
I am an investment banker that makes more money in 1 year than you make in 10 years

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I'd guess the fact THF is probably a student makes ich1baN's boast a likely truth.

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I'd guess the fact THF is probably a student makes ich1baN's boast a likely truth.

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I was a student... I haven't updated my profile in a while. I probably don't make more money in 1 year than he does in 10; I was just frustrated when I wrote that b/c of all the neg commments and flank I was taking for my contrarian investment philosohpy.

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I have read numerous times that emerging market inhabitants/investors with increasing income gains/excess savings over the past few years have, and continue to buy, gold as they are limited by law to really limited bad investment options in their respective countries

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That could be true to a degree but the bulwork of gold bullion demand has come from central banks 2011 and onwards. India and China account for a big share of demand as well and China is expected to overtake India in the demand portion of Gold bullion.

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I don't envision hedge funds buying significant amounts of gold currently, they would have been in that trade 2-3 years ago

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There is a lot of money from hedge funds in gold bullion. Look at Soros's private investment firm, look at Paulson's hedge fund, or how about the best hedge fund to ever exist....Elliot Investment Group?

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and most individual investors are concerned by the run up of gold and its past history.

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This again depends on where you are speaking of. The orient countries are really piling high in demand from individuals...the wedding season is starting to go into high gear in India which will see spikes of 50-60$ to the spot price of gold demand in the next few months. Here in the states there are about 1-2 million silver eagles and record numbers of gold buffalo's and eagles being sold per month. The mint sold 45.2 million troy ounces of gold and silver coins in FY11'. That is approximately 1500 tons, a record amount even with record nominal prices. US MINT LINK

A silver one ounce coin bought about 5 gallons of gas 3 years ago. That same piece of silver buys about 10 gallons today.

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There is a lot of money from hedge funds in gold bullion.

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That was bought during the run up, not now.

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It's my impression the Fed is the largest holder of US Treasuries. Don't the New York Fed's holdings exceed China and Japan's combined?

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No. Your thinking of intragovernmental holdings which amount to about 5.7$ trillion probably more about $6.5 trillion now. Intragovernmental holdings do comprise what the Federal Reserve banks hold in aggregate which is around the order of $1.6 trillion. The rest of that number consists of the medicare/social security trust fund. The amount the fed owns is more than China's $1 trillion. However, you can't keep foreign countries like Japan, Russia, and China separate. If you combine all foreign interest in US debt it would amount to over $4 trillion, dwarfing what the Federal Reserve owns. If china, japan, Taiwan, and Russia decide to exit the dollar (even china alone).... this will shoot interest rates up if the fed or American/Western investors don't buy the securities causing a huge loss of confidence in the dollar and forcing investors to flee to more traditional safe havens such as precious metals, CHFs, CADs, and AUDs.

Edit Post: And even if American/western's buy the sell-off, this will prove that the world believes we will not turn around in a timely manner and interest rates will still have to shoot up eventually when inflation becomes too much of a worry to central bankers.

Bottom line: Get out of treasuries while you can b/c when Banko de Chino et al decide to get out, it will be too late and you will be forced to sell for a fraction of what you put in.

Quote from Azizonmics:

Trouble is, stocks (and all paper assets) are subject to counter-party risk, whereas physical gold isn’t. Gold doesn’t overcompensate its CEOs, it doesn’t leverage its productive capital in toxic derivatives, it doesn’t cause industrial disasters like Deepwater Horizon, its value isn’t dependent on central banking, or securitisation, or American imperialism, or the machinations of the military-industrial complex. It just sits, retaining its purchasing power.

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No. Your thinking of intragovernmental holdings

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That's a different issue.


Federal Reserve Banks hold $1.654 Trillion in T-Bills, notes and bonds. LINK

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Looks like you didn't read beyond sentence 1 in my response....

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Actually I did.

Perhaps your post was confusing in that you said:
"Intragovernmental holdings do comprise what the Federal Reserve banks hold in aggregate which is around the order of $1.6 trillion."

Were you referring to Treasuries? If so, you realize that number far exceeds Chinese holdings?