In a recent post about “bubbly” Treasuries, we got some comments that deserve attention.

First, this is briefly what we said;

“Treasuries have reached bubbly levels, both in terms of low yield and the rate of change of price.

Interest rates will rise when the economy recovers, or when bond buyers demand more long-term interest to absorb trillions of new issues to fund recovery programs. Rising interest rates mean Treasury prices will fall.

… For investors who invest only “long”, closing long positions in long-dated Treasuries, or being alert to a trend reversal necessitating the closing of those positions is recommended.

… For investors who also invest “short”, being alert to a trend reversal creating a shorting opportunity is recommended. The current trend is strongly upward, but could reverse dramatically …”

Some commenters agreed and some did not.

A supportive comment was;

“The safe haven play into Treasuries is demonstrating a true example of a parabolic

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US Treasuries are in a bubble, making them ripe for shorting. But that trade is too obvious, says Justice Litle. And the situation is more complex now that the Fed is getting involved. Bernanke & Co could support T-Bills in the medium term, but that will only increase the odds of an epic decline after.

This from Taipan Daily:

U.S. Treasuries look so lousy here that shorting them has become the “obvious” trade. But there is more to this mystery than meets the eye, as Justice explores…

Jim Grant nailed it in a recent Financial Times piece. Known for their “risk-free return” in more normal times, Grant observes that U.S. Treasuries (or USTs for short) now offer “return-free risk.”

Treasury buyers, in other words, choose to lend to Uncle Sam for free these days… or, worse still, to pay for the privilege. As 2008 draws to a close, USTs are an

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PKey Reports (WSJ):brNo economic events are scheduled for today./P PQuotable brO farewell,brFarewell the neighing steed, and the shrill trump,brThe spirit-stirring drum, th' ear-piercing fife;brThe royal banner, and all quality,brPride, pomp, and circumstance of glorious war!brAnd O you mortal engines, whose rude throatsbrTh' immortal Jove's dread clamors counterfeit,brFarewell! Othello's occupation's gone./P PShakespeare, Othello Act 3, scene 3, 350–357/P PFX Trading – Underestimating the power of deflation is dangerous!brSometimes we are a bit absurd in this morning missive in an attempt to make a point.nbsp; Looking back at a recent issue, from the 2nd of December, titled “Can you say 1% Treasury Bond Yield?” we noticed the 30-year bond futures price has risen a bit since then; yields have fallen.nbsp; Yes, yields have plunged faster than expected—by us, and I imagine by many others. /P PIf you pay some attention to this stuff, barely a day goes by now when you aren’t being told by someone ...

Forget talk of a slump in gold, says Justice Litle. The precious metal is still on a long-term uptrend that started in 2001. And the “reflate at all costs” strategy of the Fed will eventually send gold soaring again as the world wakes up awash with dollars that it doesn’t want.

This from Taipan Daily:

Take a look at this long-term gold futures chart.

Stepping out to a longer-term chart is a bit like seeing the world from a higher altitude. As you head further out, the drama begins to recede. (From a far enough distance, the world is little more than a pale blue dot – as Carl Sagan liked to point out.)

So, too, with gold. There has been a lot of yellow metal angst in light of the recent credit implosion. But if we look back to

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Key News• The rate at which banks lend dollars to each other fell on Monday as dealers reported U.S. banks starting to lend rather than simply hoard cash, a sign central banks are gaining traction in their quest to unclog frozen money markets. (Reuters) US Economic Events (WSJ):10:00a.m. Sep Conference Board Leading Indicators: Previous: -0.5%.

Quotable “Paper money is faith-based, says Grant’s.  Then how much more so is credit, which is the promise to pay paper money?”

Jim Grant

FX Trading – Can you say Asian Financial Crisis Redo?

Interesting!  It seems the chances for another Asian-style financial crisis lingers and is rising (we are already seeing it in S. Korea; chart below).  This is surprising since it appeared the entire region was well position to whether a downturn in the major economies—at least the view before the downturn morphed into an all out assault on all the ties that seem

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As I am travelling in Europe at the moment (see “Another town, another train…”), this week’s edition of “Words from the Wise” does not provide the customary review of the financial markets’ movements and economic statistics. Given time constraints, today I will only share with you a number of video clips in lieu of excerpts from news items and quotes from market commentators. Quite a few of the video items include links to related articles for those who prefer the written word.

Firstly, as we are awaiting word on the bail-out plan, a very topical quote from Jim Welsh (Welsh Money Management): “We will be told that the Federal Reserve and

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A little history: The way our financial system is and has to be …

Jim Grant said a few months back in one of his Interest Rate Observer bi-weekly missives: “Humans are simply incapable of handling credit,” or something close to that.  We have seen the deleterious impact of easy money before.  And no matter the regulatory environment conjured up to keep it from happening again—it will. 

In perusing an excellent book titled, The Panic of 1907, penned by Robert Bruner and Sean Carr, I ran across this mini-postmortem on why it happened:

“The recounting of events of 1907 suggests that the storm gathers as follows.  It begins with a highly complex financial system, whose very complexity makes it difficult for anyone to know what might be going wrong; by definition, the multiple parts of the financial system are linked, which means that trouble in one institution, city, or region can

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