Thursday, October 22, 2009

Last Week...This Week...Next Week

Last week, FED sold the following treasuries:
4-week, 3-month, and 6-month T-bills at yield 0.05%, 0.07%, and 0.15% respectively. Total amount is 80billion USD.

This week, FED sold the following treasuries:
4-week, 3-month, 6-month and 52-week T-bills at yield 0.045%, 0.08%, 0.17% and 0.375% respectively. Total amount is 111billion USD.

Next week, FED will sell the following treasuries:4-week, 3-month, 6-month, 2-year, 5-year, 7-year, and 5-year TIPS. Total amount to be expected for sure will exceed recent 2 weeks.

Meanwhile, in secondary market, despite the weakening USD, the yield rate still keeps low amidst fluctuation. Apparently FED will still maintain the expectations on QE after realized drops last few times due to tightened QE.

Such cheap USD can continue to flood the market and distablize any assets at the areas with relative safety, relative "expectedly strong" currency, relative ample and stable supplies of raw materials, and relative "big spender" governments.

At the same time, the over-capacity of the production facilities (in general) on mines, energy, and consumer goods will discourage investment in these areas. These areas belong to longer term and can tide up money for a longer while. Yet they are gone.

Remaining will be any fast-return assets. Anything that can generate quick cash can be hot.

On the other hand, out of a distrust on USD, anything that can preserve value (purchasing power) will be good hedges.

The interesting part is it will form a vicious cycle: the asset over-pricing will drive other governments to rise their interest rates one by one, and yet they still need to support USD; otherwise, the influx of new "money" will be weakened, stopped, and even reversed, and disastrious to their own local asset markets.

Unemployment and/or under-employment can be a brake to such phenomena, that when US government really needs to spend HUGE sum of money to open jobs and/or expands social welfare and enlarges the already thrilling deficit and debt. Even if the other governments continue to purchase UST, institutional investors and other investors will think twice. In a sense, the increasing preference on gold price is another indicator of such trend.

So, gold price and unemployment rate will form a pair to brake FED of money creation. And the interesting part is: once bubble bursts, and FED does take part in maintaining USD, then gold may not be really such a good hedge perhaps.

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