This is an interesting thread for an option forum. Made me remember my first investment. In 1981, I bought my first bond fund. At the time (I am sure all of the oldsters remember the inflation of the late seventies), interest rates were in the high teens. So, I poured my student loan money (what little was left after expenses) into this bond fund. Not only was the interest payout great, but the prices were rising--so I made profits on the high interest plus profits on the appreciation. Of course, now we have the opposite situation. This time around I would short bonds using one the ETF's. Then, once it peaked again, it would be time to buy back the short and go long again like before..a no-brainer. Unfortunately, the (m)asses with money are still pouring it into bond funds. So, monkey see, monkey do. Bet Gross would short bonds, if he can. He would even go for preferreds or other large cap dividend paying stock--if he could. Tough managing a bond fund, isn't it?
Yes, but how will the Fed keep long term rates low? By buying the massive new debt that has to be issued. About $1.5 trillion in new debt has to be issued to fund the deficit, and another $1.5 trillion is needed to roll over the short term debt that's maturing. Foreigners will buy less than half of that. Americans still don't save much. (Although whatever social security surplus there may be is used to buy treasuries.) So it looks to me that the Fed will have to buy about half the total debt issued, with money it creates out of thin air. Declining real estate prices, banks that are unwilling to make new loans, and high unemployment can keep a lid on the price consequences of this highly inflationary policy for a while, but for how long? To be sure Japan has been carrying out much the same policies for that past couple of decades, and they still have 0 inflation and stock and real estate prices that continue to grind lower. So I guess the answer is, it can go on longer than you think. But when it finally blows up, it'll blow up big.
http://dailyreckoning.com/mandatory...ason-to-be-concerned-about-your-ira-and-401k/ mandatory 401k bond purchases, government will force holders of 401k to own treasuries and we will magically solve our reliance on foreign money to finance our debt. turns our decline into that of japan- better than the end of the world.