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iShares 20+ Year Treasury Bond Message Board

merenkov 220 posts  |  Last Activity: 7 hours ago Member since: Jun 7, 2004
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  • Say, those building sales (along with the profits sweep) should help reduce the deficit even further. Thanks Fannie Mae shareholders!

    -Signed, The US Taxpayer

  • Reply to

    Honest opinions

    by gerby2323 11 hours ago

    The entire investment premise for FNMA appears to ride on the lawsuit against the government. If it was the slam-dunk that so many people here think it is, then FNMA would be trading much, much higher...but it's not. That tells me this is an ultra-speculative and risky play. There are a lot of smart attorneys advising hedge funds on this, and that money is slowly making for the exits, leaving retail investors holding the bag (as usual).

  • Reply to

    What if the FED raises Rates but.....

    by chip_stack21 Aug 28, 2014 4:18 PM
    merenkov merenkov 10 hours ago Flag

    Inflation peaked at around 13.5% in 1981, and Volcker raised the fed funds rate to as high as 20% that year. The yield on the 30Y peaked at around 15% in 1981, and commenced a multi-decade decline as investors slowly became convinced that Volcker had really broken the back of inflation.

  • merenkov merenkov 10 hours ago Flag

    It's funny to me that the loudest voices here defending capitalism and free markets are so passionate about their investment in a government-sponsored entity that relied for decades on an implied government backstop of its mortgage guarantees (which the financial crisis revealed to explicit). If you're such a capitalist freedom-lover, why don't you go invest in a company that lives or dies by its own innovation and productivity, not some failed socialist experiment like FNMA that depends on a government backstop for its entire business model.

  • Reply to

    What if the FED raises Rates but.....

    by chip_stack21 Aug 28, 2014 4:18 PM
    merenkov merenkov 10 hours ago Flag

    hyper, why do you post here so rarely? In the past year and a half, I've only run across a couple of posters on this message board who actually understand bonds, and you're one of them.

  • Reply to

    What if the FED raises Rates but.....

    by chip_stack21 Aug 28, 2014 4:18 PM
    merenkov merenkov 11 hours ago Flag

    The bond yield moves in the same direction as inflation about 70% of the time annually, and the correlation is even higher for longer periods of time. This relationship is one of the most stable in macroeconomics. Why do you think investors were demanding a 15% yield on the long bond in the early eighties?

  • merenkov merenkov 23 hours ago Flag

    I keep thinking about your question, hypster, because it's an area of contract law that most people aren't aware of. I'm a partner in a single-tenant office building in which a state agency is the sole tenant (I won't say which state). The tenant unilaterally terminated just a portion of their lease, informing us that they simply didn't need all their space. Even though we had a binding lease agreement , there was nothing we could do about it. If we tried to sue them, they would have just requested a summary judgment based on sovereign immunity and they would have won. We could have terminated the entire lease and evicted them, but this would have burnt some bridges (and it's a very large building that we would have had to re-lease). This is why it's risky to ever enter into a contract with the government or enter into a partnership with them. They basically hold all the cards.

  • merenkov merenkov Aug 28, 2014 8:14 PM Flag

    That's actually an interesting question. The government can normally hide behind its sovereign immunity protection whenever it's sued, which is why you rarely see the Feds pay out any actual damages in a lawsuit. I've seen lawsuits where one branch of government sues another branch for overstepping certain boundaries (which the Supreme Court usually has to settle), but in terms of winning actual money damages, it's a very rare thing...

  • Reply to

    What if the FED raises Rates but.....

    by chip_stack21 Aug 28, 2014 4:18 PM
    merenkov merenkov Aug 28, 2014 6:30 PM Flag

    Quite possible. From May of 2004 until February of 2006 the fed funds rate increased by 350 basis points. The yield on the 5Y increased by 80 bps over that time period, yet the 30Y yield fell by 84 bps as inflation expectations fell. The long bond is all about inflation expectations…

  • merenkov merenkov Aug 28, 2014 12:41 PM Flag

    Doesn't the term "government sponsored entity" give you a clue that perhaps FNMA is not quite like all the other companies in America? If you invest in a GSE, you are taking the government on as your partner, and you get what you deserve.

  • merenkov merenkov Aug 28, 2014 12:09 PM Flag

    I agree more bankers should have been jailed (over a 1000 went to jail during the S&L crisis), but Fannie and Freddie were complicit in the fraudulent schemes (the former heads of F&F should go to jail). The government is not going to sue itself over it, so we'll never get the full story. But in the meantime, the taxpayers should continue to receive any "profits" since they are taking on all of the risk by the implicit guarantee of Fannie and Freddie mortgage guarantees (which the financial crisis proved was really explicit).

  • merenkov merenkov Aug 28, 2014 11:31 AM Flag

    What do you mean "borrowed"? It wasn't a loan, it was a bailout. And the people who took the risk on this capital injection (US taxpayers) should receive an out-sized return, just like any other equity investor would demand under such dire circumstances as existed at the time of the investment.

  • merenkov merenkov Aug 28, 2014 11:18 AM Flag

    At the conclusion of QE1 and QE2, the yield on the 30Y declined over 100 basis points within a matter of months (how quickly people forget). Since this iteration of QE is being "tapered", the bond market has been front-running this phenomenon. The yield on the 30Y is now almost 90 basis points below where it was when the taper began in December.

  • merenkov merenkov Aug 28, 2014 11:02 AM Flag

    Let me qualify that last remark. There are ETFs that invest in Euro bonds (EU is the ticker for one), but none that I know of that specialize in the peripheral countries (Spain, Italy, Portugal, Greece), which are the ones that are most attractive for shorting. EU, for example, has large holdings of German, Belgian, French and Dutch debt.

  • merenkov merenkov Aug 28, 2014 10:55 AM Flag

    I agree, yesterday the Spanish 10Y was trading at a yield that was 23 basis points below the US 10Y, which is ridiculous and unsustainable. Spain is a basket case compared to the US. Interest rates are a barometer of economic activity and inflation expectations - two good reasons why Euro-zone rates are low - but there's still that element of repayment risk, which is definitely higher in the peripheral countries. I don't know of a Euro bond etf to short, and I don't think it exists unfortunately.

  • Reply to

    One Hundred Eighteen

    by markdstump Aug 26, 2014 11:59 AM
    merenkov merenkov Aug 28, 2014 10:51 AM Flag

    Well, you happened to pick one of my least favorite of his reports. Though well-argued, it was really just a polemic about the futility of the Fed's efforts. HIs 2013 Q3 and Q4 reports together summarize his overall thesis. If you happen to read those, keep in mind that every other analyst at this point in time was convinced that we were in a "rising interest rate environment".

  • Reply to

    One Hundred Eighteen

    by markdstump Aug 26, 2014 11:59 AM
    merenkov merenkov Aug 27, 2014 5:52 PM Flag

    I'm probably just projecting. I personally never had consistent success trying to time things short-term, only longer-term. Just curious, what did you think of Lacy Hunt's reports?

  • Reply to

    One Hundred Eighteen

    by markdstump Aug 26, 2014 11:59 AM
    merenkov merenkov Aug 27, 2014 4:33 PM Flag

    Before you place one more bearish bet on treasurys, you might want to visit the Hoisington Investment Management website. There you can find quarterly reports written by Lacy Hunt (only 4-5 pages each and they’re free). Lacy is a superb economist (former chief economist of the Dallas Fed) and a bond market historian. Late last year he was a lone voice in the wilderness predicting lower interest rates this year, and he makes a very compelling case as to why the yield on the 30Y is headed below 3% this year (and possibly as low as 2% in the next several years). His reports are like a grad-school refresher course in economics and the bond market. If you can read his latest quarterly reports and come up with convincing counter-arguments, then knock yourself out shorting bonds. But otherwise, you might as well just bet on the flip of a coin regarding these day to day moves…

  • Reply to

    One Hundred Eighteen

    by markdstump Aug 26, 2014 11:59 AM
    merenkov merenkov Aug 27, 2014 3:06 PM Flag

    Looks like we'll see One Hundred Twenty next week at this rate...

  • Reply to

    Opinions please..

    by cjoe410 Aug 22, 2014 7:51 AM
    merenkov merenkov Aug 26, 2014 3:18 PM Flag

    Due to slowing US and global growth, interest rates in the US are likely to fall further than most investors imagine possible (we've yet to see the generational low in interest rates). I don't know about the EPA implications.

TLT
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