The world will be shocked to discover US Bonds NOT safe!

[Dennis Ng]

I have shared that I think inflation rates in U.S. is likely to go up in year 2012 becos of all the money printing (QE1 US$2 trillion and QE2 US$600 billion) in the last 2 years that it will come back as rising prices and inflation...

And when that happens, U.S. is forced to raise interest rates which will slow down the economy further...and when more people worry about the debt repayment ability of U.S. government, that yield on US government bonds will go up (Prices of Bonds will go down (likely Crash)...

So be prepared for the likely scenario of Rising inflation in U.S. in the months ahead ; for U.S. interest rates to spike up ; (this will also affect SIBOR in Singapore and Singapore Housing Loan interest rates); a Crash in US government bond market......and leading to the next Global Financial Crisis.

This Crisis might be worse than the last one becos:

1. this round we will have high inflation, not low inflation (higher prices which will affect purchasing power and push many poor into poverty.

2. this round most governments already borrowed to up to their "neck" (max out) and would have more difficulty trying to boost the economy by Borrowing money (issuing Bonds).

3. when more and more people lose confidence in Paper Money (currency all over the world), this might lead to Spike in prices of Gold and Silver....do not be surprised of the possibility (NOT 100% guarantee, just possibility) if Gold prices spike up above US$2,000 ; for Silver prices to spike up to US$70 (Gold: Silver ratio about 30 times).

This is my latest view on the Global economic situation in year 2012...I hope to be wrong, becos if I'm right, the scenario is NOT pretty and many people will be losing their Wealth since most people have their money in Paper Money (Fixed Deposits).

Comparatively, of course S$ will be strong. S$ is one of the soundest currency (with the BEST fundamentals since S$ is backed by Foreign Reserves while US$ is backed by US$ bonds (US$14.2 trillion Borrowing!!! My Goodness!!!) in the whole world right now....so contrary to conventional wisdom (just high on convention but low in Wisdom in my Opinion), US$ government bonds is NOT safe haven...

You see, anytime when something uncertain happens, you would see people rushing to buy US Treasuries....since US government (after World War 2) was globally known as the Strongest in the world and US government bond interest rates are WRITTEN and TAUGHT as "Risk FREE Rate" (NO Risk) in All Investment Textbooks and Investment Courses and Degrees.

So other than Bill Gross (known as King of Bonds in the investment world for outperforming ALL bond funds in the Whole World in the last 10 years), in Singapore, I seem to be the only person who says the Risk and Possibility of a Crash in US government bond markets and have been warning in this forum, newspaper article and facebook postings about this possibility for a few months already.

I hope by conducting seminars, I can help you (my seminar Graduates) not only survive the Next Global Financial Crisis but help you come out of it, stronger and Richer. You can try to spread my warnings and message to your friends, but this forum (part of the forum) is only closed to my seminar graduates as most people may not understand what we are talking about if they have not attended my seminars.

Is it possible that I am wrong? That whatever I said may not come true? Of course, and of course you should know by now that I'm always prepared to be wrong since the No. 1 question I ask myself is "What if I'm wrong, will I be financially ok?"

[yhendra]

Hi Dennis,

Does this article make any sense?

http://www.cnbc.com/id/43813163

A Downgrade of US Debt Won’t Matter as Much as You Think
Published: Tuesday, 19 Jul 2011 | 3:39 PM ET Text Size
By: John Carney
Senior Editor, CNBC.com

A lot of people assume that if the ratings agencies downgrade the credit rating of the United States, it will trigger a sell-off of Treasurys. Some even suppose that a sell-off would be automatically triggered by regulatory and fund charter requirements.

Fortunately, this isn’t true.

It’s very likely that a downgrade of the credit rating of the U.S. would trigger a sell-off, but it’s far from clear that investors would sell U.S. government debt. More likely the investors would sell risk assets—equities, high yield corporate bonds, mortgage securities—and actually buy U.S. government debt.

What's certain is regulations won’t require most holders of Treasury debt to sell after a downgrade.

The logic of why investors would buy Treasurys even if they are downgraded is relatively simple. The downgrade would introduce a new level of fear into the market, and investors typically respond to fear by putting their money in “safe” and “liquid” investments. There is no more safe or liquid investment than the debt securities of the U.S. government, regardless of the rating. Someday this pattern could break, but that day almost certainly won’t be when the widely discredited ratings agencies downgrade U.S. debt.


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So let us turn to the other point: the phony danger of an “automatic” sell-off triggered by regulations.

Megan McArdle at The Atlantic spelled out the logic behind this view:

Institutions like insurance companies have strict regulations about the quality of the assets they can buy, and S&P ratings, among other things, are the proxy that we use to judge credit quality. If [Atlantic national correspondent] James [Fallows] or I scream that the U.S. debt picture is unsustainable, we will not move markets. If S&P downgrades U.S. debt, this will trigger a sell-off, even if the people selling disagree with their assessment. Nor is there any easy way around this; the nature of regulation is to require hard metrics and bright lines, even if those metrics aren't very good.

But Megan’s just wrong about this. That’s not the way our regulations work.

It’s true that our regulations require many sorts of institutional investors, including pension funds and insurance companies, to hold “high quality” assets as a large portion of their investment portfolio. The same is true of many less-regulated investment funds that are controlled by their charters and prospectuses rather than direct regulation of their investments.

But what Megan misses is the way "high quality" is almost always defined. While it's true that regulations often require assets have the top ratings from ratings agencies, this isn’t true when it comes to debt issued by the U.S. government. Those are automatically permitted in most cases, regardless of how or whether they are rated.

Take New York’s life insurance law. It just issues blanket permission for life insurers to own obligations issued by “the United States of America or any agency or instrumentality thereof.” There’s not a ratings requirement at all.

Ratings are a very serious matter when it comes to the holding's corporate debt or the debt of foreign sovereigns by regulated institutional investors in the U.S. But when it comes to the debt of the U.S. government, they just don’t matter that much.

[uris]

Hi Hendra,

IMHO, I think he is just trying to calm the market. Maybe he wants to be the first to sell while the mass crowd (the followers) are still trying to figure out what to do.

Also, I think it depends on the downgrade as well. I think the rating agencies are nonsense. See how fast they are to downgrade Greece while they put US "in review" for more than a week already.

I'm looking at it in different scenarios:

1) US manages to raise the debt ceiling by raising tax and cutting costs
Likeliest outcome. Everyone is relieved. Market goes in a final bull run before the problems come back and next market crash occurs. I'm not sure how the bond market will work out in this scenario.

2) US fails to raise the debt ceiling. Prints more money to repay the debts.
Hyperinflation and devaluation of the US currency. People will lose trust in the US currency even further and bonds will drop.

3) US fails to raise debt ceiling and defaults on the debt.
Highly unlikely. This will cause a crash on the bond market from panic selling and the agencies will have no choice but to downgrade the US bonds.

Remember, there are a number of prominent people whom are short the US bond market, presumably in a significant amount. They have a good reason for doing so.

I am not saying people won't buy US bonds. They might do so when US bonds drops to a level where people think it is attractive again.

Anyone else have any thoughts to share?

[Dennis Ng]

There are 14 million people counted as unemployed in the United States. An additional 9.3 million are working part time and would rather work full time. And 2.5 million more have simply given up looking for a job.

Let's make sense of the numbers. 9.1% unemployed (14 million). However, an additional 9.3 million counted as employed but are actually only working part-time. So if we include the part-timers as unemployed, the unemployment rate in U.S. would be 15%.

Analysisng from the other side of the coin, this 85% employment rate is ACHIEVED is after QE1 and QE2 where total of US$2.6 trillion printed...

And American economy is doing ok now? What will not ok be?

Cheers!

Dennis Ng

http://finance.yahoo.com/news/Econom...&asset=&ccode=

WASHINGTON (AP) -- The jobs crisis isn't getting worse. But it isn't getting much better, either.

The economy added just enough jobs last month to ease fears of a new recession. But hiring is still too weak to bring down unemployment, which has been stuck at about 9 percent for more than two years.

The nation added 103,000 jobs in September, an improvement from the month before, the Labor Department said Friday. But the total includes 45,000 Verizon workers who were rehired after going on strike and were counted as job gains.

Even counting those workers, the job gains weren't enough to get the economy going. It takes about 125,000 jobs a month just to keep up with population growth. For September, the unemployment rate stayed stuck at 9.1 percent.

"Well, the sky is not falling just yet," Joel Naroff, chief economist at Naroff Economic Advisors, said in a note to clients. But there was nothing great about the report, he added. "It's incredible how low our sights have been set."

On one hand, the unemployment report was encouraging for economists. Some of them had feared the nation would lose jobs in September, raising the risk of a painful second recession.

But everyday Americans can't take much solace from it, either. The Great Recession has been over for almost two and a half years, and while corporate profits and the stock market have bounced back in that time, unemployment is still high.

There are 14 million people counted as unemployed in the United States. An additional 9.3 million are working part time and would rather work full time. And 2.5 million more have simply given up looking for a job.

[TieGe]

Hi Dennis
If the world discover the us bond is not safe that will be end of usa and also the world. Cos many other decisions and instruments are based on that.

If that happened we will move in to into a world that we cannot imagine.
It is like the world biggest bank collapse.

100 times bigger than LB.

Just a side note, then we should take a long term loan based on USA dollars to invest in Rmb, any thoughts?

Tie Ge

[Dennis Ng]

Hi Dennis
If the world discover the us bond is not safe that will be end of usa and also the world. Cos many other decisions and instruments are based on that.

If that happened we will move in to into a world that we cannot imagine.
It is like the world biggest bank collapse.

100 times bigger than LB.

Just a side note, then we should take a long term loan based on USA dollars to invest in Rmb, any thoughts?

Tie Ge

Hi Tie Ge,
how to take long term loan in US dollars to invest in RMB? Please enlighten. I always ask myself what if I'm wrong, so unlikely to pursue such an "aggressive strategy".

What is possible to happen is for U.S. to let US dollar devalue by 50% in the next 10 years, then propose to switch to a new monetary standard of Gold plus Carbon Trading Credits. Both of which U.S. has the most in the world and will re-emerge as the Richest country reversing from the country that owes the most money to others.

[positive7]

Hi Dennis: are you able to enlighten? Japan is debt of trillion dollar? Why is their currency still so strong?

[Dennis Ng]

Hi Dennis: are you able to enlighten? Japan is debt of trillion dollar? Why is their currency still so strong?

Japan's currency is strong? Compared to what? Compared to Rupiah? 1US$ equals more than 70 yen, so which is stronger?

Unlike U.S. Japan's debt is mainly owed to its own people, NOT outsiders, it has little external debt.

US$ currently equals S$1.27, worth more than S$. Fundamentally speaking, in what way is US$ stronger than S$? So what is likely to happen to US$ 5 to 10 years from now based on its fundamentals? To become Stronger or Weaker?

10 year US$ government bond pay about 2.2% interest currently while its inflation rate is 3.6%. What if inflation rate in U.S. goes to 4%, you think people will demand higher yield or lower yield for US$ government bond? If they demand higher yield, you think bond price would go down, it's inevitable.

Actually, more than 1 month ago, US$ 10 year bond pays as little as 1.8%, anyone who bought US$ 10 year bond then now already staring at losses with current yield at 2.2%.

You need to learn to exercise Common Sense to think logically to arrive at your own conclusion, that is called Learning, and NOT asking me for answers without doing your own thinking and sharing your own views. If I just give answer, then I'm NOT teaching. I'm a teacher, a teacher teaches you the Thinking Process, the thinking Methods and walk with you by the side and guide you on the Path to Financial Freedom.

[positive7]

Thanks for taking the time to reply.