[OilChick]

Thirty-year treasury yields are below five percent and thirty-year fixed-rate mortgages are available with interest rates of less than seven percent. Given peak oil, the boomer retirement, the war on terror, global warming, the $800 billion current account deficit, and other macro problems, it would seem very dangerous to be loaning money out over that long of a term.

The question becomes, "what happens to long-term rates when peak oil goes from being a term known by 1% of the population to a term known by 99% of the population?" Can the bond market, the housing market, and the stock market cope with the recognition of peak oil? I don't think there are too many peak-oil enthusiasts that would buy a thirty-year bond from the government.

Maybe the central banks will buy up all the long-term debt and will start explicitly setting long-term rates.

[Falconoffury]

$this->bbcode_second_pass_quote('', 'I') don't think there are too many peak-oil enthusiasts that would buy a thirty-year bond from the government.

[MrBill]

Rates may look absurdly low and therefore not worth investing in, but for the most part long-term treasuries are assets sold to pension funds and others that have long-term liabilities to offset. Many public funds for example can only invest in bonds if that is in their prospectus. For many long-term savings programs a portfolio of only equities or indeed loaded up with gold may not be the right hedging mix regardless of what your view of the future looks like as it may turn out to be incorrect.

Many other buyers of long-term treasuries are using the long duration of the bond market to express a view on interest rates and inflation because the long-end of the bond market reacts more to small moves in either direction than the short-term maturies do. These positions will likely not be held to maturity and will result in either capital gains or losses for their buyers. This is more speculation, not investing.

A massive depression stemming from the fallout of post peak oil may be deflationary which would be good for the holders of long-term fixed interest debt so long as they have confidence in the government's ability to pay interest and principle on maturity. If not, then government bonds are not the right investment vehicle for them and they should buy gold or some other asset instead.

Markets work best when there is a willing buyer and a willing seller. Even gold markets will not function if no one wants to sell gold and no one wants to buy gold. So if you have a view you can express it by taking the opposite position as the buyers of long bonds. That is by selling bond futures. If they are wrong, you will make money, which you can then use to buy gold or another real asset of value.

Your timing is very good. Merrill LYnch had this to say this morning in a research note to clients.
$this->bbcode_second_pass_quote('', 'I')f the current rally in equities continues, we could be setting up for a crash of sorts in the bond market the long only open interest in the 10yr treasury is currently at a record, which means any potential unwind of this massive long position could make the recent commodity sell off look like a pinprick as far as financial losses to institutions and hedge funds is concerned.

[Doly]

$this->bbcode_second_pass_quote('MrBill', '
')A massive depression stemming from the fallout of post peak oil may be deflationary which would be good for the holders of long-term fixed interest debt so long as they have confidence in the government's ability to pay interest and principle on maturity.

[MrBill]

$this->bbcode_second_pass_quote('Doly', '')$this->bbcode_second_pass_quote('MrBill', '
')A massive depression stemming from the fallout of post peak oil may be deflationary which would be good for the holders of long-term fixed interest debt so long as they have confidence in the government's ability to pay interest and principle on maturity.

[Dreamtwister]

$this->bbcode_second_pass_quote('OilChick', 'C')an the bond market, the housing market, and the stock market cope with the recognition of peak oil?

[GoIllini]

$this->bbcode_second_pass_quote('Dreamtwister', '')$this->bbcode_second_pass_quote('OilChick', 'C')an the bond market, the housing market, and the stock market cope with the recognition of peak oil?

[Dreamtwister]

Nonsense, they would play manipulative little games to try and drive out the weakest investing hands, grabbing up as much wealth for themselves as possible before the whole economy goes right off the cliff.

Oh wait, that's exactly what they are doing.

The only reason the economy hasn't crashed already is precisely because there are so few people "in the know". People like your bankers and oil traders represent a very small percentage of the population (well under the 1% being discussed here), and they are using that knowledge to drive all of their weaker competition off of the trading floor.

When someone like Buffett dumps a million oz of silver onto the market, everyone at the exchange knows it. What does he care if he loses a million dollars, when his sell triggers a panic sell and drives the price lower? The smaller traders get squeezed out, and he comes right back in and buys all of his silver back (and everyone else's) at a discount.

If everyone entered the market with what Buffett knows, what do you think that would do to the price of our example commodity?

What about bonds? If the individual bond-holders actually understood the mechanism of fiat currency, how quickly do you think they would divest? How quickly would you divest if you knew that any potential interest earnings (as well as a good portion of your principle) would be wiped out by the resulting inflation? Would anyone actually buy a government bond if it said "I.O.U." on it, instead of "Full faith and credit"?

No, the economy persists because of the total ignorance of the masses.

[MrBill]

$this->bbcode_second_pass_quote('Dreamtwister', 'N')onsense, they would play manipulative little games to try and drive out the weakest investing hands, grabbing up as much wealth for themselves as possible before the whole economy goes right off the cliff.

Oh wait, that's exactly what they are doing.

The only reason the economy hasn't crashed already is precisely because there are so few people "in the know". People like your bankers and oil traders represent a very small percentage of the population (well under the 1% being discussed here), and they are using that knowledge to drive all of their weaker competition off of the trading floor.

When someone like Buffett dumps a million oz of silver onto the market, everyone at the exchange knows it. What does he care if he loses a million dollars, when his sell triggers a panic sell and drives the price lower? The smaller traders get squeezed out, and he comes right back in and buys all of his silver back (and everyone else's) at a discount.

If everyone entered the market with what Buffett knows, what do you think that would do to the price of our example commodity?

What about bonds? If the individual bond-holders actually understood the mechanism of fiat currency, how quickly do you think they would divest? How quickly would you divest if you knew that any potential interest earnings (as well as a good portion of your principle) would be wiped out by the resulting inflation? Would anyone actually buy a government bond if it said "I.O.U." on it, instead of "Full faith and credit"?

No, the economy persists because of the total ignorance of the masses.

[GoIllini]

$this->bbcode_second_pass_quote('Dreamtwister', 'N')onsense, they would play manipulative little games to try and drive out the weakest investing hands, grabbing up as much wealth for themselves as possible before the whole economy goes right off the cliff.

[Tyler_JC]

If I was in charge, I would issue the 1000-year bond and only the 1000 year bond. That way when Jesus comes back at Y3K, He can take care of our debt situation.

If I am not mistaken, much of the US Federal Government's debt is now much shorter term than in previous years.

The elimiation of the 30-bond for the first half of this decade forced the government to sell shorter term debt, right?

So what happens when all of those bonds come to maturity and have to be "refinanced" at higher rates?

The US is likely to see debt interest as a % of the federal budget explode in coming years, assuming that we don't have rampant inflation that takes a digit off the adjusted national debt.

[MrBill]

$this->bbcode_second_pass_quote('Tyler_JC', 'I')f I was in charge, I would issue the 1000-year bond and only the 1000 year bond. That way when Jesus comes back at Y3K, He can take care of our debt situation.

If I am not mistaken, much of the US Federal Government's debt is now much shorter term than in previous years.

The elimiation of the 30-bond for the first half of this decade forced the government to sell shorter term debt, right?

So what happens when all of those bonds come to maturity and have to be "refinanced" at higher rates?

The US is likely to see debt interest as a % of the federal budget explode in coming years, assuming that we don't have rampant inflation that takes a digit off the adjusted national debt.