Thursday, August 15, 2013

Foreigners Selling Treasuries

The total foreign treasury holdings are down about 1% each of the last 2 reports.   In the past foreigners were steady buyers.  The less others buy bonds the more the Fed will have to.

Interest rates have gone up fast.


As interest rates have gone up the value of bonds has gone down.  Below is the bond fund TLT:  When bonds are paying 2% interest and drop 8 years worth of interest in the last 4 months, many people will decide the reward is not worth the risk and sell. 



Hussman showed that when interest rates go up the velocity of money goes up.   The equation of exchange shows if the velocity of money goes up then we can expect higher prices.  Together I think this means the missing inflation is coming.

As John Xeniks said, "it's like we're all watching a dreadful horror movie, but we're locked in the movie theatre and can't get out".

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