Scheduled Post #4

What's Next is also Predictable

In this scheduled post, I will talk about a point I made back in early June 2008 [1]: that US interest rates will go up in the long run (meaning long-term US Treasury will fall -- bond prices move in the opposite direction of their yields). In fact, both George Soros [6] and Jim Rogers [3] have been predicting that for some time and betting their money on it. I believe Marc Faber too would have called for lower bond prices in the long run.

However, when Jim Rogers suggested to short US bonds back in September 2007 [3], that didn't get my team and myself all hyped up and started shorting the 10-Year US Treasury Notes. In fact, we had traded against Rogers, and Soros [2]: We had taken a long position in 2 separate occasions in March 2008 [4, 5].

It's now time for me to reveal more of the "big picture" that's been forming in my mind:

• In the big schema of things, I believe both Soros and Rogers were right to have called for lower bond prices in the long run.
  
• However, they made their short bonds call too early.
  
• The USD is, afterall, a world's reserve currency. Central banks will cooperate at times to manipulate it (but not control) and even to inflate it on a short-term basis, as I have said before in [7] -- they can print more of their currencies to make the USD seems more valuable.
  
• As the credit crisis goes global, you will see the US Fed continues cranking up its printing press at an EVEN MORE ALARMING rate.
• Quite simply, if you ask me, I would say the entire G7 economies are pretty much bankrupt. Since the banks are at the centre of this, the US Fed, as a private institution which is owned by the banks [8, 9], and Hank Paulson, a former CEO of Goldman Sachs, will print all the TRILLIONS needed to socialise the losses! Print Ben, print!!!
• As the credit crisis deepens and US unemployment rising, one that we at bhc investment have been predicting since September 2007 [7, 10, 11], traders and investors will begin to realise just how dire the US economy is indeed and what a load of craps coming out of the mouths of those so-called "experts" selling a de-coupling theory -- what a shed load of nonsense! Traders and investors begin to deleverage, they begin to liquidate; they begin to sell, sell, sell in a BIG WAY.
  
• As this deleveraging process goes global, most "paper assets", among others, that are priced in the USD will be sold off, converted back into the USD, and followed by a rush to safety -- the US Treasury, pushing down short-term yields. This actually creates a demand for the USD, making the USD looks once again like a safe haven during financial crisis.
  
• Now this is the crucial part that many of the so-called "experts" will get it wrong. The demand for the USD due to deleveraging and short-term rush to US Treasury must not be confused as a major trend change in the USD.
• Our theory: The US Treasury too is a bubble in itself.
  
• All money printing is inflationary. Long-term US bonds will eventually price in the expectation of future inflation. It will.
  
• *WHEN*, not if, the bubble in US bonds eventually pops, long-term interest rates will have no where to go but up and the USD will once again be sold off.
  

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"Everytime is my fault, I just don't do enough homework, I just get a little sloopy, or I... I get darrr... I say what I don't need to do anymore, I know enough, I've been doing this for 40 years, that's all I need to do... HA! Everytime I do that, that's when I loose money." -- Jim Rogers

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References:

1. Quick Comments
2. What Does It take to Win *Consistently*?
3. Why I Want to Abolish the Fed too!
4. How to Make 40.51% in 4 Days
5. How to Make 116.71% in 9 Days
6. Soros:'... Probably not... the Final Bottom'
7. To Zoe_H
   
8. To von
9. Anatomy of the US Fed
10. George Soros: The Worst Market Crisis in 60 Years
    
11. George Soros on Financial Crisis, Commodities, China