Tuesday, December 2, 2008


It would seem to be irrational to buy an asset when it is at an historical 'bubble' price but that is exactly what the Federales hedge fund is suggesting it might do with long-term treasuries.

The only rational conclusion is that the Federales are building a BLINGFENCE.

Cognizant that equity is the first loss tranche they are building a Treasury firewall or a BLINGFENCE.

When the synthetic CDO market pops like the ABS CDO did, the folks who can't 'paper over' their losses are going to get crushed. Liquidity dries up further other than for the granddaddy of liquidity providers, the Federales hedge fund, that will be sitting behind the BLINGFENCE doling out the bubble scrip derivatives (Treasuries).

To what end?

Amerika needs to drop and roll. Blackrock says 100 year treasuries and wow if you can imagine such a thing couldn't our present yield curve get compressed into an equivalent of today's 0-10 year? 60% of our debt is short-term ... how low could a 30 be pushed to in a 100-year curve? 40 year, 50 year,75 year... a brand new yield curve?

Drop and roll. Push enough debt out with an insatiable demand because OTC derivative destruction is a liquidity sponge and all of a sudden you have trillions of low-cost pesos.

Federales will have a lot of powder to wait for all that BLING to get back to a value that they can then mop up with.

Just a question of how much and for how long.

And unfortunately for the rest of us .... what price?

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