Methinks Nouriel Roubini would like TBT as a long term investment

Just a hunch ;-)

Policies will lead to "much higher real interest rates on public debt:"

[T]he Fed, together with the Treasury, started to implement some of the “crazier” policy actions that we discussed last week: a) outright purchases of agency debt and MBS to the tune of a whopping $600 billion; b) another $200 billion of loans to backstop the consumer and small business credit markets (credit cards, auto loans, student loans, small business loans); c) an effective policy of aggressive quantitative easing as the balance sheet of the Fed – already grown from $800 billion to over $2 trillion.

Effectively the Fed Funds rate has been abandoned as a tool of monetary policy ... the Fed is now relying on massive quantitative easing and direct purchases of private sector short term and long term debts to try to aggressively push down short term and long term market rates.


Desperate times and desperate economic news require desperate policy actions ... The Treasury will be issuing in the next two years about $2 trillion of additional debt ... These policies – however partially necessary – will eventually leads to much higher real interest rates on the public debt and weaken the US dollar once this tsunami of implicit and explicit public liabilities and monetary debt driven by rising twin fiscal and current account deficits will hit a world where the global supply of savings is shrinking – as most countries moves to fiscal deficits thus reducing global savings – and foreign investors start to ponder the long term sustainability of the US domestic and external liabilities.

To continue to attract massive inflows of capital, the U.S. might have to start paying higher interest rates on the public debt. This is one of the concerns that Volcker (previous post) expressed in early 2005.

Trader Mark over at Fund My Mutual Fund has also been touting TBT as a compelling long term bet on the crumbling U.S. financial system (ie foreigners no longer willing to give the U.S. a "free ride" financially speaking)

This market is acting poorly and unless we regain S&P 770 in short order I can more downside, which could lead this trade to continue to work against those are in it. So I'm not going to begin a moderate position [in TBT] and then if the stock market recovers, the demand for bonds should ease. But if we have another crash upon a crash this will move against us.

There are also some very good reasons to own this for the very long run if you agree with some of our long term thesis - they span the same reasons that eventually the US dollar will crumble. As the US government layers on more debt, the risk to said government increases.



To compensate for said risk, creditors will demand higher yields - and prices shall fall. And we shall be creating many many treasuries in the US to pay for all the bailouts we still have to work through (I see at least a half a trillion "New Deal 2.0" stimulus plan coming in early 2009 on top of all the other measures we are doing)

So this has both short term and long term catalysts - however in the very short term as people avoid all risk, they are going to what they deem the safest thing on the planet, which they feel are US Treasuries.