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Central Missouri | My friend Jim Sinclair has stated that shorting treasury bonds for the next so many years will make you set for generations to come. I expect the explanation from Stansberry below is why he feels this is so.
Gambling on Short-Term Financing
Portugal's government recently suffered a debt default. The country required a bailout by the European Central Bank (ECB) because it had too much short-term debt coming due and not enough lenders were willing to extend these loans at affordable rates. Lots of economists criticized Portugal's borrowing strategy because much of its debts were short-term.
Apparently, these folks haven't bothered looking at the U.S. Treasury's debt maturity curve. We have. The numbers are so shocking, we expect most of our subscribers simply won't believe us. You can read all of the numbers for yourself, if you'd like. Bureau of the Public Debt includes all the numbers in its Financial Audit (which you can read on its website.
Feel free to read all 35 pages... Or focus on just this piece of data. It's all you really need to know: 61% of all the marketable Treasury debt held by the public will mature within four years. Thus, over the next four years, the U.S. Treasury must either repay or refinance more than $1 trillion in existing debt each year – not to mention additional deficit spending of at least $1.5 trillion. For us to avoid a default, the U.S. Treasury may have to borrow or refinance as much as $10 trillion in the next four years.
That would double the amount of U.S. Treasury bonds currently trading in the world's markets.
Think about that for a minute. Then, consider the decades-low yields in the Treasury market today, which would surely rise to accommodate this enormous increase in supply.
Now, try to arrive at any sort of scenario that ends well for today's U.S. Treasury bond market investors. We can't... We don't know exactly what the end game will look like or exactly when the bond market will crash. But we know it is coming. We know it can't be avoided. And we know many investors will suffer catastrophic losses.
What would happen if we doubled the amount of corn trading in the market?
Edited by ehoff 5/15/2011 07:05
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From Stansberry
