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XMFSinchiruna (26.98)

Long-Term U.S. Treasury Bonds when priced in gold

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30

September 27, 2010 – Comments (11)

Examine the long-term trend for long-term Treasuries solely in dollar terms, and the competitive devaluation process ocuring among the world's fiat currencies will render that analysis deeply flawed.

But examine those dynamics over time in the context of a currency with stable purchasing power like gold, and you may glimpse the reality of our predicament.

Courtesy: Eric De Groot

http://edegrootinsights.blogspot.com/2010/09/us-long-bonds-remain-enron-like-train.html

On another note, I have sent an e-mail to Fool HQ regarding the blog spam issue, and will keep you informed of anything I learn. I do understand everyone's frustration, but I am confident that the matter will be addressed.

11 Comments – Post Your Own

#1) On September 27, 2010 at 10:17 AM, alstry (36.08) wrote:

Sinch....

The Gold of the Digital Age will be credit.

He who has the credit from Wall Street and Washington has the gold.

It is as plain and simple as that....

Stores will only accept credit to exhange it for human production.......

As we move digitally....you can't pay with gold over the internet.

We already have gold etfs where nobody knows whether there is any gold backing them......they are simply digitally traded.

Same with the stock market....does anyone really know whether there is an actual buyer and seller on each side of the transaction anymore?  Or is it simply artifically created digital entries creating the illusion of a transaction?

All of this is possible in the Digital Age....

Over the past few years....government and Wall Street created an unlimited amount of credit....credit that could have purchased all the above ground gold in the world even at these higher prices....

that said, it is now my opinion that Gold could go to $50,000 an ounce or $5 an ounce.......it is simply where credit will be allocated as we move forward....

if you can figure it out, you will have figured out what will have value.....as Buffett destroyed any sense of traditional definitions of value over the weekend by telling America to suck it up....

Buffett used to be one of the chief critics of excessive debt....now he is its biggest cheerleader.....as long as it is coming to his companies.

 

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#2) On September 27, 2010 at 10:29 AM, MegaEurope (< 20) wrote:

My takeaway is the opposite of what you intended.  While Treasuries are very expensive / at the top of their range on a dollar basis, clearly they are cheaper / lower in their range compared to gold.

I assume you don't believe De Groot's bottom trend line (drawn through a single point), that would imply gold's run is almost over.

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#3) On September 27, 2010 at 11:10 AM, XMFSinchiruna (26.98) wrote:

MegaEurope

You misread the chart, my friend. That bottom trend line implies nothing of the sort with respect to gold. 

Given the dollar's pitiful performance against gold in recent years, everything has become cheaper in gold terms than it is when denominated in dollars. No surprises there.

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#4) On September 27, 2010 at 11:31 AM, MegaEurope (< 20) wrote:

That bottom trend line implies nothing of the sort with respect to gold.

It implies the gold / treasury move is 3/4 over.  Treasuries are currently somewhat constrained - they can't go much higher.  That leaves gold to do most of the moving if that ratio bumps upward off the bottom (in 2012?).

Honestly I don't think this is a particularly useful way of looking at it.  TA that involves drawing lines through a single point has even less validity than mainstream TA.

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#5) On September 27, 2010 at 12:04 PM, XMFSinchiruna (26.98) wrote:

MegaEurope

You must be misreading the chart. Surely you have mistaken the blue dotted line at the far right for actual data. That dotted line is showing the scope of the move from the 1970s within the modern data set ... where we are today is way up near where we were in 1971.

Take a closer look, and set out to understand. That bottom "trend line" is offered as nothing more than a reference point for what a similar move to the 1970s cycle would do to this relationship .. just like references to an inflation-adjusted gold price of $2,300 corresponding to the 1980 high price for gold serves as an instructional measuring stick without predicting that as a prediction of a top.

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#6) On September 27, 2010 at 12:11 PM, MegaEurope (< 20) wrote:

Ahh, indeed.  I didn't notice that the line was dotted in the smaller version of the chart.  Thanks for the correction.

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#7) On September 27, 2010 at 12:19 PM, MegaEurope (< 20) wrote:

In retrospect that graph is really obvious, I feel dumb.

I am actually short treasuries in real life (short TMF), so even though my belief in momentum/TA is low, a better understanding of that graph adds a little bit of reinforcement to that trade.

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#8) On September 27, 2010 at 12:27 PM, XMFSinchiruna (26.98) wrote:

MegaEurope

Don't sweat it ... glad the visual reinforces confidence in your position.

Long TBT here, and looking to press if it dips back below 30 once more.

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#9) On September 27, 2010 at 1:52 PM, BillyTG (29.18) wrote:

Sinch, what does this mean? If long US Treasury Bonds continue the rapid decline projected, will that trigger any other financial setbacks? What are the repercussions beyond the bonds themselves?

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#10) On September 27, 2010 at 4:16 PM, XMFSinchiruna (26.98) wrote:

BillyTG

Yields are already at levels that doom long-term bonds to lose out mercilessly to the ravages of inflation. Foreign holders know this, see it getting only worse, and those not presently embroiled in this global race to debase fiat currencies are noticeably scaling back their exposure to U.S. debt (namely China). When your creditors cut you off from the well, you are dead (ask Alstry) :)... unless of course you are a sovereign nation ... in which case you can engage in quantitative easing ... acting as your own creditor to delay the inevitable until the marage ends abruptly in a hyperinflationary maelstrom. Let me know if you have any questions.

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#11) On September 27, 2010 at 5:14 PM, BillyTG (29.18) wrote:

Thank you,

so basically it is yet another indicator of inflation and our weakening economy.

What about this "race to debase fiat currencies"? Do you think there are countries or organizations that would like to see that, maybe as a precursor to consolidate currencies or create new currencies (such as an Asian competitor to the Euro)?

I sent you an email

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