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This is insanity, and an opportunity

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August 06, 2010 – Comments (11) | RELATED TICKERS: GLD , SLV

Yields for UST's out to three years are below 1%. 5-yr is 1.57%, 7-yr is 2.28%, 10-yr is 2.94%, 20-yr is 3.78%, and 30-yr is 4.05%.

Source: U.S. Dep't of Treasury (aka the horse's mouth) 

Does anyone know of any other time when yields were this low?

Does anyone know of any time when yields were anywhere in the same ballpark and gold and silver were not good investments for the next 3-7 years?

If you can answer that second one with evidence, I'm very interested to read it. 

11 Comments – Post Your Own

#1) On August 06, 2010 at 2:11 PM, TMFDeej (99.24) wrote:

Hey Flea.  I don't know about the others, but I heard on Bloomberg radio this morning that today was the first time ever that the two-year has ever dipped below 0.5%.

Deej 

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#2) On August 06, 2010 at 2:46 PM, dbjella (< 20) wrote:

Do you think the Fed Reserve has anything to do with these low rates?

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#3) On August 06, 2010 at 3:18 PM, Griffin416 (99.98) wrote:

The better question is how to RL short the treasuries. Yields come back up, price comes down. I looked at EDV, IEI. IEF. Those are shortable. Does any else have ideas on how to play the treasury bubble, besides buy gold (which I have a lot of)?

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#4) On August 06, 2010 at 3:24 PM, outoffocus (23.49) wrote:

TBT is an ultrashort of treasuries.

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#5) On August 06, 2010 at 4:16 PM, MegaEurope (< 20) wrote:

I am short TMF.  It and TYD are shortable if you have the right brokerage.

TBT is slightly less lousy than most ultra ETFs.

I think buying gold is a pretty sloppy way to play this thesis.  To respond to your question FB, do you know of a time when gold was anywhere in this ballpark and it was a good investment over the next 3-7 years?

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#6) On August 06, 2010 at 6:49 PM, MegaAsia (< 20) wrote:

And to answer your question, the last time treasury yields were extremely low was 1953-1956 and immediate gold returns were quite poor.  It took 17 years from the interest rate low in 1954 to the start of the gold bull market in 1971.

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#7) On August 06, 2010 at 7:52 PM, FleaBagger (28.14) wrote:

Mega - good point, I probably should have mentioned that when it was illegal for Americans to own gold it was a questionable investment. However, if you had bought gold as soon as it was legal to do so after the 1953-1956 time frame you mention, you would have made a ton of money. It would have been even better if you had legally circumvented the law in the 1960's by buying krugerrands.

And to respond to your question, according to your own chart (assuming MegaEurope and MegaAsia are the same person), gold was in this general ballpark at the end of 1974, and buying and holding for 5 years, give or take a month or so, would have made you a ton of money. Not as much as if you had bought in 1970 or 71, but still a lot. It's possible that today is analogous to 1974: later than ideal (obviously, considering gold was below $300/oz about a decade ago, and is ~$1200/oz today), but not too late to make money on it.

I believe Fed policy and congressional budget deficits are deepening the economic crisis and heightening the potential profit from gold. 

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#8) On August 06, 2010 at 9:58 PM, MegaEurope (< 20) wrote:

There is a huge difference between $820 gold (1974, inflation adjusted) and $1200 gold (2010).

Restrictions on US citizens owning bullion are not relevant.  People all over the world (including Americans) owned various forms of gold and had poor returns 1953-1971.

Like I said, gold is a sloppy way to play US treasury yields.  It is clear that the correlation between very low interest rates and high gold returns is not as strong as your first post suggests.  You asked for evidence and I gave it.

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#9) On August 07, 2010 at 4:22 PM, FleaBagger (28.14) wrote:

All right, Mega, you're right. I'm wrong. You proved it.  

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#10) On August 07, 2010 at 4:48 PM, goalie37 (90.66) wrote:

I don't know enough about gold to say whether that is the way to play interest rates.  But logic tells me that when rates are high, it is more beneficial to be a lender.  When rates are low, it would be logical to be a borrower.  I don't know how to play this either, but buying bonds at these rates makes no sense.

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#11) On August 19, 2010 at 12:12 PM, eaglessoar (60.14) wrote:

tbf or short tlh

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