too late, the bearded one has spoken
...and said what was already predicted. MORE fiat money... YEEAAAHH!!! :S 
Topic: The recurring trouble-cycle of bitcoins, and why I'm here. (Read 9766 times)
too late, the bearded one has spoken
Like I said, most of my position is using LEAPS (long term options, essentially). they expire worthless if they aren't in the money by the expiration date. I'm betting on a good hop up in the VIX even if treasuries manage to eke out another rally, which should keep the time premiums on the LEAPS up high enough that it's a very low-risk play. And even if things are looking a little iffy, you can usually roll things over another year out (when available) for not too much price difference, sometimes you're only looking at a 10-15% rollover cost which gives to another 12 months.
Where do you trade LEAPS options? I have a hard time even finding quotes for them.I've recently pondered the idea of doing some leveraged gold speculation, and it seems to me that options are the way to go. The longest I can find them (for GLD) is Jan-14 though, I would really like to get something more long term than that. One can get around 5x leverage using a GLD Jan 2014 140.000 call option, but this isn't at the money until GLD rises about 2.3%. Getting around 10x leverage with the same option but with a strike price of 175.000 means GLD would have to rise 12.4% just to be at the money. I'm bullish on gold, but more than 12% in 16 months I'm not confident it can achieve. I wouldn't be that surprised if it did though.
Are you familiar with other ways of leveraged gold trading that might be more advantageous than options? Have you considered leveraged trading in precious metals yourself?
I'd love to hear your thoughts on the european debt crisis as it obviously defines your current open positions.
Also between the two currencies, cash (lets say USD) and bitcoin. What is your opinion on holding either given they hold totally different properties in terms of inflation / deflation.
Also between the two currencies, cash (lets say USD) and bitcoin. What is your opinion on holding either given they hold totally different properties in terms of inflation / deflation.
As per the EU dept crisis, its nothing more than a political game. Whoever believes otherwise, either he's blind or misinformed. From the point that Mrs Merkel, Mr Draghi or anyone, really; can make a decision to end the crisis (fiat money have the ''ability'' to be fabricated out of thin air) they simply don't do it because they are on a very precise and well sketched schedule. Germans simply don't want ANYONE to mess with their banks, because of the fact that they don't want to reveal their *REAL* debt.
I have wrote elsewhere about the future of BC. From the point of view of its existence, its meant to be a strong player; actually the strongest. Non inflatable, it's doomed to end the exchange difference between $/Eur/GBP and BC to an outrageous limit. I expect the BCs, after the upcoming ASICs invasion, to rise. If you search my posts I've written why. Of course, I may be wrong...
Quote from: macsga
In my opinion, it all makes sense when you compare what the network production/equity is now, with the one that will be, when the Asic miners come in. If you think about it a bit; the current exchange rate is about $12 for 1BC. That means you need about 100BC or $1200 for a BFL, SC and 40GH/s. You need about 100 days, to produce 100BC at a rate of 1BC/day with an average setup that sets you back about $1000 to $1200 (a couple of 5970s, a couple of 6870s, and some 6950s) and gives you 2.5GH/s.
Now, lets project this for a while to after 6 months to 1 year. By that time, lets asume that EVERYONE (who can afford it) will mine with an asic by then. The difficulty should respectively rise to actively produce an average for 40GH/s lets say 1BC/day. This means on a direct comparison that your (future) 40GH/s equals with the (today's) 2.5GH/s. Respectively you will be at the same position minus the initial 100BC you gave to buy the asic, minus the cost of the videocards (if you don't manage to sell them, or want to keep them anyway).
Now, lets project this for a while to after 6 months to 1 year. By that time, lets asume that EVERYONE (who can afford it) will mine with an asic by then. The difficulty should respectively rise to actively produce an average for 40GH/s lets say 1BC/day. This means on a direct comparison that your (future) 40GH/s equals with the (today's) 2.5GH/s. Respectively you will be at the same position minus the initial 100BC you gave to buy the asic, minus the cost of the videocards (if you don't manage to sell them, or want to keep them anyway).
I'd love to hear your thoughts on the european debt crisis as it obviously defines your current open positions.
Also between the two currencies, cash (lets say USD) and bitcoin. What is your opinion on holding either given they hold totally different properties in terms of inflation / deflation.
Also between the two currencies, cash (lets say USD) and bitcoin. What is your opinion on holding either given they hold totally different properties in terms of inflation / deflation.
Quote from: Coreadrin_47
The effects are still yet to be seen.
I believe we're gonna witness several pirate40-like cases in the near future. The reason is that while (a man's greediness) > (a man's naiveness) there always will be someone to organize a scam and get money out of it... Bitcoins or Dollars - it's irrelevant. Plus I believe his liquidation is already en route. Otherwise BC should have topped near $20+ now...
Annnnnnnnd, its gone
https://bitcointalksearch.org/topic/bitfloor-needs-your-help-105818
Quote from: Coreadrin_47
The effects are still yet to be seen.
I believe we're gonna witness several pirate40-like cases in the near future. The reason is that while (a man's greediness) > (a man's naiveness) there always will be someone to organize a scam and get money out of it... Bitcoins or Dollars - it's irrelevant. Plus I believe his liquidation is already en route. Otherwise BC should have topped near $20+ now...
There is a massive scandal unfolding as we speak which will likely shake bitcoin to its core along the lines of the Mt. Gox hack last year and the fold-up of the online wallets and the recent bitcoinica hack and collapse (along with your money).
Since nobody else is biting, i will. What do you know that everyone else is missing?
Everybody did already bite. I was referring to the still-playing-out theft of over $5 million worth of bitcoins by one Pirateat40.
The effects are still yet to be seen.
There is a massive scandal unfolding as we speak which will likely shake bitcoin to its core along the lines of the Mt. Gox hack last year and the fold-up of the online wallets and the recent bitcoinica hack and collapse (along with your money).
Since nobody else is biting, i will. What do you know that everyone else is missing?
Bitcoin is something that can usher in world piece as a two edged sword - it removes the monetization possibility that enables war, and it keeps people in the rational world, where they do business together and benefit each other. Rational people are that much harder to propagandize, and would revolt if their economic success were cut off because of politicking.
http://www.garynorth.com/public/images/7010a.gif
That's the key right there. If the central bank conjoins with the government at the hip and swaps its fascist partner (stops caring about the banks), you might see something like this happen.
Until then, the Fed is pretty constrained - they essentially just swap assets around - promises to pay that are deemed more valuable for promises that are worth less. Worthless mortgage securities for fresh AAA rated treasuries on deposit with full reserve capability. But it all hinges on the ability of credit to continuously expand - the fractional reserve banking system cannot survive a contraction in total money + credit. It dies. Depositors begin to demand deposits to pay off debts, because debts become more expensive as monetary velocity decreases and total credit contracts (less promises to pay against the same physical goods and services).
The velocity of money has dropped by over 80% since the year 2000. For every $1.00 of GDP added last quarter, it took over $2.00 in new debt. Government spending is accounted for in total GDP, even though it is an economic distortion and malinvestment with several costs: a) the cost of removing scarce resources from the economy in the first place, b) the cost of what might have been done with those resources (cure for disease, new paradigm shifting technology, etc), and c) the cost to finally re-allocate them when the malinvestment can no longer be sustained (the bubble bursts).
This is the real estate bubble but fifty times the size. Total M2 moneys supply for the world's reserve currency sits at about 10 trillion. Currency and credit derivatives are over 700 trillion. All it would take is a mere 10% in counterparty claims or defaults and the entire monetary system of the planet blows up.
As such, I do and have always recommended having a good store of your savings in precious metals. Precious metals are not "investments" - an investment is something that you expect to generate you a yield. Precious metals are cash savings in another form. Treating them this way is the only smart way to hold them.
That's the key right there. If the central bank conjoins with the government at the hip and swaps its fascist partner (stops caring about the banks), you might see something like this happen.
Until then, the Fed is pretty constrained - they essentially just swap assets around - promises to pay that are deemed more valuable for promises that are worth less. Worthless mortgage securities for fresh AAA rated treasuries on deposit with full reserve capability. But it all hinges on the ability of credit to continuously expand - the fractional reserve banking system cannot survive a contraction in total money + credit. It dies. Depositors begin to demand deposits to pay off debts, because debts become more expensive as monetary velocity decreases and total credit contracts (less promises to pay against the same physical goods and services).
The velocity of money has dropped by over 80% since the year 2000. For every $1.00 of GDP added last quarter, it took over $2.00 in new debt. Government spending is accounted for in total GDP, even though it is an economic distortion and malinvestment with several costs: a) the cost of removing scarce resources from the economy in the first place, b) the cost of what might have been done with those resources (cure for disease, new paradigm shifting technology, etc), and c) the cost to finally re-allocate them when the malinvestment can no longer be sustained (the bubble bursts).
This is the real estate bubble but fifty times the size. Total M2 moneys supply for the world's reserve currency sits at about 10 trillion. Currency and credit derivatives are over 700 trillion. All it would take is a mere 10% in counterparty claims or defaults and the entire monetary system of the planet blows up.
As such, I do and have always recommended having a good store of your savings in precious metals. Precious metals are not "investments" - an investment is something that you expect to generate you a yield. Precious metals are cash savings in another form. Treating them this way is the only smart way to hold them.
In instances of high inflation, it is always when a central bank or banking system is in control of the issue of what is always the largest portion of any currency in existence - promises to pay it: Debt. Central banks allow for high inflation to benefit the banking system at the expense of savers. Hyperinflation doesn't occur when the government must use the banks as a proxy for its promises, only when the government itself attempts to fund them and controls the entire mechanism for doing so. We don't have to worry about Weimer here, because the banks are beholden to the fed and the fed to the banks, with the state as a third-party benefactor (having its bonds as underlying collateral for all other credit). We just have to worry about 20-50% annual inflation for a few years, which is still gutwrenching for an economy and easily enough to destroy a generation's worth of productive advancement, if not more.
Interesting. I hadn't thought about that. Reading Wikipedia's account of hyperinflation in Weimar Germany, it sounds awfully similar to our situation today though:Quote
[...] The Treaty of Versailles imposed a huge debt on Germany that could be paid only in gold or foreign currency. With its gold depleted, the German government attempted to buy foreign currency with German currency, but this caused the German Mark to fall rapidly in value, which greatly increased the number of Marks needed to buy more foreign currency. This caused German prices of goods to rise rapidly which increase the cost of operating the German government which could not be financed by raising taxes. The resulting budget deficit increased rapidly and was financed by the central bank creating more money. When the German people realized that their money was rapidly losing value, they tried to spend it quickly. This increase in monetary velocity caused still more rapid increase in prices which created a vicious cycle.[9] This placed the government and banks between two unacceptable alternatives: if they stopped the inflation this would cause immediate bankruptcies, unemployment, strikes, hunger, violence, collapse of civil order, insurrection, and revolution.[10] If they continued the inflation they would default on their foreign debt. The attempts to avoid both unemployment and insolvency ultimately failed when Germany had both.[11]
Also, it doesn't mention that the Reichsbank were controlled by the government. It seems like the German central bank acted just as our central banks do today: buying up government debt to keep the rates low.
In 1937 - when Hitler came to power - however, the central bank was put under direct control of the Nazi government.
It sounds like one of those things that are very hard to stop once they begin. I mean, central banks really don't have any room to raise interest rates to 15% like they did in the 80's. 15% interest on a $15 trillion debt just isn't an option.
I have a sneaking suspicion that the entire bond curve is as false and rigged as LIBOR. Time will tell...
lol have you looked at the Fed's balance sheet recently? They are exposed to the tune of over 2/3 of their entire "asset" base in debt instruments with maturities 10 years or greater (including almost 1 trillion of long term mortgage securities, many of which are worth less than 50 cents on the dollar).
You are correct. It is false and rigged - the Fed IS the long bond market right now, but the law of diminishing returns has and is going to keep knocking them over the head, and eventually if they start booking losses it will be a massively humiliating thing for the backstop of the country's "money" to be bleeding monetary losses of its own. I will be laughing hysterically at them at this point, and I encourage all to join in. This is why there is actually huge internal division among the Fed chiefs right now, if you read through their releases. Many of them know this. It's only a matter of time.
To the point of hyperinflation, it's not going to happen in the US. The fed and treasury have hog-tied themselves. They cannot instantly pay back long bonds - they must pay back as scheduled. To pay back early means to default, and the market rejects any more debt issuance and very quickly the dollar itself. Hyperinflation generally only lasts a couple of years, sometimes less. It is impossible to hyperinflate and have the economy still using the same currency 30 years later, when a huge amount of debt needs to be paid off, including social security (20+ years out). And as soon as an attempt were made to "pay off" an existing long-bond with very-debased money, the market would drop like a stone and people would just stop using dollars because that would be a de facto default.
If you look at monetary history, it is inevitable that all fiat currencies die. This happened to the Nubians, the Romans, the British, all previous attempts in the US, and a good 15+ other instances in the 20th century alone (with cases occurring several thousand years ago, because human nature does not change, no matter how we would like to think it "evolves"). Hoever, there is a key difference between eras of true hyperinflation, and eras of high inflation of 20-50%. The instances of hyperinflation were all instances where the political class, the State, had full control over the issue of money and credit. Wiemer, Zimbabwe, Confederate Dollars, etc, were all instances where the government actually had control of the WHOLE money apparatus. This is because it is the nature of the state to promise/mortgage itself out dozens of times more than it could ever afford to, and to "save face" with debasement. The political class makes the farmers and anyone holding tangible assets win out, wipes out the banking system and eventually destroys the currency.
In instances of high inflation, it is always when a central bank or banking system is in control of the issue of what is always the largest portion of any currency in existence - promises to pay it: Debt. Central banks allow for high inflation to benefit the banking system at the expense of savers. Hyperinflation doesn't occur when the government must use the banks as a proxy for its promises, only when the government itself attempts to fund them and controls the entire mechanism for doing so. We don't have to worry about Weimer here, because the banks are beholden to the fed and the fed to the banks, with the state as a third-party benefactor (having its bonds as underlying collateral for all other credit). We just have to worry about 20-50% annual inflation for a few years, which is still gutwrenching for an economy and easily enough to destroy a generation's worth of productive advancement, if not more.
This all hangs on the caveat that the Fed's box of magic tricks could actually spur credit expansion with all those new, shiny reserves just sitting there waiting to explode out into the system and blow up the credit markets.
Considering that the velocity of money in USD terms has collapsed from over 25 to 5 in the past decade, I'm just not seeing it. Ergo, cash is a safe bet for a little while, because even if the economy goes to absolute crap and credit starts to expand, everything we currently do in the brick and mortar world is currently denominated and settled in legal tender, and people calling in debts will create tremendous demand for physical cash notes, for a little while. After that, it's look out below....
I really am curious where this is going Coreadrin_47. I *think* I have the outline of your thoughts and really want to wish you all the best. It's a good bet IMHO. 
I have a sneaking suspicion that the entire bond curve is as false and rigged as LIBOR. Time will tell...
thread of the week
so nice to see some big picture debate...nice break from "oh noes, pirate is crashing teh bitcoin"
My thoughts, this is going to be a very close thing. Bitcoin is far and away the most encouraging development I have seen in some time. It truly does have the potential to break the current system of debt slavery. The central banking conspiracy, however, is not going to shuffle off to the dustbin of history quietly. The arc of history indeed bends toward freedom, but is jagged with spasms of state violence. Much remains to be done.
so nice to see some big picture debate...nice break from "oh noes, pirate is crashing teh bitcoin"
My thoughts, this is going to be a very close thing. Bitcoin is far and away the most encouraging development I have seen in some time. It truly does have the potential to break the current system of debt slavery. The central banking conspiracy, however, is not going to shuffle off to the dustbin of history quietly. The arc of history indeed bends toward freedom, but is jagged with spasms of state violence. Much remains to be done.
I won't pretend I understood the majority of the terms you just used, but again I agree with your general perspective on the market. I just find the dimension of time to be so damn difficult to grasp. I mean, as far as I can figure it could all come down next year, but I could also see it running for another 10 years, albeit very poorly, and with lots of intervention of course.
May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?
I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.
May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?
I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.
Like I said, most of my position is using LEAPS (long term options, essentially). they expire worthless if they aren't in the money by the expiration date. I'm betting on a good hop up in the VIX even if treasuries manage to eke out another rally, which should keep the time premiums on the LEAPS up high enough that it's a very low-risk play. And even if things are looking a little iffy, you can usually roll things over another year out (when available) for not too much price difference, sometimes you're only looking at a 10-15% rollover cost which gives to another 12 months.
I don't trade on fundamentals, but they do certainly bust open the dam when it's time for the trade to roll your way. Investing is the long, long play. Trading is on psychology, where the laws of economics can be stretched and ignored for a while. We had a beautiful internal divergence on a host of indicators on that latest high in long bonds, a mature pricing pattern (early adopters, early majority, majority rush, late majority, final batch of greater fools), etc. It was a great time to short it on a contra play.
I won't pretend I understood the majority of the terms you just used, but again I agree with your general perspective on the market. I just find the dimension of time to be so damn difficult to grasp. I mean, as far as I can figure it could all come down next year, but I could also see it running for another 10 years, albeit very poorly, and with lots of intervention of course.
May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?
I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.
May I ask how long it can take the bond market to collapse before you don't make a profit because of the premiums you pay on borrowing the bonds?
I mostly focus on the opinion of the people on the street. We all agree the fundamentals are terrible, but still, I have yet to run across anyone in my daily life (in the "real world", ie. not these forums) that really think the whole system could collapse. And if it were to collapse, I find it quite probable that most people would voluntarily give up some freedom to keep it going longer - via capital controls, for example.
Then again, I don't really know many people who are even interested in economics, so that might be why. It's like everyone agree on the logic behind why the system is terribly unstable, but they have a very hard time envisioning a breakdown of it. Even just suggesting high inflation (>5%) is considered nonsense by most people.
First of all, welcome to the forums! I think you are exactly one of the kinds of people that the Bitcoin community needs. I think I agree with all of your points, and it's refreshing to see them expressed with such clarity.
My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.
With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?
[...] (disclosure: I am fully leveraged short in long-term treasuries as of about 2 weeks ago, along with Japanese long bonds, German bunds, and France long term debt).
[...]
I'm very interested in this as well. I've been thinking about doing the same, and have heard it suggested several places. I'd really like to hear more about your thoughts on doing this.[...]
My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.
With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?
I have a core short position, but I a mostly leveraged to the max via LEAPS (the premiums are pretty reasonable short-side right now, just because the VIX is so low and the market's got this huge still-baked-in expectation of continued upside.
As far as the rigging of the game goes - you can only violate the laws of economics for so long. The Fed has been openly purchasing treasuries since 2008 and they already ARE the long-bond market. Twist was just the last twist of the sword in attempting to push down long-term yields. The Fed currently holds well over 2/3 of it's entire balance sheet in long term debt (LT Treasuries and Mortgage Debt). If these markets begin to turn, they will start having to book serious losses, which will be pretty damned embarrassing for the all-powerful ivory tower gods of money.
You couple that with what are sure to be serious, serious shenanigans in terms of the budget, plus the fact that SS continues to pay out more than it takes in (and its balance sheet is also made up almost entirely of treasury bonds), and you've got a highly probably chance that the everyone-and-their-mother who have piled on the Treasury bubble will get wiped out.
It's a 30 year bull market. Not many bull markets can hold out for 30 years, and this one is a doozey. Higher participation than stocks by the average household, and by a long shot. Check out equity outflows compared to treasury inflows over the past 10 years, and you'll basically see another dot-com/NasdAPPL in the works. There's not much possible upside even left on Treasuries, but the way down is a long, long way.
As for the rest of the discussion on here, I think it's going to be imperative to the future of bitcoin for more and more products and services to be offered and denominated in bitcoins. As the underlying economy grows, so will the support infrastructure (bitcoin debit cards, etc.), and so will its value. I'm working on a little something that will make it a lot easier to bring legitimate goods and services to the market and not worry (in the meantime) about your entire profit margin getting eaten up by specs over on the Gox. That's project #1, which will hopefully generate enough revenue that I can focus entirely on my bigger goals over the next 6-12 months.
First of all, welcome to the forums! I think you are exactly one of the kinds of people that the Bitcoin community needs. I think I agree with all of your points, and it's refreshing to see them expressed with such clarity.
My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.
With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?
[...] (disclosure: I am fully leveraged short in long-term treasuries as of about 2 weeks ago, along with Japanese long bonds, German bunds, and France long term debt).
[...]
I'm very interested in this as well. I've been thinking about doing the same, and have heard it suggested several places. I'd really like to hear more about your thoughts on doing this.[...]
My first thought when considering this, is that I fear it's sort of a rigged game. I mean, US Treasury bonds are denominated in a currency that is controlled completely by the Federal Reserve. As far as I can see, the Fed could (theoretically) drive up the price of Treasury bonds to any price it desires. I mean, it creates the very currency that these bonds are denominated in. As far as I can see though, it would require the Fed to purchase bonds directly from the US Treasury, instead of in the secondary market. Or am I wrong on this one? How is the price, that your short references, determined? Is this by the price in the secondary market?
This is probably the thing I fear the most. The political system isn't exactly thrilled about speculation, and I'd imagine shorting US bonds is one of the least favored speculation activities a US politician can image. I don't think it would be far fetched to imagine political action that aims to drive up the price of treasuries temporarily, to get rid of the leveraged shorts. Or am I out of line here? I'm just bothered by the opacity of this market, and I feel like I'm trading against politicians instead of the market.
With regards to the actual process of shorting the bonds, I have a fair understanding of how it works. I presume you pay an interest on borrowing the bonds from someone. At which interest rate can you borrow the bonds?
I figure this must weigh in on your decision, since a high interest rate will make your position unprofitable quicker than a lower interest rate. Do you have any time estimate on when you expect the bonds to start declining in price?
Jump to: