"However, some smart money is short these low-yielding price-inflated bonds denominated in a fragile currency."

From DR. O on Seeking Alpha:

"Discussing the "Stimulus Bill" in the White House. Any legislation without tax cuts for individuals who actually PAY taxes (as opposed to handouts to those who don't), or tax cuts for businesses is doomed to costly failure( I AGREE ).

The US Dollar has been catching a bid relative to other currencies. But I am not optimistic about the value of these multiplying pieces of paper. ( TRUE )

The real preferred currency in this depressing time, the Japanese Yen.( GO FIGURE )

The cost of shipping continues at depressed levels.( TRUE )

Copper pricing remains low, reflecting depressed demand.

The price of oil remains depressed, however, I believe oil at these levels is an attractive investment.( I AGREE )

US Treasuries caught an incredible bid as frightened big money sought a safe haven. However, some smart money is short these low-yielding price-inflated bonds denominated in a fragile currency.( THAT'S WHAT I'D DO )

Gold continues to resist the collapse of other commodities as perhaps the safest of havens. Gold is untied to the value of this currency or that, this country or that, this event or that. It has had intrinsic value for thousands of years. Yet, the chart is erratic and volatile. ( SOME THINK IT CAN, SOME THINK IT CAN'T )

Gold stocks have rallied remarkably from their lows, reflecting both the high price of gold and the decreasing price of oil (lowers cost of production). Would you rather own shares in a gold mine or an insolvent bank? Sadly, multiple resistances lay just overhead on the chart.

Stock volatility remains remarkably high. Not comforting for investors, but fun for traders.

Stocks are currently residing on the oversold side of life.( TRUE )

The S&P 500. I've fallen and I can't get up. Interesting how the "averages" seem to level out as one stock after another, or one sector after another, continues to get obliterated.( A CALLING RUN, DEBT-DEFLATION, FEAR AND AVERSION TO RISK, PROACTIVITY RUN, SAVING SPREE, FLIGHT TO QUALITY . THIS EXPLAINS THE BREADTH.)

My hero Todd Harrison says "As go the piggies (banks) go the poke (the entire stock market)." The piggies continue to implode.

No more stock charts today. Suffice it to say that I am at a loss to find a bank to put my money into that I have confidence is not now or will not soon be bankrupt. Depressing.( I WOULD BUY FINANCIAL ETF'S IN THE NEAR FUTURE. BUT I'M NOT AN INVESTOR. )

Stock position: None."

"See here for how the federal government should and shouldn't distribute money for a broadband infrastructure build."

On Seeking Alpha, an interesting post by Tom Evslin:

"Bobbie Johnson, technology correspondent for The Guardian, was kind enough to quote me along with Vint Cerf (nice to be in good company) on the importance of building an online economy and an online government. Vint said: "You know how they say opportunity lies on the edge of chaos? Maybe that's going to be true here too."

So far our telecommunications infrastructure has largely been privately built and financed. Why should that change now? It's unusual for government to do anything as well as the private sector.( I AGREE )

The US must become an e-nation. Network economics means that even those locations that already have decent communication gain by subsidizing( HERE WE GO ) the locations which do not. Everyone gains from a universal transportation or communication network; even those who already have local transportation and communication. Remember Metcalfe's law: The value of a network is proportional to the square of the number of endpoints. Even if you are already connected, you gain by having the network you are connected to become universal( MAKES SENSE ).

Even before we were a nation at all, Ben Franklin was appointed Joint Postmaster General for the Crown and, realizing the value of universal national communication, cut the time for mail delivery in half. Ironically( THANKFULLY ), that postal service, subsidized by the Crown, was critically important in coordinating resistance to Parliament by the colonies.

The railroads that made the US a continental economy were subsidized by massive land grants and other government giveaways( VERY TRUE ). Incidentally, there was massive fraud both in the private financing of the rest of the cost and in the competition to get the government money( TRUE ). Public financing, any financing where there is lots of money involved, is tough to get right and keep honest.( I AGREE )

Rural electrification and the Eisenhower Defense Highway System (the Interstates) made us the country we are today. Both involved subsidies meaning that urban areas (which were already electrified and already had highways) subsidized the buildout to the rest of the country. Both the urban areas and the rural areas benefitted.( IT'S TRUE, BUT IT CAME AT THE COST OF SUBURBANIZATION, WHICH I'M NOT A BIG FAN OF. )

When we rebuild highways and bridges (as we must and will), we just get back to where we should have been. When we build a communication infrastructure which is both universal and the best in the world, we build a path to the future. By the way, when we rebuild the roads it would be dumb not to make them smart roads with mobile communication everywhere available; when we rebuild our electrical grid, it's got to be a smart grid with photons of information guiding the use of electrons of energy.( FINE )

Government investments ought to be made counter cyclically both because they're cheaper( HERE WE GO. WE CAN'T WAIT FOR DOWNTURNS IF THE PROJECTS ARE WORTH IT. ) then and because they cushion the pain of private contraction( OK ). Clearly, this is such a time. Universal high quality broadband ought to be one of those major investments for at least four reasons:

1. The private sector has failed us. We've slipped from being the world's leader in Internet access to number 15 and the slippage is still going on. IMHO that's due to lack of competition. Government subsidy of backbone and middle mile can build the highway on which competitive telecommunications providers reach retail customers.( MAYBE )
   
2. We all gain from universal connectivity (see above).( A GOOD POINT )
   
3. If government and the private sector can assume that everyone will have true highspeed access at home and on the move, if we are an e-nation, then new government and private programs can be developed as e-programs assuming that connectivity. We make the lowest common denominator higher; we get better service cheaper.( GOOD )
   
4. If the US is the world's first e-nation, the we will be the place where many of the e-applications for the rest of the world are invented and first deployed( I GIVE UP ON "DEPLOYED". ). If we are not, we sacrifice the advantage of being a huge market for first deployment and cede that opportunity to the eurozone, China, and India.( FINE )
   

See here for how the federal government should and shouldn't distribute money for a broadband infrastructure build."

Here's the post:

"Federal Broadband Money Should Go To States

The carriers and cablecos are hard at work trying to influence the broadband portion of the Obama stimulus package according to an article by Amol Sharma in today's Wall Street Journal. That's no surprise, of course, and their lobbyists are just doing what they're paid to do. But it would be a terrible mistake to have any of this money strengthen the duopoly whose uncompetitive nature has resulted in the US slipping from fourth to fifteenth place in broadband deployment since 2001.( OK )

The money should be given to the states with a requirement for state matching funds to assure that the states only spend federal dollars where they are willing to put some of their own very limited money. The allocation to the states ought to be similar to the allocation of federal highway funds which takes into account both population and the higher cost per capita of building infrastructure in rural areas. There should be no earmarks or congressionally-mandated "demonstration" projects. (Obama spokespeople have already promised no earmarks in the stimulus package. If Congress goes along, that will be change that I can believe in( ME TOO ).) In 1981 and 1982 I was Secretary of Transportation in Vermont and saw firsthand both the strengths and the limitations of the federal highway program including the damage done to local planning by earmarks..

There should be very little restriction on the funds other than that they be used to build backbone and middle mile infrastructure open for any legal use by wholesale and retail providers as well as commercial users (like the highway system but with tolls). It should not be permissible for the funds to be used to have the states themselves become retail ISPs (too much big brother potential( I AGREE )). However, separately, universal funding should be reformed and made available to the needy in order to allow them to purchase connectivity services from providers of their choice.( OK )

The states don't own the equipment to build infrastructure any more than they own the equipment to build highways: they will contract with the private sector for building and possibly operating infrastructure. They may buy or lease existing infrastructure from the carriers and cable companies that have built it; they may simply decide that in some areas there is already sufficient backbone and middle mile so that they don't have to spend any money.

The federal money should not mandate whether fiber, radio, or other technology is used to provide the needed facilities. The states'll figure that out on their own and have the opportunity to build infrastructure appropriate to their own needs. States should assure that any roadwork they do with federal highway money includes conduit for fiber whether the fiber is placed in the conduits now or not. Federal money spent to improve the electrical grid should have the proviso that high capacity fiber is part of the build.

Here in Vermont the legislature has authorized forty million dollars of state revenue bonding for communication infrastructure. The Vermont Telecommunications Authority (VTA) has already issued an RFI so that carriers and others can help shape the process of putting together the infrastructure improvements we need in Vermont. We'll go ahead with or without federal help but we'll do more faster if there is a federal allocation. On our own, we'll give Vermont equal or better telecommunications to any other state in the US; with federal money we could be part of a plan to raise the standard for the whole country so that America again leads the world in Internet quality and availability.( THIS MIGHT FIT WELL INTO GREG MANKIW'S STIMULUS FOCUSED ON SENDING MONEY TO THE STATES WITH NO PROVISIONS )

Full disclosure: My wife, Mary, is Chair of the VTA (a volunteer position) and I also volunteer doing odd jobs for that organization. We have a personal although not a financial stake in the success of this program. The opinions in this blog, however, are mine alone and are neither approved by or attributable to any organization."

It's possible that this is a good idea, but I need to know more about it.

"The credit crisis sent Treasuries into potentially bubble territory, and below investment grade bonds into the cellar."

On Seeking Alpha, Richard Shaw has a good resource post. I found this resource in my last post about Felix Salmon's Blog:

"Some bonds have done well, some bonds have done exceedingly well and some bonds have done poorly during 2008. The credit crisis sent Treasuries into potentially bubble territory( I AGREE ), and below investment grade bonds into the cellar.

When market conditions normalize, it may be reasonable to assume that “scared” money( I AGREE THAT'S WHAT IT IS ) hiding in Treasuries will flow out and into credit bonds( INTO SOMETHING ELSE ). That would probably cause rates on Treasuries to rise and prices to fall, while causing rates on credit bonds to fall and prices to rise( A GOOD BET ). However, not much about credit markets in 2008 was as expected, so we’ll just have to wait and see. Watching the charts may help clarify the situation.

Here are 2008 weekly percentage performance charts for fifteen key types of US and non-US bond index funds:

1-3 Year US Treasuries

3-7 Year US Treasuries

7-10 Year US Treasuries

10-20 Year US Treasuries

20+ Year US Treasuries

Inflation Protected US Treasuries

US GNMA Bonds

US Mortgage-Backed Securities

US National Municipal Bonds

US Investment Grade Corporate Bonds

US Convertible Bonds

US Below Investment Grade (High Yield) Bonds

US Aggregate Bonds
(all excluding muni’s and <>

Non-US Developed Country Investment Grade Treasuries
(local currency denominated)

Emerging Market Sovereign & Agency Bonds
(USD denominated)

"there's a very good chance that Treasury will step in to prevent America's largest companies from going bust."

Felix Salmon with a few cautious words about bonds:

"The Riskiness of Bonds

Yesterday I questioned the wisdom of retail investors buying bonds in this market, and boy did I get an earful back, especially from many of the commenters at Seeking Alpha. They accused me of not drawing the distinction between Treasuries and credit, and of not appreciating the record spreads being seen in the bond market( I THINK THAT THEY SHOW OPPORTUNITIES FOR SERIOUS INVESTORS, BUT NOT AVERAGE INVESTORS. ).

This morning, Henry Blodget gives us a useful chart, showing that the Lehman Aggregate bond index -- which is the benchmark for most of the bond funds that retail investors buy -- rebounded sharply in the last two months of this year, and ended solidly in positive territory. Which is quite an achievement for any asset class in 2008( THE FLIGHT TO SAFETY ).

Now yes, the rebound is largely a function of the Treasury bubble( SO HE AGREES ) -- but so are record spreads in the credit market( TRUE. IT'S ALL THE FLIGHT TO SAFETY. ). And since retail investors don't short Treasury bonds, they can't play spreads( VERY TRUE ). Instead, they have just three choices: going long Treasuries; going long credit; or some combination of the two.( NOT A GOOD IDEA NOW )

Clearly the Treasury market is treacherous right now, and could implode as quickly as it rose( THAT'S THE FEAR ). I can assure you that this kind of chart (from a very useful blog entry by Richard Shaw) is not the kind of thing that dealers in US debt ever expect to see( I SHOULD THINK NOT ):

Yes, that's a 35% annual return on long-dated Treasury bonds, in a year which started with pretty low interest rates. So clearly anybody buying Treasuries right now is doing so at extremely frothy levels( TRUE ).

But what about credit? The flip side of Treasury outperformance has been a collapse in prices of credit, and in general the riskier the credit, the more it has fallen. Junk bonds and emerging-market debt cratered in 2008, but the bulk of the bonds that retail investors are likely to buy -- US investment-grade corporate bonds -- actually staged quite an impressive rally at year-end.

If you believe that mid-October's bond-market panic was overblown( I DO ) and that we'll never see such levels again, then feel free to dip a toe into this market( HANG ON OLD CHAP ). But if you do so, be clear that you're entering into a speculative trade: you're not putting your money in a safe place like an FDIC-insured CD( FOR SURE ). (And you can do that with any amount of money, not just $250,000, thanks to CDARS.)

But bonds certainly aren't any kind of hedge against stock-market underperformance. If the stock market goes down from its present levels, it will do so because of a wave of defaults wiping out the equity in a wide range of companies. The bond market is pricing in an uptick in defaults, but no one knows just how much of an uptick, and there's a very good chance that if a few large and heavily-indebted public companies go under in quick succession, the bond market could lurch back down to its October lows and possibly even fall further still.( VERY TRUE )

None of this makes investing in bonds a bad idea for a sophisticated investor( I AGREE ): they do seem to be more attractive, from a risk-return standpoint, than stocks, just as they have been since the summer of 2007( I AGREE ). And there's a strong moral hazard play right now as well: there's a very good chance that Treasury will step in to prevent America's largest companies from going bust( I AGREE ). But if you're looking for safety, cash is still very much your friend. And if you're investing in bonds, know the risks that you're taking."

I pretty much agree with this entire post.