The price of the bellwether 10-year US Treasury note cratered Thursday, recovered Friday, and now has crumpled again, sending the yield skyrocketing to close at 3.715%.
This is exciting stuff. It's like a pitched battle is being waged over Treasury notes. The yield is like the front line. Meanwhile, the kings of the commodities (oil, copper, gold, silver) are all up sharply. Oil is above $68, gold is above $975, silver is above $15.60 and copper has shot up to $2.30. (Check out NYMEX for a good source on all these commodity prices.)
Remember, this may be a harbinger of higher interest rates, signaling a loss of confidence in the dollar, which would mean the Fed would have a very hard time using monetary policy to stimulate the economy.
What will happen is that interest rates will rise as investors edge away from the dollar and US treasury debt. That will deepen the recession. (Why do I say recession instead of depression? Habit, I guess. There is no technical distinction in economics. There is a joke (sort of): a recession is when your neighbor loses his job. A depression is when you lose yours.) The best strategy for dollar depreciation is investing in hard assets with no debt or leverage whatsoever.
2 comments:
Doesn't dollar depreciation (implying higher domestic rates of inflation) mean that dollar-based debt can be repaid with cheaper dollars in the future? Yet you say to avoid all debt. Am I missing something?
nathan
www.thefridaycyclotouriste.com
www.zen-battery.com
While it may be beneficial in some cases for an individual to take on debt in anticipation of future inflation, I'd say in general the tactic is so fraught with risk that it would be better to avoid it.
I suppose it comes down to your willingness to take a loss. If you're leveraged to buy a home, car, business, etc., how do you feel about losing it? What if you can't keep up the payments?
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