All sorts of people (Templeton, Roach, maybe Buffet, Noland, lots of others) keep pointing out the risk of the loss of confidence in the dollar and the effect on interest rates if countries with trade surpluses stop buying U.S. treasuries.
Others (including you) remind us how risky long bonds are, including all the long bond funds, because of the loss of principal when rates rise.
It occurred to me this morning to look at U. S. bonds from the point of view of the various Asian economies and governments. For the last ten years, with lower inflation and lower interest rates and a rising dollar, accumulating a hoard of U.S.treasuries has been a wonderful piggy bank for these countries. Not only have they got the interest, but with the rising dollar and rising bond prices their money appears to have grown maybe 50% on top of that.
But now it all may be poised to go the other way. And if and when confidence melts away in the safety of this piggy bank, selling could replace buying and there could be a real bust.
I know this has all been argued over and over by numerous people, but it did just hit me to realize how wonderful it must have been for the last ten years for these emerging economies to have this wonderful place to put their money, and how shocked they will be when it starts losing value. So far it's all dollar-value losses, but the interest-rate losses will be self-reinforcing.
I am already (I think) positioned against all this.
I also agree with Jim Rogers that we are probably in for protracted commodity price inflation. I can't seem to get any prospectus for his new fund, but Joan's idea of the PIMCO commodity fund looks better and betetr to me: an underlying position in TIPS, held as security for an assortment of derivatives (whih, at least I imagine, must be mostly futures contracts) in all sorts of commodities. I got as much information as I could find or figure out about PCRDX from Yahoo and the company website. Don't own any yet but continue to study it. I can buy it in my IRA, and if/when I have some big gains in Prudent Bear I might go long commodities using PCRDX. |
