Cotton Hoarding in China Shows There is Serious Commodities Speculation

You have to watch this video to believe it. The speculation in the commodities market is well out of hand. Cotton futures are at a record high on speculation that demand in China will continue to increase, as China is the world’s largest importer of cotton. Add in the flooding in Australia and you have the makings of a rally driven by fundamentals but bolstered and amplified by speculation.

Bloomberg explains in the video below.

Some Thoughts On Portugal

By Win Thin

Portugal remains in the market spotlight as its 10-year yield remains above 7% for the 10^th straight day. Furthermore, today Portugal’s 5-year yield broke above 7% for the first time and continues the pattern that we saw with Greece and Ireland. In both those cases, the 10-year yield was the first to break above 7%, with the 5-year and then the 2-year yields breaking above that level in the ensuing days. It is noteworthy is that the rescue packages for those countries have done nothing to substantially lower their borrowing costs, with 10-year yields still substantially above 7% for both. With contagion showing no signs of abating, we think Portugal is doomed to the same fate.

Kyle Bass on Japanese Insolvency and Systemic Risk in the Global Economy

Here’s more from the CNBC session with Kyle Bass, Managing Partner of Hayman Capital Management. David Faber introduced the topic as a discussion about tail risk and the "end of the world" trade. Bass took exception to that characterization saying that he was more concerned about a debt "restructuring that has to happen for the world to grow again". He says, "so far what we have seen is total credit market debt in the world in the last ten years has gone from $80 trillion to $200 trillion." That’s not sustainable.

It was interesting to see at the outset of the Bass clip I am putting up below that CNBC ran through a similar thesis regarding Japan. During the quantitative easing last decade, Japan saw a tremendous cyclical rally. But when policy stimulus was withdrawn, the market hit new multi-decade lows. Stimulus without reform leads to a policy cul de sac. For Japan, Bass says the country has been effectively insolvent for years and is in this false period of "homeostasis" only because its population buying 10-year bonds with a 1 interest rate handle expects deflation.

Kyle Bass: At municipal level, it’s “open season for defaults”

Kyle Bass doesn’t believe that the bloodletting in the muni market we have seen so far is enough to warrant taking on the increased credit risk that municipal bonds now have. Bass, who is a principal at the hedge fund Hayman Capital Management, said yesterday on CNBC that he sides with Meredith Whitney on the muni issue. And he is specific about the risks in specific classes of munis. He says states are better than cities and counties and general obligation bonds are better than project-specific bonds and municipal pass-throughs

On Portugal’s Exploding Yields and Some Thoughts On The Euro Zone Periphery

By Win Thin There is no real news behind the recent underperformance of Portugal bonds, as it appears that markets are simply getting more nervous as the country’s 10-year yields stay above 7% for the fifth straight day today and for 10 of the last 13 days. We shouldn’t be surprised by this most recent

Schroeder: Gist of Whitney’s Muni Forecast ‘Valid’

Alice Schroeder, a former Wall Street analyst and the author of the only approved biography of Warren Buffet, has Meredith Whitney’s back. She says the macro view that Whitney presents on U.S. states and municipalities is largely correct. Her view is that many with a vested interest in the muni market staying afloat are tearing

Jim Grant Sees Interest Rate Risk in Munis

Jim Grant’s contention is that you don’t need to be a stargazer to be worried about Munis. You just have to look at the low interest rates.  In his view, bond yields do not compensate buyers for the interest rate risk, let alone other risks like problems with municipal finances. He likes higher yielding Mortgage

Gross: Central Banks are Robbing Bond Holders and Fuelling Inflation

In this segment on Bloomberg with Tom Keene just after the jobs report was released yesterday morning, Bill Gross continues hammering away at the central banks’ easy money monetary policies, the main point of his last newsletter. His contention is that government has four ways to rob bondholders of return:

1. Outright default, something he says unlikely in the U.S.
2. Currency depreciation: Gross contends this is a problem for the U.S. currency
3. Unanticipated inflation: Gross believes the core vs. headline inflation numbers highlight this issue
4. Negative real interest rates: His newsletter was very much about this point.
Published by Edward Harrison on 5 February 2011 12:30

Bill Gross: Devil’s Bargain

Bill Gross is at it again. The bond king who has taken a populist turn is out with another monthly investment commentary that features a negative view of Wall Street (God’s work) and Federal Reserve monetary policy. I want to hone in on the Fed piece

Some Thoughts On Potential Greek Debt Restructuring

By Win Thin Here are some more thoughts regarding a possible Greek debt restructuring, which was reported today by the Greek press. Reports suggest that the EU, IMF, and the ECB have reached a basic understanding that a Greek debt restructuring is inevitable and that haircuts on principal as well as extensions of maturities to

Some Thoughts On The Debt Dynamics In Europe

By Win Thin In its Fiscal Monitor published in November, the IMF makes a crucial point about growth rates and debt dynamics. It points out that the larger the differential for any country between real interest rates (borrowing costs) and real growth (with the differential defined as r – g), the larger the increase in

Illinois is No Peter Pan

Frederick J. Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession  (McGraw-Hill, 2009) and "The Coming Collapse of the Municipal Bond Market"(Aucontrarian.com, 2009) "I’ll never grow up, never grow up, never grow up, Not me!" -Peter Pan, Lyrics from play