BUS: Despite all the economic woes, US bonds are showing a gold-plated rally
ON ROUGH numbers from Goldman Sachs, the US Government has committed to $US8.5 trillion in financial rescue initiatives this year. Now that is one hell of a bail-out, one hell of an open-ended bail-out for that matter.
Nonetheless — and being mindful that almost every asset class has succumbed to the ravages of the global credit crisis — the bellwether US 30-year bond has been rallying.
This is understandable to a point. The turmoil has set off an unprecedented flight to safety, and US treasuries have been the one constant asset upon which all other assets have been benchmarked in the modern world economy.
Strip away the forest to fix your sight on the trees, however, and an obvious question arises: does a mere 3 per cent yield sufficiently compensate the investor for a 30-year punt on the US economy?
True, the debate among pundits has now shifted focus from inflation to deflation, and with inflation apparently dead for now, this 3 per cent appears to be a real yield.
But if inflation is not really dead, just resting (or maybe battered and comatose), we had better watch out because bonds are being issued hand over fist.
Before we look to the latest bill on the mother of all bail-outs, it is worth contemplating for a moment the jobless figures that emerged on Friday in the US. They are frightening.
US companies let more than half a million people go in the month of November alone: 533,000 to be precise. That brings the number of job losses to about 1.9 million in two years, but it is the escalation in November that is scary. The US sharemarket shrugged off the figures and rallied in late trade, as it so often and so mysteriously does. Still, the median forecast from economists had been for 335,000 job losses.
Even bearing in mind that markets anticipate the future and had already factored in a lot of pain, this was a big number.
To other big things, and, although the consumer price index has been meandering along at a rate of 3 per cent, we talk in trillions almost as much as billions these days. And US publication Forbes is the latest to question forecasts of a
$US1 trillion deficit for 2009. $US1 trillion now looks like a conservative estimate, as lowball in fact as the Australian Government's 2 per cent-plus growth figure for next year seems high.
Here's the chit so far on US Government financial rescues:
