Massive US Bond Buying, But Why?

Something very odd is brewing in the market to say the least. We seem to be having a shift going on in investor sentiment. Yesterday we had the news that China had officially launched the Petro-Yuan allowing oil to now be purchased in Yuan in addition to the US dollar. One would think that there migh be some panic out of the US dollar but not really.

While the US dollar did move lower slightly yesterday the US treasuries were bought up moving the yields lower. Again today we saw the same thing. The US dollar has moved lower and the US treasuries have been bought throughout the day. The peculiar thing to consider is why would you invest in long term dollar based debt when there is all this diversification happening right now?

In addition to the launch of the petro yuan you have the many different crypto choices to diversify into, gold, silver, etc., why buy long term debt that you are certain to lose on? Even while the bonds are being bought up the dollar index continued to move lower, it doesn’t make sense.

If there were panic in the market, as in the case of a crash investors move into cash or gold. That wasn’t happening. So, what can we deduce is happening? In my opinion, the US government stepped in yesterday to buy bonds and the US government stepped in again today to buy bonds. They usually do this to bring the yields down when stocks start tanking but for some reason the effect seems to be diminishing. It’s probably because they do it so damn much.

So, if this is the US government ramping up the bond purchasing (and we all know it is), this can’t be good. Kiting checks isn’t good and neither is this. I would expect that this is going to cause increased gyrations in the major indexes because they are trying to limit downside with these bond purchases but these bond purchases only increase the government’s balance sheet. It also undermines the rate hikes that the government is doing to try and save the value of the currency.

The conclusion of what we’re witnessing is going to be inflation. There’s no doubt about that. Inflation has been creeping up on us but because of the way that they calculate it (core inflation) not counting food and energy we don’t really see it in the official numbers. Can we use cryptos as a hedge against inflation? I don’t know. From what I’ve seen that was part of their appeal with the use of the block chain but their value presently can’t be contributed to inflation over the past year but more of speculation. A historic hedge against inflation has been gold. Gold has slowly been creeping up lately but in general when it decides to move it moves quick, silver even more so. I would keep an eye on cryptos being dragged down if the market continues dumping risk and keep an eye on gold moving forward for the acceleration of inflation. We live in interesting times!

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