After Larry Summers and Jamie Dimon stated that there is a shortage of long bonds (for use as collateral in derivatives and other markets), hedge fund managers and finance writers, say you have to get rid of your bonds. The tantrum boys are back in force. The list includes the ever present king of tantrums, Alan Greenspan, as well as Paul Singer, Jonathan Garber from Business Insider, and a few others.
Many of the bond tantrum boys, (BTB’s), know not enough bonds are being generated, as there is not enough deficit spending being added, causing yields to decline over the past 30 years. You don’t need to see the 10-year bond chart again. You know what it looks like. Clearly the BTB’s want to buy treasury bonds, UST’s, at the most favorable price, meaning when yields have spiked. This is why tantrumming has been so popular since 2013.
While it is possible that slowing GDP is a way to get more bonds into circulation, surely that would be a very desperate way to produce the bonds. After all, the Fed is torn, give more IOR by raising rates, or get the counterparties their bonds by keeping rates, and hence, the economy, slow. The Fed is decidedly leaning toward neo-Fisherism, so you would think a slowing economy and low rates would be destructive to the plans of the Fed. You would think. But I digress.
So, you wonder why Greenspan does it. Like the song says, nobody does it better. He, after all, created the atmosphere of structured finance for bond hoarding. Maybe it is his conscience. Or, if he doesn’t have one, maybe he has investors willing to pay for tantrum behavior. There could be a third, more benign reason for why he wants to tantrum, but I certainly don’t know what it is. Perhaps he would share his reasons someday.
So, let’s look at 3 of the BTB’s, Greenspan, Garber and Singer, and their recent fear tactics:
1. Greenspan on Yields, Slow Growth, and Hyperinflation
From the article:
One could say that Greenspan’s efforts to undermine that bond collateral by seeking higher yields is a conundrum in itself. It seems out of character for one so concerned about bank risk. Why would he want to destroy the collateral for the derivatives market he fostered? It makes no sense that he would want to saddle the big banks with even more risk and threat of margin calls…
…Does Alan Greenspan have no faith in the system he created? Is he getting nervous? Yes, he says he is. If he is opposed the very system he created, you wonder why he created it in the first place!
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