Rolf Englund IntCom
Next Bubble U.S. Government Bonds
US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.
Niall Ferguson, FT February 10 2010
Vi kan mycket väl bevittna världshistoriens största och kanske farligaste bubbla.
Räntorna är de lägsta på åtminstone 5 000 år.
Detta betyder att priset på obligationer är de högsta på 5 000 år.
Andreas Cervenka, SvD 27 januari 2016
Är det villaägarna och bostadsrättsinnehavarna som är Too Big To Fail?
Rolf Englund blog 13 augusti 2013
Hedge funds that built up bullish long-end Treasury wagers to the highest outright level since 2008 are
This may be just the beginning according to DoubleLine Capital’s Chief Executive Officer Jeffrey Gundlach
Keep Eye on Sovereign Debt for Next Minsky Moment
This time around the issue isn't only excess debt -- it is also that prolonged loose monetary policy may have left us with at least three collateral effects.
The first is a misallocation of economic resources.
But the biggest worry for investors is that the calm environment established by QE may conceal a storm, and that such extraordinary measures may have encouraged the formation of asset bubbles ready to pop when loose monetary policy ends.
Unlike in 2008, the culprit isn't low-quality subprime mortgage debt, but sovereign bond markets.
Bob Michele, head of fixed income for JPMorgan Asset Management, “What they were trying to communicate, is that the 30-year bull market is over and things should go back to normal”.
George Saravelos at Deutsche Bank, who says that out of Sintra emerged “a co-ordinated shift by developed world central banks in a more hawkish direction”. He dubs it “the Sintra pact”.
For investors scrambling to keep pace with a hawkish shift in the world’s biggest central banks,
The Federal Reserve might be doing the right thing for the U.S. economy by moving to bring interest rates back up to normal.
Trump’s election has almost certainly ended the 35-year trend of disinflation and declining rates that began in 1981,
The Daily Prophet:
Foreign investors would hardly want to buy dollar-denominated assets such as Treasuries if they suspected the government actively wanted to depreciate its currency.
In today's auction by the U.S. government of $13 billion in 10-year Treasury
The real number to keep an eye on is 2.6 per cent yield on the 10-year Treasury note, says Bill Gross.
The low-for-long era is over.
They are right in doing so.
Monetary stimulus without appropriate fiscal action
- Jag tycker det är skriande uppenbart att räntan världen över är för låg
Today’s young Wall Street hotshots have never seen anything like that.
America’s growing strong dollar conundrum poses a threat to Mr Trump’s vows to slash the trade deficit
Repeat After me: “Bonds Don’t Necessarily Lose Value When Rates Rise”
What is the Worst Case Scenario for Bonds?
Era of quantitative easing is drawing to a close
Markets have already decided that 2016 is the year when the economic stimulus baton switches hands from central banks to governments.
The Mississippi Bubble of 1720 and the European Debt Crisis
Interest rates follow very long-term cycles.
Now we need real demand and moderate inflation to grow us out of this predicament,
US Treasuries sell-off continues as inflation fears mount
Reinforced the view that the multi-decade bond bull market has reached a turning point.
Global Bonds Suffer Biggest Crash In Over 25 Years
Bond-market losses will be huge, and retirees are most vulnerable
Barron’s named the firm the nation’s No. 1 independent financial advisor in 2009, 2010, and 2012.
He is also author of the recently updated bestseller “Rescue Your Money.”Investors unprepared for rising interest rates, top financial adviser Ric Edelman tells Howard Gold
While people think they’re being prudent by avoiding stocks, they are actually taking on more risk piling into bonds.
Bond valuations are the Achilles heel of markets
The equity market is less obviously in bubble territory, though it remains remarkably buoyant on the back of poor corporate earnings. On a cyclically adjusted basis price earnings ratios look very expensive.
Now, some strategists and investors think that the linkers
Excellent article by John Authers about Why bond yields are so low
How can anyone make sense of today’s markets?
By reducing the incomes of retirees and terrifying near-retirees,
Ray Dalio Warns A 1% Rise In Yields Would Lead To Trillions In Losses
Dalio pointed out that thoughts which dared to question the economic orthodoxy, and which were once relegated to the fringe blogs,
Globally, the stock market is about $69 trillion in size,
What should you do if Trump is right about a bond bubble?
In the first presidential debate, Donald Trump said,
“We are in a big, fat, ugly bubble. And we better be awfully careful. And we have a Fed that's doing political things.
Old Mutual Global Investors Ltd., which oversees the equivalent of about $436 billion,
The claim that you can capitalize the stock market at an unusually high PE multiple owing to ultra-low interest rates,
The truth of the matter is that interest rates have nowhere to go in the longer-run except up
In his latest just released monthly letter, Bill Gross lays out the global economy as an analogy to Monopoly
It’s the $200 of cash (which in the economic scheme of things represents new “credit”) that is responsible for the ongoing health of our finance-based economy.
And without banks creating new loans and injecting money into the broader economy, economic activity grinds to a halt.
Bill Gross $10tn negative-yield bonds a ‘supernova that will explode one day’
Trump, Englund och sedelpressarna
Time Bomb Ticking In The Global Bond Market
$17 Trillion Of Governments Yield Less Than 1%, Duration Risk Soaring
Investors face damaging losses if yields rise even a little
A half-percentage point increase would wipe out $1.6 trillion
Bloomberg Business 26 April 2016
Investors continuing to buy bonds even when they pay next to nothing suggests deep concern over the state of the global economy.
BlackRock chief Larry Fink
Fink called on political leaders to step in and provide fiscal reform to complement monetary policy.
"We have become too dependent on central bankers" to boost the global economies, he said, stressing easy money policies were supposed to be a temporary healing.
"I don't call seven, eight years temporary. ... I don't see how that [still] has a positive impact."
Vi kan mycket väl bevittna världshistoriens största och kanske farligaste bubbla.
Statspapper är själva fundamentet i det globala finansbygget.
Lägg till andra obligationer, där räntan direkt och indirekt påverkas av statslåneräntorna,
I slutet av 2014 var värdet på alla världens aktiemarknader cirka 70 000 miljarder dollar.
Increasingly hysterical calls for negative interest rates, helicopter money and the like look premature
Last month, the Fed lifted interest rates for the first time in nine years, and short-term bond yields have duly climbed higher.
In all, the massive speculation unleashed in the equity markets since the March 2009 bottom
What I wish George Will, Bill Gross, and other free market advocates would consider is
"We are at a sharp inflexion point," says Charles Goodhart, a professor at the London School of Economics and a former top official at the Bank of England.
The working age cohort was 685m in the developed world in 1990. China and eastern Europe added a further 820m, more than doubling the work pool of the globalised market in the blink of an eye.
"It was the biggest 'positive labour shock' the world has ever seen. It is what led to 25 years of wage stagnation," said Prof Goodhart, speaking at a forum held by Lombard Street Research.
The handling of the current financial crisis has reinforced too big to fail doctrine.
Throughout this extraordinary monetary experiment managers of listed companies have been reluctant to invest in fixed assets
This dichotomy between subdued risk taking in the real economy and aggressive risk taking in financial markets has prompted Angel Gurría, secretary-general of the Organisation for Economic Cooperation and Dev-elopment, to remark that one or other of these views will be proved wrong.
The folk in Basel believe that low interest rates beget yet lower rates because they cause bubbles, followed by central bank bailouts.
Escaping from this once-in-5,000-year aberration may thus require Houdini-like skills.
The U.S. agency that monitors risks in the financial sector in the wake of the Great Recession
The recent selloff wiped out about $1.2 trillion in value from the global bond market
After all, the potential for losses is now greater than at any time on record, based on duration levels for $50 trillion of debt tracked by Barclays Plc.
Output is financially sustainable when spending patterns and the distribution of income are such that the fruit of economic activity can be absorbed without creating dangerous imbalances in the financial system.
Bonds beware as money catches fire in the US and Europe
The developed world seems to be moving toward a long-term zero-interest-rate environment.
In an environment of zero or near-zero interest rates, creditors have an incentive to “extend and pretend” – that is, roll over their maturing debt, so that they can keep their problems hidden for longer. Because the debt can be refinanced at such low rates, rollover risk is very low, allowing debtors who would be considered insolvent under normal circumstances to carry on much longer than they otherwise could.
After all, if debt can be rolled over forever at zero rates, it does not really matter – and nobody can be considered insolvent. The debt becomes de facto perpetual.
Governments do know how to stop a slide into another Great Depression. But, governments are haunted by fears of large fiscal deficits.
The Swiss-based "bank of central banks" said the "sinking trend" of global rates would push countries further into uncharted territory.
"As bond markets show us day after day, the boundaries of the unthinkable are exceptionally elastic," said Claudio Borio, head of the Monetary and Economic department at the BIS.
Why are interest rates so low? The best answer is that the advanced countries are still in a “managed depression”. This malady is deep. It will not end soon.
The Fed put
Despite the fact that the Fed message also noted that rate increases could come as early next spring.
The flow of Opec petrodollars into global financial markets is set to dry up
Gavyn Davies, The very long run equity bull market and
Greenspan said that the Fed’s quantitative easing has failed in one of its goals, to spur demand.
“It hasn’t been a success in the demand side,” he said, because banks are simply parking the reserves at the central bank.
Strategin synes vara att det gäller att stabilisera, helst höja, villapriserna
Systems flooded with cash can sometimes freeze.
Since the 2008 crisis, western central banks have flooded the system with cash and expanded their balance sheets by – depending on how you calculate it – an eye-popping $7tn-$10tn.
Forward-looking credit swaps already suggest that
A rocky exit from low interest rates by the Federal Reserve risks
GLOBAL FINANCIAL STABILITY REPORT (GFSR)
There is no bond market bubble
I find it very hard to see why US bond yields should suddenly spike 200 or 300bp as some of doomsayers are claiming.
And finally I should stress that this is not investment advice and I am not making any recommendations to sell or buy US Treasury bonds and the market might go in whatever direction.
Don’t confuse brilliance with a bull market
Hindsight is a wonderful thing, especially when it comes to explaining market crashes.
International bond issuance, fuelled by ultra-low western interest rates, continues to swell:
Good recap of Argentina Passi Passu
Without asset-market surveillance, you do not have an integrated view of how the economy works.
Greenspan: I happen to agree that bubbles are primarily an issue to be addressed by regulation.
Low interest rates ‘ruining’ insurers
For decades, economic growth in America was driven by a powerful and sustainable force: increased consumption paid for by the rising incomes for middle-class and working-class Americans. But somewhere around 1980, that model broke down.
But somewhere around 1980, that model broke down. Wages flattened out, but consumption didn’t. Americans cut back on their savings, and took on more debt — mostly mortgage debt — to satisfy their needs and desires.
It’s not a sustainable model, but it did persist for nearly 30 years until the credit bubble burst in 2007. Millions of Americans lost their jobs, and millions lost their homes when the credit spigot was shut off, forcing average families to cut back on their consumption and live within their means once again.
And now, with the economy only partially healed, it seems we’re going back to the lend-and-spend economy that failed us before.Full text
"Battle raging between the world’s leading macroeconomists"
Ekonomerna mer oense än någonsin
Infrastrukturinvesteringar har blivit det fikonlöv bakom vilket åtstramningens kolportörer
På Gripenstedts tid var Sverige ett av Europas fattigaste länder, med hungersnöd år 1868.
For Prof Krugman, the BIS is another example of those who have been wrong about the crisis,
If it sees the same mistakes being repeated again, then perhaps we should all sit up and take a bit of notice.
BIS's main point – that you cannot for ever rely on ever rising levels of debt as the main engine of growth – is surely correct.
Besides, any organisation that constantly attacks the policies of its owners, the world's major central banks, strikes me as entirely healthy in its own right, whether mistaken or not.
Liquidationism in the 21st Century
BIS chief fears fresh Lehman from worldwide debt surge
The world economy is just as vulnerable to a financial crisis as it was in 2007, with the added danger that debt ratios are now far higher and emerging markets have been drawn into the fire as well, the Bank for International Settlements has warned.
Jaime Caruana, head of the Swiss-based financial watchdog, said investors were ignoring the risk of monetary tightening in their voracious hunt for yield.
The analytical underpinnings of the current phase of risk taking in financial markets are far from robust.
BIS Slams the Fed
An article on ZeroHedge entitled "Is The Fed Going To Attempt A Controlled Collapse?"
I will address the absurdity of that notion momentary, but first please consider some snips from the BIS report that caught my attention.
BIS warned that ultra-loose monetary policy risked causing another financial crisis.
BIS was one of the few institutions to warn of the coming financial crisis that shook the world in 2008.
But there is a deeper issue to be tackled: why does the economy have to be stimulated in artificial ways through the boosting of lending to dodgy borrowers?
The main culprit is Germany. It is running a current account surplus of 7½pc of GDP.
The second source of the world’s deflationary tendency is continued under-spending by two main groups of surplus countries: oil producers and the Asian emerging markets
There is now a gaping cavern between the interest rates available to retail savers and the rates of return sought by industrial and commercial companies when considering their investments.
If spare capacity in the west were taken up by investment in productive plant, machinery and infrastructure, then demand would not need to be boosted by unsustainable mountains of debt.
Roger Bootle's latest book, “The Trouble with Europe”, has just been published.
Kommentar av Rolf Englund:
Grundbultsfrågan: Hur blir S = I ???
Leonid Bershinksy weeps over the cruel world that for some reason isn’t listening to Jaime Caruana of the BIS,
Well, it might have something to do with the fact that three years ago Caruana and the BIS warned that
I missed my chance to mark the anniversary, but it’s now five years plus since the WSJ warned that wildly inflationary monetary and fiscal policies were bringing on the bond vigilantes.
I admire the Bank for International Settlements.
It would be easy to dismiss this as the rantings of a prophet of doom. That would be a mistake.
One can divide the BIS analysis into three parts:
On the first, the perspective is that of the “financial cycle”.
"All in all, the report is not good news"
Although near-zero rates are no longer effective in rallying the economy, they have sent investors into equities.
All in all, the report is not good news
We must end this addiction to debt as the engine of growth
In its annual report, Bank for International Settlements (BIS) spelled out
BIS Annual Report, 2013/2014
Jag tycker det är skriande uppenbart att räntan världen över är för låg och att
Conventional wisdom has it natural interest rates have fallen
Policy rates. Over centuries these have been remarkably stable.The bank rate in the UK, for example, has averaged around five per cent since the Bank of England came into being in 1694.
The nearest I can find to a plausible case for a near-permanent downward bias to rates is a nightmarish one that comes from the economists at the Bank for International Settlements.
This has led to a downward bias in interest rates and an upward debt accumulation habit. Vicious circles result, because it becomes difficult to raise rates without damaging economic growth. At the same time the distortions in production and investment behaviour induced by persistently low rates prevent a return to more normal interest rate levels.
As Stephen Roach, former chairman of Morgan Stanley Asia, has pointed out, The US, is going back to the low saving, excess consumption growth model that prevailed before 2008.
Fed’s easy money has disconnected markets from the real economy
Nils-Eric Sandberg, Stefan Ingves och mysteriet med den försvunna inflationen
The Federal Reserve maintains its $85bn-a-month asset purchase programme,
but says it could begin scaling back later this year and ending it completely in 2014. BBC, June 20, 2013
In recent years an astonishing amount of money has quietly flooded into fixed income funds,
A new paper from the Chicago Booth business school estimates that inflows to global fixed income funds have been almost $2tn since 2008, four times that of equity funds.
Seth Klarman, the publicity shy head of the $27bn Baupost Group
While noting that he could not predict exactly when a significant market correction would occur, Mr Klarman wrote in a private letter to clients:
Since central banks slashed interest rates to record lows and began a policy of buying up government bonds after the 2008 market crash, the S&P 500 has rallied by more than 150 per cent to new all-time highs.
While the mainstream media is loaded with flattering articles of the Fed’s brilliance in quantitative easing and its stimulus program,
Bonds have been in a major bull market for nearly 33 years
The 10-year’s yield record high came the next day, at 15.84%.
Anyone whose investment careers began after 1981 has therefore never experienced a bond bear market. Assuming the typical investor doesn’t seriously start thinking about investing until he is 25 or 30 years old, especially about investing in bonds, that means that anyone today not in, or very close to, retirement has only known a bond bull market.
That’s an amazing historical and psychological fact, the significance of which cannot be overstated. It means that very few investors today have the long-term perspective with which to properly assess whether bonds are likely to suffer major declines in coming years.
The U.S. Treasury yield curve has lost its forecasting power
Treasuries have turned anything but risk-free
If any issue is going to cause surprises in the system in the coming years,
For the past few years, interest rates have been at rock bottom levels, and it is widely assumed this will continue.
Worse still, there has been surprisingly little effort by the official sector to conduct public analysis of what surging interest rates might do to banks or asset managers
At a central bankers’ summit in Jackson Hole, Wyoming, a paper presented by Hélène Rey, economics professor at London Business School, identified a common global financial cycle
“If the reversing of easy monetary conditions is serious then, yes, I believe it will go across asset classes,” Ms Rey told the Financial Times. “But if the Fed acts slowly, it will be much easier for portfolios to adjust without major losses – it does depend on the speed.”
Some strategists are more cataclysmic. Not invited to Jackson Hole was Albert Edwards, Société Générale’s famously bearish global strategist,
Could it really have arrived? Are global stocks about to tank in an all consuming way?
Holdings of Treasuries in China, the largest foreign lender to the U.S., fell in June
Why Obama should not pick Summers for the Fed
Professor Summers has argued that the Fed may not be able to control aggregate demand once interest rates hit zero, and therefore that we need to rely on fiscal stimulus.
Even worse, he has warned that policies such as quantitative easing and low interest rates threaten to create malinvestment and new asset bubbles.
Prof Summers is a brilliant economist and would probably display outstanding leadership skills in a banking crisis. But that is not what we need in a 21st century central banker.
The most important monetary trend of the past 30 years is the relentless decline in real yields on Treasury bonds, from 7 per cent to roughly zero. We can debate the causes of the decline, but there is no evidence that it will turn around soon. That means the US economy is likely to hit the zero bound in future recessions, again and again.
Some people seem to believe that large-scale asset purchases by central banks have created bubbles in many markets
Three more years of zero interest rates
We know that the longer negative real interest rates persist, the more unbalanced and unsustainable the sort of growth they give rise to becomes.
BIS, which counts the world’s leading monetary authorities as members,
It used its influential annual report to call on members to re-emphasise their focus on inflation and press governments to do more to spearhead a return to growth.The BIS report comes on the back of last week’s markets turmoil, fuelled by Fed chairman Ben Bernanke’s comments that the central bank could slow its $85bn monthly bond-buying programme this year and end it by mid-2014.
Unwinding the world’s biggest economic experiment
The long retreat from easy monetary policy in the US has begun.
The Federal Reserve, it is true, is still buying bonds at a rate of $85bn per month, and has not committed to a timetable for ending those purchases. But we now know that the Fed wants bond yields to rise. And indeed 10-year Treasury yields have risen more than a full percentage point since last July’s low, to 2.5 per cent. That is a tightening.
It is unclear whether the Fed really believes the US economy is strong, or fears that asset prices could be close to a bubble, but of its change in direction there can be no doubt.
Second, we can have faith in the immense latent power of central banks. The Fed has engineered this tightening, and removed air from asset markets throughout the world, just by jawboning. Indeed it continues to buy bonds at a fast rate.
Meanwhile, the ECB has created a persistent lull in the eurozone crisis by promising to do “whatever it takes” – and without, as yet, doing anything.
Third, and related to these, it is close to impossible to doubt that the three-decade bull market in bonds is over.
Opinions vary widely on what happened in Washington last night.
The US Federal Reserve has refused to blink. The Chinese central bank has refused to blink.
The authorities in the world's two biggest economies appear determined to strike a blow against moral hazard and clear the froth in asset markets, at least until this exhibition of virtue blows up in their faces.
The term "Perfect Storm" is banned by the Telegraph as a lamentable cliché,
The Bernanke Put has become the Bernanke Call.
It’s hard to write a happy ending to ‘QE’ story
Yields on 10-year and 30-year US Treasuries up by half a percentage point since the start of May and emerging markets in a funk.
The eurozone still hangs like a dark cloud over the global economy, in recession with no comprehensive solution in sight to the problem of imbalances and a banking system that is undercapitalised and overloaded with sovereign debt.
As Stephen Lewis of Monument Securities remarks, the fear that the Fed will not taper, or indeed dare not taper, may be as significant a factor in the current malaise as anxiety that it will.
UK and much of the eurozone appear determined to repeat the mistakes that inflicted stagnation on Japan
Higher rates may trigger increases in bad loans, which would also create problems for banks, creating a financial crisis.
Central banks believe they will be able to exit when appropriate,
In the US, it now requires a government budget deficit of about $600bn,
Since 2008, the balance sheets of big central banks have expanded from about $5tn-$6tn to more than $18tn.
Zero interest rate and QE policies have increased financial risk.
Satyajit Das is a former banker and author of
Traders, Guns and Money: Knowns and Unknowns in the Dazzling World of Derivatives, and
– Om vi ser att de ekonomiska förbättringarna håller i sig kan centralbanken vara redo
I dagsläget pumpar centralbanken in 85 miljarder dollar i det finansiella systemet varje månad.
Satsningarna är så pass tunga att marknaden i mannaminne aldrig varit så beroende av finanspolitiska stimulanser som idag.
Jag tycker det är skriande uppenbart att räntan världen över är för låg och att en större del av stimulanserna borde ske via finanspolitiken. Rolf Englund, 5 december 2009
This isn’t a /Bond market/ bubble in the classic sense of markets holding unrealistic expectations
Index-linked bonds currently present the most remarkable features.
So what is going to happen?
Authorities would surely need to maintain very low short rates while simultaneously putting pressure on the banks, pension funds and insurance companies to maintain high ratios of bonds in their portfolios “for safety reasons”. This is exactly what happened in the UK and the US in the years immediately after the Second World War and it is already happening again now.
In other words, such a regime would involve sharply negative real interest rates and real yields.
That is a substantial underpinning for the value of all sorts of assets, including residential and commercial property and equities.
Yes, yields on US conventional 10-year bonds are up about 40 basis points over the past month.
Comment by Rolf Englund:
Many analysts believe that QE has caused a major bubble to appear in asset prices,
Is this the “big one” for global bonds?
Abrupt response to Ben Bernanke’s warning that the Fed might think about tapering QE
Can you hear the bears growling?
In a topsy-turvy world in which good economic news is bad news – because it brings forward the day when QE stops – strong non-farm US payroll data on Friday could see further disruptive bond selling.
Bernanke is determined not to have a repeat of 1994 bond market sell-off
Investors Should Remember 1994
Last night's panic in Tokyo, where the Nikkei dropped a stomach churning 7 per cent, demonstrates just how difficult it's going to be for the world's central banks to exit their loose money policies.
Why all the talk of a bond bubble?
Dot-com prices in 1999 made sense only if you believed that many companies would all turn out to be a Microsoft;
You don’t want to buy a 10-year bond at less than 2 percent, the current going rate, if you believe that the Fed will be raising short-term rates to 4 percent or 5 percent in the not-too-distant future.
There isn’t any case for believing that we face any broad bubble problem,
Are the markets going mad?
For years on end, pundits have been predicting the collapse of the bond market,
As the late investment strategist Peter Bernstein liked to say, markets have memory banks.
Today’s bond investors have lived through more than three decades in which bonds almost never went down.
That’s true not just for individual investors but for professionals as well:
- Knowing when to quit separates winners from losers.
Jag har länge tjatat om Den Stora Kraschen. Men aktierna bara stiger...
Inte har jag fel, tror jag. Men jag har svårt för timingen.
Jag dömde t ex ut Wernerplanen, eurons föregångare i en bok
Det gäller att ha tålamod. Eller ge upp.
The bond markets will crash once global central banks stop buying debt,
Roche, who has previously warned that "safe haven" government bonds are the most dangerous place for investors to be in, said Wednesday: "Yes it [a financial crisis] will happen and yes, it will be bigger [than the credit crisis].
Yields on U.S. 10-year Treasurys have fallen more than 200 basis points over the past five years and are now around 1.8 percent. Meanwhile, U.K. 10-year and German 10-year were also trading near record lows at 1.8 percent and 1.29 percent, respectively.
"As long as the central bankers print money, the only way to have to distribute it is [for governments] to buy 70 percent of new bond issuance in these safe haven bond markets. As long as they go on doing that, the yields won't go up, and the day they stop, the yields will go up by so much we will have a financial crisis on our hands," he said.
Roche said the impact of a crash in the "safe haven" bond markets will be catastrophic for financial markets worldwide.
The bond market is an accident waiting to happen
It will be a different kind of a crisis; but it will be an enormous crisis.
We will hit a moment in time where there will be a rapid acceleration of the perception that people are being cheated via inflation by these money-printing policies. Why Americans seem to think there is no inflation just because the CPI says so, when their checkbooks every day ought to tell them there is
The U.S. economy is in a bubble inflated by “phony money” from the Federal Reserve and will burst within a few years,
Waiting for the bond bubble to pop
Leon Black, the chairman and CEO of private equity firm Apollo Group, said investors have completely forgotten lessons learned from the financial crisis, when many of those loans imploded.
Citing the infamous quote of former Citigroup CEO Chuck Prince ahead of the financial crisis, Sri-Kumar warned "The music will stop, and not everyone will have a seat."
It's not clear how much longer the credit bubble can keep expanding, but the higher the market moves, warns Sri-Kumar, the sharper the drop-off, because the economy simply can't sustain its anemic growth rate without the unprecedented level of intervention by the Federal Reserve.
"It's pretty clear that the markets are being artificially inflated by Fed stimulus or the steroids they've put into the system," noted Justin Slatky, a senior portfolio manager at high-yield hedge fund Shenkman Capital Management.
The Fed will have to stop the music at some point and start increasing interest rates. But until then, banks, companies, and hedge funds seem more than willing to keep dancing.
Some of the developed world’s biggest central banks are trying deliberately to raise inflation.
No one fully understands why rates have fallen so far so fast,
If one accepts that maybe, just maybe, a significant rise in interest rates in the next decade might be a possibility, then plans for an unlimited open-ended surge in debt should give one pause.
In the fixed interest sector something irrational is undoubtedly going on
Despite the oft-heard central bankers’ refrain that bubbles are impossible to identify until after they have been pricked, historical comparisons leave little doubt that this is a bubble – one, moreover, to which central banks have contributed their fair share of hot air.
It is rare indeed for investors to pay a multiple of more than 50 times for the income stream on a 10-year Treasury bond.
In higher yielding parts of the market prices are out of touch with default risk.
The impossibility, as with all bubbles, lies in predicting when investors will run out of puff.
What we do know is that when the fixed interest prick happens, it will be potentially very nasty because the excessive exposure of banks to government debt markets creates serious systemic risk.
Certainly, it is quite hard to believe bond yields could sink any lower. But here’s a question.
So to bet on a significant rotation is also to bet on the return of growth.
It would be wise to start taking evasive measures. Such anomalies tend to correct themselves violently. As many holders regard treasuries as truly risk-free, and have no memory of a time when their prices were not rising, this anomaly looks particularly dangerous. And treasury bonds are so central to global markets and the economy that even a steady rise in yields, rather than a rout, would be hazardous.
Are the bond markets going mad?
Economists at Fulcrum Asset Management, (including Gavyn Davies in an FT blog post) blames
During most of the past few decades, Fulcrum argues, investors and economists did not much discuss “disaster” – namely at least a 10 per cent decline in national gross domestic product per capita.
Only two occurred between 1950 and 2000; most modern investors built their careers in a world without disaster risk.
As Mr Barro’s work shows, this low-disaster period may have been an exception to the norm.
The investment question of our time
It did not happen in 2011
What will the 10-year Treasury be yielding a decade from now?
But if you are like the vast majority of investors, you also have a significant portfolio allocation to bonds, especially in your 401(k)s. How is that consistent with your belief that Treasurys will produce losses over the next decade?
The answer, of course, is that you are confident that you will be able to identify when the bond market finally hits it top, getting out before the next decade’s losses are produced.
Far from understanding that confidence, I call it a triumph of hope over experience.
This perception of wealth has its true basis in nothing but the famous "greater fool theory";
Cologne-based financial strategist Philip Vorndran says inflation is the only way out of the European debt crisis.
In theory, you can reduce debt in four different ways.
The Greeks have shown us the easiest way, debt restructuring. But that is unrealistic, we won't see that in the large economies because the central banks will balk at the concept.
The second option is the "Swabian housewife" model: austerity. Here, unfortunately, we are all 15 years too late. If we all started saving now and putting the brakes on spending, we would quickly reach a state of economic Armageddon, comparable to the situation in the 1930s. That is something politicians certainly do not want, and it would also be a massive challenge to apeaceful social coexistence.
The third theoretical option is growth - nominal growth, which is greater than the increase in debt. That is not a realistic scenario within the Western World, we have too many demographic challenges.
That leaves higher inflation. If you have a look at how widely the central banks have already opened their purse strings then it is, as former ECB chief economist Jürgen Stark put it, just a matter of time.
Peter Schiff, the divisive investor and commentator that predicted the subprime/real-estate bubble, is forecasting a U.S. dollar and bond crisis over the next couple of years.
Schiff blames intervened bond markets, where rates are artificially and excessively low, and expects the coming crisis to blow the 2008-9 financial crisis out of the water.
It is true that in a sense the U.S. is simply the tallest midget - the least uncertain place to put your money in a world rife with uncertainty. But given that U.S. Treasury debt is regarded as the safe asset in the world economy, it is very difficult to look at this graph and not conclude that for quite a while - since 2000, at least - a dominant feature of the world economy is that there are not enough safe financial assets (or, rather, financial assets generally perceived as safe) in the world economy, and that each time the U.S. government creates another Treasury bond it adds value to the world economy.
"I think the greatest bubble that is about to burst is the 10-year and longer Treasury,
Long-term government debt, which has provided some of the best market returns for decades, now poses the greatest threat to portfolios, investor Wilbur H. Ross told CNBC.
The reason that markets haven’t jumped yet is that the last great inflation and correction happened
Graham Secker from Morgan Stanley said it is rare for global stocks, oil prices and government bonds to rise in lockstep, and such exuberance becomes a "very reliable sell signal for stocks" once speculators join the party.
Equity long positions on NASDAQ have reached 1.5 standard deviations and long bets on oil are at an extreme of 1.9
The historical relationship between bonds and equities has completely broken down over the past six months.
One or the other must give, and bears have no doubt which it will be.
Suddenly, a growing number of commentators are suggesting that the worst is behind us
How the west cut its debts
US government debt is a safe haven the way Pearl Harbor was a safe haven in 1941.
Despite a reputation for being a slow-growing alternative to stocks for the risk-averse,
Gunnar Eliasson och Nils Karlsson räknar med sju procents realränta.
For the US government, according to Bank of England data,
Chart showing “long term” government bond yields since 1800
Treasury yields continue free fall
Yields on 10-year 2.36% lowest level since January 2009
CNN 12 october 2010 with nice chart
No country defaults on its domestic bonds if it retains the right to set the printing presses in motion.
It seems counter-intuitive that bond markets, with their traditional fear of inflation, should punish a country for not being able to debase its currency. The demise of this conventional market wisdom is one of the achievements, for want of a better word, of European Monetary Union.
In effect, southern Europe (of which Ireland is an honorary member) is going through the equivalent of an International Monetary Fund austerity programme, but without the benefit of devaluation.
The Weimar Republic would presumably have been entitled to a triple A rating since it was perfectly capable of repaying its debts, even though the hyper-inflated money used for the task would have been close to worthless.
Finance academics, with their distinction between risk, which is measurable, and uncertainty, which is not, have used language in a way that can confuse mere mortals.
And the obsession with quantifying risk by reference to standard deviations or techniques such as value at risk are not always helpful.
US Treasuries were never risk free in the common sense understanding of the term. And if the ECB is ultimately empowered to issue euro bonds that are backed by the full power of the printing press, those bonds will never be risk free in common sense terms either.
Om man har en sedelpress går man inte i konkurs
Many ask whether high-income countries are at risk of a “double dip” recession. My answer is: no,
Bill Gross, manager of the world’s largest bond fund for Pimco, has admitted that
Mr Gross emptied his $244 billion Total Return Fund of US government-related securities earlier this year in a high-profile call that has backfired as the bond market has rallied. As of Monday, Pimco’s flagship fund ranked 501th out of 589 bond funds in its category.
“Do I wish I had more Treasurys? Yeah, that’s pretty obvious,” Mr Gross told the Financial Times last week, adding:
What is the “stall speed” of an economy?
U.S. government bond yields are poised to converge with Japan’s for the first time in almost two decades,
“We are beginning to resemble Japan from an interest rate policy standpoint as well as potentially an economic growth standpoint,” Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said in a telephone interview Aug. 10.
Investors are “fearful of low growth and are fleeing to high-quality sovereign paper at whatever yield.”
Credit rating agencies should never be taken too seriously, but for Standard & Poor's to put the United States on "negative outlook" is none the less something of event
Federal Reserve Bank of Dallas President Richard W. Fisher said he sees “extraordinary speculative activity” in the U.S.
“There is an enormous amount of liquidity sloshing around,” the regional bank chief, who votes on monetary policy this year, said in a speech today in Berlin. “There is abundant liquidity in the machine we know as the United States economy.”
Fisher reiterated his view that no further monetary stimulus will be needed after the Fed finishes its planned $600 billion of Treasury purchases through June.
Federal Reserve policy is keeping Treasury yields too
The yield on the benchmark 10-year Treasury note would have to rise to 4.50 to 5 percent to be at what Gross terms a "normalized" level.
Who will buy Treasuries when the Fed doesn’t?
By eliminating QE II, the Fed would be ripping a Band-Aid off a partially healed scab. Ouch!
Pimco has dumped all of its US Treasury bond exposure in its flagship Total Return Fund.
/Pimco's/ bearish call on Treasuries will not have been made lightly.
With a Treasury, you do not run the risk of losing your principal.
Judging by the strong investor demand for new long-term Treasury debt this week and last month, few seem to share Mr Gross’s concern that inflation and the end of QE2 will send bond yields sharply higher.
"I don't know who's buying 30-year fixed debt.
The Congressional Budget Office recently announced that this year’s US budget deficit will be $1,500bn – a grim figure that is dominating the attention of policymakers.
Furthermore, policymakers tend to think of public debt problems in purely national terms, but US debt is not growing in isolation. It is part of an international debt bubble being inflated simultaneously and unsustainably by fundamental demographic changes and vast unfunded promises in virtually every advanced economy. Bubbles eventually pop – and ignoring this one could be calamitous.
With memories of last May's "Flash Crash" still fresh in investors' minds,
Wellcome Trust, which has amassed a £14.5 billion investment fortune,
US Treasuries last week suffered their biggest two-day sell-off
The big financial economy and markets event of the past few days has been
There is no little debate about what all this means.
The fashionable explanation is that the rise in yields should be seen as good news, because it shows that investors are becoming more confident in the US economic recovery
The competing explanation may appear to be based on an almost diametrically opposite view of the prospects for the US. It is that the tax cut shows a US administration utterly incapable of getting to grips with public-sector deficit
The problem is that, even after more than two years of near-zero official rates and huge amounts of stimulus spending, economies such as the US have failed to grow as strongly as hoped.
On the one hand, interest rates have plunged to historic lows, allowing companies, countries and some individuals to borrow at a cost lower than ever.
The interplay between these two forces – the stimulating effect on economic activity of low borrowing costs and the damping effect of a debt squeeze – has severe implications for investors around the world, from individual savers to the world’s biggest insurance companies.
“Is there a bond bubble in Japan? Because if there is, it has somehow lasted for 20 years. If you don’t get legitimate economic growth, then there isn’t a bond bubble.”
Ten-year Treasury yields fell this month to their lowest levels since the dark days of January 2009.
Ben Bernanke declared war today - not on China, but on the possibility of deflation.
Stephanie Flanders is the BBC's economics editor.
In the 1930s, the deflationary trap was the gold standard. Britain left it first, and was vilified for doing so - but it was also the first major economy to recover.
The verdict of economic historians has been that it would have been better for the world if other countries had followed Britain sooner.
Now we have no gold standard (though the euro might be playing a similar role for the eurozone). But we do have a collection of countries, most of them Asian, who have created a modern version of it, by pegging their currencies to the dollar.
America can't abandon its own currency. But it can make things as uncomfortable as possible for those that choose to stick with it. Ben Bernanke may not have planned it that way, but that is exactly what the Fed's policy will do.
Let me say something about what that policy will actually be.
Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted
Bernanke and his central bank colleagues are considering ways they can stimulate the economy as the unemployment rate holds near 10 percent and inflation falls short of their goals.
After lowering interest rates almost to zero and purchasing $1.7 trillion of securities, policy makers are discussing expanding the Fed’s balance sheet by purchasing Treasuries and strategies for raising inflation expectations, according to the minutes of the Federal Open Market Committee’s Sept. 21 meeting.
En vanlig prognos på marknaden är att Fed fram till årsskiftet kommer att spendera 500 miljarder dollar (nästan 3 300 miljarder kronor) på att trycka ned räntorna med obligationsköp och därmed få fart på tillväxten.
Dollarn föll två öre mot kronan efter Bernankes uttalande, ned till 6:53 kronor per dollar.
The deliberate attempt by the Federal Reserve to create more inflation is beginning
Dålig affär av Riksbanken att sälja guldet
30-Year Mortgage Rate Hits Decades-Low of 4.19 %
The average rate on 15-year fixed loans fell to 3.62 percent, the lowest on records dating back to 1991.
Warren Buffett hints at bond bubble
He added that he "can't imagine" the rationale for adding bonds to your portfolio at current prices.
Chinese purchases of our bonds don’t help us — they hurt us.
American policy figures have repeatedly balked at doing anything about Chinese currency manipulation, at least in part out of fear that the Chinese would stop buying our bonds.
But this fear is completely misplaced: in a world awash with excess savings, we don’t need China’s money — especially because the Federal Reserve could and should buy up any bonds the Chinese sell.
It’s true that the dollar would fall if China decided to dump some American holdings. But this would actually help the U.S. economy, making our exports more competitive. Ask the Japanese, who want China to stop buying their bonds because those purchases are driving up the yen.
Ask Not Whether Governments Will Default, but How
Faber advises investors "stay away from Treasurys as they’ve been rallying since 1981
Is there a government bond bubble?
The public are focused on countries' official debts, rather than their fiscal gaps, to gauge the need to print money.
Almost two years into the bond flight, about $550 billion has poured into U.S. bond mutual funds
We've been living in a veritable bubble bath the past 10 years what with two stock bubbles, a real estate bubble and a derivatives bubble. And now, with so much money flooding into Treasury securities and interest rates so low,
But while bond prices are relatively high and interest rates inordinately low, to a large extent that simply reflects the outlook for continued sluggish economic growth and restrained inflation in the near future. Or, as the Federal Reserve Open Market Committee put it in its August 10th statement, "with substantial resource slack continuing to restrain cost pressures and longer-term inflation expectations stable, inflation is likely to be subdued for some time."
The BIGGEST Financial Weapon of Mass Destruction
America and the World are now sitting on the world's biggest ticking financial time bomb, largely because we've pursued some of the most reckless financial policies in history. This toxic asset is U.S. Treasury Bonds… specifically Treasury Bonds with maturities of 10 years or more. They're the world's most popular investment by far… and now they're about to turn out to be the world's most dangerous!
INTEREST RATES HAVE ONLY ONE WAY TO GO, WHICH MEANS THAT LONG TERM BONDS ALSO HAVE ONLY ONE WAY TO GO AND THAT IS DOWN
The real interest rate on 5-year inflation-protected securities is now negative.
Since the beginning of April, when optimism about the economic recovery was at its peak, 2-year bond yields have fallen by 0.63 per cent as the market has realised that the Fed would not tighten monetary policy until at least the end of 2011.
Wednesday 10-year Treasury note yield below 3 percent
On Monday, the yield on 10-year government bonds was 1.1 per cent in Japan, 2.6 per cent in Germany, 3 per cent in the US and 3.3 per cent in the UK.
Former Federal Reserve Chairman Alan Greenspan said the recent rise in Treasury yields represents a “canary in the mine” that may signal further gains in interest rates. Bloomberg March 26 2010
“I’m very much concerned about the fiscal situation,” said Greenspan, 84, who headed the central bank from 1987 to 2006. An increase in long-term interest rates “will make the housing recovery very difficult to implement and put a dampening on capital investment as well.”
Once again, cheap money is driving up asset prices
It is hard to imagine any circumstances in which the authorities will have the foresight (or the courage) to prick a bubble.
The gap between short-term interest rates and long-term bond yields is extraordinarily high. That allows banks, in particular, to borrow at low rates from the central banks and invest the proceeds in government debt; the same trick was used to rebuild bank profits in the early 1990s.
Russell Napier, a market historian and an analyst at CLSA, a broker, thinks that purchases by a combination of Asian central banks and developed-world commercial banks are causing a bubble to develop in government-bond markets.
How to solve the financial crisis?
The gap between yields on Treasuries and so-called TIPS due in 10 years closed above 2.25 percentage points last week, the longest stretch since August 2008.
The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true. But that happy situation, aided by ultralow interest rates, may not last much longer.
An additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion
The potential for rapidly escalating interest payouts is just one of the wrenching challenges facing the United States after decades of living beyond its means.
Watch out for tail risks hanging over the $14,300bn US Treasuries market
Those 10-year bond rates are still laughably low, meaning financing costs are cheap. But if sentiment ever swings violently, there could be a nasty wake-up call.
Could sovereign debt be the new subprime?
These days, there is a near-unanimous belief among western regulators that one way to prevent a repeat of the 2007-08 crisis is to stop banks taking crazy risks with subprime mortgage bonds or complex instruments such as collateralised debt obligations (CDOs). Instead, banks are being urged to hold a higher proportion of their assets in the form of “safe” instruments, most notably sovereign or quasi-sovereign debt. G20 regulators are holding regular meetings in Basel to draw up rules on how banks should do this, as part of a wider reform of financial regulation
That does not necessarily mean an outright default looms any time soon; indeed, default seems highly unlikely. However, it is easy to imagine that some countries will end up eroding the value of their bonds by debasing their currencies in the coming years, printing money and stoking inflation.
Investors should shun U.S. government bonds
“Rates will have to start rising, probably later in 2010, as inflation expectations medium and long term show up in higher long rates,” Buiter said in an interview on Bloomberg Radio today.
When asked if people should be buying Treasuries, he said: “I wouldn’t, but then I’m a leading indicator of capital losses on a range of assets.”
Ten-year Treasuries rose for a third day after a report showing German investor confidence declined.
The Fed did not see the crisis coming
As the US, UK and Japan will be trying to borrow the same buck in international markets, bond yields will rise when QE stops and there is an even modest recovery in credit demand from the private sector.
All credit bubbles rely on underpriced capital being in oversupply relative to the fundamental needs of an economy. Given the huge demand for capital by increasingly insolvent governments, those conditions won’t exist.
China’s central bank warned that its counterparts in developed nations face difficult choices
Is the US (and a number of other high-income countries) on the road to fiscal Armageddon?
Are recent jumps in government bond rates proof that investors are worried about fiscal prospects?
Martin Wolf, Financial Times June 2 2009
Did the Fed go too far?
CNN 19/6 2008
Investors are kicking themselves for failing to spot the twin bubbles in the stock and housing markets
Allan Meltzer, the distinguished monetarist from Carnegie Mellon, fears that the disaster scenario is far more likely. "We'll see tremendous pressure not to raise rates from Congress, the administration, businesses and the unions because of high unemployment," he told Fortune. "As the economy picks up, the Fed will need to scale back on money-supply growth, and in a replay of the 1970s, they will not do it."
The yield on the 30-year Treasurys touched a low of 2.51 percent last year in December
"Yields have already backed up pretty substantially and I tell you, I think the US government bond market is a disaster waiting to happen for the simple reason that the requirements of the government to cover its fiscal deficit will be very, very high," Faber said.
"At every market peak.. you have excess liquidity.
The most striking thing about financial markets at the start of 2009 is neither the level nor the valuation of stockmarkets.
Two-year Treasury bonds yield less than 1%.
The 30-year bond was, as recently as January 2nd, yielding less than 3%.
James Montier of Société Générale cites figures showing that ten-year Treasury yields have averaged just over 4.5% since 1798.
“Global bond yields are sure to be much higher in five years than they are today, but this does not imply that the market currently is in a bubble,” says Martin Barnes of Bank Credit Analyst, a research group. “The economic backdrop will remain bond-friendly for at least the next six months.”
RE: Då är det gott om tid och ingen fara (OBS Ironi).
Investors must be wary of government bond 'bubble'
With US Treasury bills yielding little or nothing and government bond yields plunging everywhere as central banks creep towards a Japanese-style zero interest rate policy (Zirp), there is talk of a government bond bubble. But is it possible to have a bubble in the most boring form of IOU?
When it comes to aerated finance the best authority is Charles Kindleberger, the economic historian who devoted much of his life to studying manias, panics and crashes. His basic definition of a bubble was "an upward price movement over an extended range that then implodes". Speculation was an essential part of a story in which investors were buying not for income and capital gain, but with a view to re-selling on a short-term basis to someone else at a higher price - a phenomenon sometimes known as the "Greater Fool Theory".
I share the view of Michael Lewitt, of Harch Capital Management, who argues that the last thing investors are thinking when they buy zero per cent Treasuries is reselling them at a profit. In most cases, they expect to resell at a loss. Rather, he argues, their priority is absolute safety and the knowledge that there will always be buyers for securities backed by the US government. Such behaviour, then, is a perfectly rational response to extreme uncertainty and the fear of deflation.
The risk, as I suggested here before Christmas, is that the upwards yield adjustment could be savage when Humpty Dumpty is put back on the wall and normal private sector financial service resumes. Given the enormous funding pressure that will exist in the early days of the Obama administration, and the potential shift of investment focus from deflation to inflation, Treasuries will at some point become an outcast asset category.
It is suddenly fashionable to suggest we are in the throes of a fresh investment bubble - this time in government bonds.
John Redwood, the former Welsh Secretary, who these days supplements his backbench stipend as a City money manager, joined the sceptics yesterday, saying that only the greater fool theory explained the enthusiasm for the asset class.
“You still have a massive paranoia in the marketplace and you’ve got that safety-at-any-cost mentality,” .
Instead of shunning the U.S., where losses on subprime mortgages in 2007 triggered a global seizure in credit markets that led to the downfall of securities firms Bear Stearns Cos. and Lehman Brothers Holdings Inc., investors can’t get enough Treasuries. Even as estimates of Obama’s stimulus package and the budget deficit rise to a record $1 trillion, demand continues to increase as investors flee risky assets around the world and put their cash into U.S. bonds paying, in some cases, nothing in yield just to ensure the return of their principal.
Purchases accelerated even as the yield on the benchmark two-year Treasury note tumbled to 0.76 percent last week.
Rates on three-month bills turned negative on Dec. 9 for the first time.
The same day, the U.S. sold $30 billion of four-week bills at a zero percent rate.
Yields on two-, 10- and 30-year Treasuries last week all fell to lowest since the U.S. began regular sales of those securities.
Conventional wisdom is that in the long term, shares always outperform bonds, whose value and income tend to be destroyed by inflation. Shares are inherently more risky, but they compensate by delivering higher returns. In fact this may not even be true in the long term, as statistical analysis tends to focus on stock markets that survive economic implosions and ignores those completely wiped out by them.
The key question for stock markets is whether the cycle is ending in an inflationary or a deflationary nemesis.
High-Grade Bond Yields Rise to Highest Since 2002
Average yields on the securities rose 14 basis points yesterday to 6.32 percent, the highest since July 2002
Yields on the benchmark 10-year Treasury note rose to 4.10 percent yesterday, the highest this year. Yields on two-year Treasuries posted their biggest back-to-back increase in at least 20 years, surging 55 basis points to 2.93 percent.
Bernanke sparks a bond sell-off with new inflation warning
In Japanese trading early Tuesday the yield on the two-year U.S. Treasury note rocketed to 2.93% from 2.71% at the end of U.S. trading Monday.
Bernanke believes that the danger of a “substantial downturn” in the US economy has abated over the past month,
Jim Grant of Grant's Interest Rate Observer on Bloomberg
Next Bubble Is Forming: U.S. Government Bonds
Bubbles are defined as markets that trade in high volumes at prices that are considerably higher than their intrinsic value.
The fundamental problems that created the current economic mess we are in today were simply a far too easy monetary and fiscal policy that encouraged leverage, consumption and risk. Borrowing as much as you could and investing it in an asset that never went down in value was the formula for success.
In studying past financial bubbles — there are some great books written on the subject), the common ingredients in the bubble recipe are a low interest rate environment that encourages extreme leverage strategies and a psychological belief by investors that the asset that is being bought and leveraged can never go down.
A stock market bubble exists when the value of stocks has more impact on the economy than the economy has on the value of stocks.
A repeat of the Great Depression is unlikely
The Rising Risk of a Systemic Financial Meltdown: