Attempting to escape the clenches of the credit crunch, nervous investors ran screaming toward Treasury bills.
So much so, they drove the three-month Treasury bill rate to negative territory for the first time since 1929, creating an over-inflated bubble set for failure.
Yep, the next bubble is here... and most people can't wait for it to happen. It may not have the characteristics of the Internet, energy or housing bubbles, but the unbelievable rally in U.S. Treasury bonds is just as doomed as commodities and housing stocks.
You see, most bubbles form because people believe there's a lot of money to be made. But when the frenzy dies, as it did with commodities, prices come down... hard. With Treasuries, the bubble inflates as people become afraid of other markets.
Eventually, and hopefully, the fear will drain, and Treasury investors will return to stocks and corporate bonds, selling off Treasuries... then pop goes the bubble.
Even Michael R. Sesit, author of Bloomberg's "Treasuries Walk, Talk like an Old-Time Bubble," agrees. He'll tell you it's tough to argue that the Treasury bubble won't eventually pop, seeing that a T-bill priced at zero percent is ridiculously overvalued. And we agree with him.
So does Bill Gross of PIMCO fame, who believes that the Treasury market is overvalued and exhibiting bubble-like characteristics. He even acknowledges a doomed dollar:
"Certainly the government and the Fed cannot continue to talk about the trillions of dollars of expansion of the Fed's balance sheet without the risk of the dollar going south. It is fair to say other economies are doing much the same thing. The dollar doesn't have to go south if all the economies reflate at the same time."
CureZone