Sunday, December 27, 2009

In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else

Here is the only math you need to know as we all look at 2010: in 2009 US Dollar denominated fixed income supply, net of the Fed's Quantitative Easing operations, was $190 billion. In 2010 it will be $2,060 billion, an eleven fold increase. The Fed has three choices: 1) a QE 2 announcement soon, causing a plunge in already low Democrat popularity ahead of the mid-term elections; 2) interest rates skyrocketing, throwing the economy into a true tailspin; 3) the mother of all engineered equity crashes to return capital flow to risk-free assets. None of the three is a pleasant choice, however the Fed could only delay the inevitable hangover from the biggest private-to-public risk transfer in history for so long.

(from Zero Hedge, December 25, 2009)

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