One Cannot Talk About Supply and Price Without The Third Piece Of the Puzzle: DEMAND

Jeff Nielson wrote an awful piece yesterday that I came across via The Reformed Broker.  Just in case you read this poison, you need the antidote.

Nielson goes off the rails at the beginning, basing his rant:

“Previously, my own writing has focused upon one particular aspect of this absurdity: the highest prices for U.S. Treasuries at a time of maximum supply. This, in itself, is an absolute financial contradiction. The highest supply in history directly implies the lowest prices in history, for every market in the world — except U.S. Treasuries. “

Did anyone catch the nonsense there?   It’s meaningless to talk about supply without talking about demand!    The statement “The highest supply in history directly implies the lowest prices in history, for every market in the world — except U.S. Treasuriesis undeniably false.    How many markets can you name with record supply without record low prices?  Here, I’ll start with one near and dear to Nielson’s heart:  1) gold – above ground gold stocks are ever increasing – highest supply in history –  yet the price doesn’t go to zero.  2) Housing:  we keep building more and more houses – highest supply of houses in history – yet the price doesn’t go to zero.  $AAPL stock:   shares outstanding keep increasing – highest supply of shares outstanding in history – yet the price doesn’t go to zero.  You could spend all afternoon continuing this list.

Supply doesn’t translate into price.  Supply with respect to demand translates into price!

Jeff Nielson doesn’t want to own bonds, so he concludes that NO ONE can possible want to own bonds, and then draws false tautologies based on his newly created Matrix-like non-reality.   So, look: Nielson doesn’t want to own bonds here.   I don’t want to own bonds here either!  But that doesn’t mean that no one wants to own bonds!

Mercinary Trader, in his astute rebuttal, lists a number of reasons why some people are still bullish on T-bonds.  Make sure you check out the rest of MercinaryTrader’s post for a thorough backhanding of Nielson’s fantasies.

Joe Weisenthal was the first post I read this morning that rebutted Nielson’s nonsense, and included a simple chart of total public (Fed gov’t) debt vs 1/yield, with the simple observation: “For 30 years, yields have been falling (represented by a rising red line) at pretty much the exact same pace as the national debt has been rising.”

As MercinaryTrader Jack Sparrow wrote in his shredding of Nielson’s horrendous deductive non-reasoning,

“I’m not a big Ayn Rand fan, but I agree with her advice on contradictions: If there appears to be a contradiction, check your premises. Chances are one of them is wrong.”

Nielson’s base premise is wrong, so it’s no surprise that the conclusions he derived from it are wrong as well.

Jack Sparrow @ Mercenary Trader:   In Defense of U.S. Treasuries – Or “Debunking an Ideological Rant

Joe Weisenthal: “Why Treasury Prices Are So High Despite Record Supply

Jeff Nielson: “Who’s Propping Up The U.S. Treasury Market?”


no positions in $TLT, $TBT

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