T Bond Yield and the rest

30 year tbond yield dropped below 3% for the first time. this indicates that it is forecasting deflation ahead, whether the recent fed intervention of targeting almost zero for short term rates [0-0.25%] can starve off the deflation is still unknown.

stocks are definitely in a rebound mood for the xmas season, next year may not be so lucky.

what does less than 3% yield mean? it probably forecast the following:

1. a wave of bankruptcies in the year ahead or more;
2. no inflation but deflation setting in - more price declines in commodities including maybe gold;
3. even oil can get much lower than range bound 40-50 if the unemployment is serious;
4. more assets deflation;
5. more fund redemptions pushing stocks even lower;
6. as unemployment rises, foreclosures closely follow, this will lead to
   
7. more equity funding required for financials when losses mount on their risk portfolio of asset backed securities as valuations decline as well as hits to traditional portfolio of mortgages; credit card and unsecured consumer loans not to mention commercial loan defaults due to more bankruptcies of corporations.
   
8. the 3 motor car companies have to shed quite some staff and benefits to break even, in my opinion a cost cutting of 30% or more is required as sales slow.
   

i forecasted zero interest rates policy earlier in my blog that many central banks will, even reluctantly, have to pursue. the current spike in foreign currency exch rates against the usd will put even more pressure on other central banks to follow suit since a rising currency will impede exports, industry of which is already in a fragile state for countries such as uk, italy, germany, china, korea etc.

so brace yourself for a really really tough ride in 2009 and sell most of your stocks into this sucker rally.