NEW YORK (Real Money) -- How can anyone not short 10-year U.S. Treasuries at 2.4% with job growth and economic expansion increasing in strength?
At the same time, how can anyone not be long U.S. Treasuries with French 10-year bonds yielding 1.3%, even though the short-euro call is a very crowded trade? This is a world where the European Central Bank just makes a surprise rate cut -- done, I think, to take the euro quickly below $1.25.
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This conundrum is incredibly important because it does say that one of these two markets, if not both, is very wrong. I mean very wrong.
Obviously I am not just talking about France. Three years ago we were talking about Italian and Spanish 10-year bonds at 7% with their governments about to go bust.
Now we are talking about 10-year Treasuries at the same yield as ours, and while the countries are a tad more solvent, they certainly have to be considered just parking instruments. But then again, that makes German 10-years at less than 1% no-parking instruments unless you feel that deflation's going to continue at a 1%-2% pace.
Obviously in Europe there is no demand for money, which is largely why ECB head Mario Draghi is frantically pulling out the stops talking about buying asset-backed bonds. Anything to get anyone to borrow and then build or buy or create -- that's his mantra.
Here there's demand, but our banks are petrified to show any uptick in bad loans that would just bring them back in the crosshairs of the government. Better just to say no.
Over there no one's asking, so there is nobody to say no to.
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Here our banks are squeaky clean and yet is there a day that goes by that we hear they aren't and there is so much more work to do to ensure they don't collapse?
There the banks have never even had real stress tests and have been able to do whatever they want and are still part of the problem and can't even be part of the solution.