Tuesday, December 16, 2008

1873 all over agin?

I will have more tomorrow.

The Nikkei didn't buy this move by the Fed one bit. Their market is up a whopping 33 points as I speak.

Japan knows the deflation game all to well and this move today by the Fed was a desperate attempt to re inflate the economy. Japan attempted the same thing and failed miserably so why would they think things would play out any different here?

This is no longer 1929 folks. Its 1873 in the US all over again. Japan was the most recent version of the deflation game we are now witnessing here in the US. The last time it happened here was shortly after the Civil War.

Do not be fooled by the price action today. I have been doing a ton of research tonight, and I don't like what I see.

Unfortunately I see no safe place to put your money in this current economy. The treasury market has now become the land of "zero returns".

The Fed is not manipulating the treasury markets here folks. The smart money in the bond market is front running the Fed announcements in a desperate attempt to find safety. Earlier on I believed it was the Fed that was causing the huge drops in treasury yields.

I was wrong. Rick Santelli nailed it today when he asked his buddy the Wolfman who is a trader in Chicago this question: "What do you do when the 800lb gorilla(the Fed) in the room announces its going to make a move?"

Answer from the Wolfman: "You front run the gorilla."

So when the Fed announced they may do a quantitative easing or buy MBS, the smart money all flocks there before the Fed and waits to get paid.

Bill Gross who is one of the smartest guy on Wall St and the king of bonds now has 80% of the assets in his largest fund(total return) in MBS(mortgage backed securities). When asked why he explained they are paying 4-1/2%. The Fed announced last week that they planned on doing whatever it takes to get credit flowing agian and that included buying MBS. So if you are Bill Gross and you know the money is going to flow there, why not take 4-1/2% with a government guarantee when treasuries are now paying you nothing?

This front running is the story folks, and treasuries are eventually going to lose their luster in the eyes of foreign central bankers as this unfolds. When this happens(and I don't have a timeline here) its going to be ugly.

I will have much more tomorrow. We are in uncharted territory here everyone and I had to go back to 1873 in order to find anything close to what we are seeing in our markets today.

What I read during these times was frightening.

Stay tuned!


Rod said...

Tasty Blog, my friend

Joe said...

I've been helping my parents manage their retirement nest egg. Thankfully we were able to avoid most of this mess so far, but I'm getting to the point where I just don't know where to park their money any more. The money market fund they are in is now paying next to nothing. Treasury bonds have been great over the last couple of weeks, but I don't think that game is gonna last. The only thing I can think of right now it to move their money into CDs, but I don't trust the damn banks or the FDIC. WTF!?

Jeff said...

Hi Rod

I am glad you are enjoying the blog.

I will have something up later today. Looks like we are giving back some gains on the DOW today

Jeff said...


Unfortunately there are no safe places to park money anymore.

Treasuries are turning into the next bubble and at some point its going to burst.

The dollar is crashing.

CD's are considered safe but if we see many bank failures how hard will it be to get your money back?

I am thinking that we need to be thinking about holding hard assets.

I am hoping that deflation takes down housing prices before things all go to hell.

I am starting to think I want to own a house as we prepare to go through this downturn/depression.
This way you have your own place to store necessities and cash.

I also advise this because if you rent, you can't count on your landlord staying solvent.

IS the mattress the safest place for cash now? IF treasuries pay you nothing its starting to make sense to me.

flipdippy said...

Another brutal day for SRS, with no end in sight.

John Maynes said...

Let's hear what Jeff will be saying on SRS!!! Please be objective, Jeff.

Anonymous said...

Anyone trading SRS needs to look at the underlying index for some perspective.


Jeff said...

Should have something up around 7pm

I will address SRS! This sucker is volatile. Many are trying to run into the REITS as didvedend plays.

You need to wait for the retail BK's after after the holidays in order to reap the benefits of this.