2010: The Year of the Bond Market

Hello Folks!

Before I start I hope everyone has a safe and Happy New Year! I wanted to hop on here and talk a little about the year ahead as 2009 comes to a close.

IMO, 2010 will be the year of the bond market. The US government plans on borrowing over $2.5 trillion in 2010 after borrowing a record $1.5 trillion(give or take) in 2009.

Somehow the banksters and the US government found a way to get their treasuries sold in this year. They achieved their goals in 2009 in a couple of different ways:

First they kept borrowing rates at 0 which allowed the primary dealers to make a fortune buying treasuries. this allowed the primary dealers to make billions by borrowing at zero and then investing in higher yielding assets like the 30 year bond.

As I have explained before, the banks pocket a sweet spread when you borrow at 0% and then buy the long bond at 4.7%.

Secondly, they also found a way to talk the FCB's into going along with this charade(probably through threats) as the world continued to buy treasuries.

This zero interest rate environment allowed Wall St to make more money this year than any other year in their history including the housing bubble years of 2004-2006!

In a nutshell: The Fed's games allowed the Street to gorge on profits at the expense of the taxpayer. Meanwhile, Rome continues to burn as the average American continues to suffer from unemployment and low wages as this country remains mired in worst economy since the 1930's .

If you are a banker you are sitting on top of the world right now! On the flipside, if you are one of the "peasants" in the USA as the greatest fraud in the history of this country continues to roll on, your lives have probably never been so tough.

I know I am personally feeling it. I went home during Christmas and saw the toll that this recession/depression has taken on my family. I am sure many of you have seen the same thing within your own families.

Folks, we are being screwed more ways than a $5 hooker on a busy Saturday night by the oligarchs of this country.

For Example: If you were responsible over your lifetime and saved money, the Fed is now rewarding your responsibility with CD's that basically pay nothing. Gee thanks Mr. Bernanke! NOT!

Meanwhile the bankers continue to gorge on profits as they take advantage of historically steep yield spreads. I continue to be amazed that there are no torches and pitchforks in DC yet.

What is it going to take to make people rise up? There are reports out of Detroit that unemployment is nearing 50% and yet no one says a thing! How bad does it have to get before you wake up and do something? Where is the anger folks????

If you want to take action I suggest you follow the Huffington Post's advice and begin starving the "too big to fail banks" by yanking your money out of them and placing your funds into a community bank.

The Post has created a safe way in which you can find a solvent community bank by starting up the website Move your Money. This site allows you to find a safe community bank in your area by simply plugging in your zip code.


It's time that we "starve the beast" and take away the liquidity that allows the TBTF banks to manipulate the market, buy and sell unregulated derivatives, and then pay themselves ridiculous bonuses at the end of the year.

Remember folks, without taxpayer funds via the TARP, NONE of these banks would exist! The fact that their enourmous profits are going into the bankers pockets instead of the taxpayers is simply disgusting. Do you need any more proof that you are being blatantly robbed? I hope you all take action and move your money like I have.

The "Bondzilla" 2010 Bond Market

IMO, the banks have had their day in the sun when it comes to low interest rates and big profits. Moving forward, the bond market is increasing getting very agitated over the huge spending programs that have been announced in the past few weeks.

Take a look at the ten year(TNX) over the last 20 days:


My Take:

Yikes! That is one ugly chart! Yields hit 3.9% at one point today on the 10 year before pulling back as stocks began to fall. This is a monster move thatwe have seen over the past three weeks. Some would call it parabolic.

Remember, if rates soar to 6% housing is toast. You think the drop in housing prices is bad now? HA! You ain't seen anything yet if the 10 year continues to soar. As we all know, mortgage rates are set based on the ten year bond.

So why are bonds selling off(resulting in higher yields)? The real question you should ask yourself is why wouldn't they?

I mean the spending programs that have been announced over the past couple weeks are mind boggling.

The Senate passed a healthcare bill that is going to cost us over $1 trillion dollars(I believe it will be much more than that when its all said and done). This will be accompanied by massive tax increases and if you think its only the rich that will be taxed you are nuts.

The Fed/Treasury then added to our woes on Christmas eve when helicopter Ben and his pals announced that Fannie and Freddie's losses over the next 3 years will covered by the Treasury no matter what the cost.

I find it funny how they Fed/treasury conveniently annouced this right before the holiday hoping no one would notice. As you can see above, the bond market sure noticed!

How much money are we talking here? Who knows? It will depend on how bad the economy gets. We are talking at least $400 billion from what I have read. If the economy worsens and homeowners continue to walk away in droves from underwater mortgages the tab could be much higher. Could it be $1 trillion or more? Perhaps. Time will tell.

The Bottom Line:

Higher rates are inevitable in my view. There are some deflationists that are convinced that we headed back to 2% yields ala Japan in the 1990's. I just don't see it with the $2.5 trillion in treasury issuance's that are scheduled for 2010.

One thing is for sure in my view: The bond market will be the story of 2010. If interest rates soar on treasuries as the world begins to question our ability to pay the money back, the economy is TOAST.

The Fed may be forced to raise rates faster then they expected if the bond market goes berserk. Ironically, if the economy recovers, the Fed will be under even more pressure to raise rates because fears of inflation will arise.

I am afraid that 2010 will be a year where we transition from a low rate/high growth environment into high interest rate/low growth one.

This does not bode well for the stock market. An even bigger risk to the stock market is the bond market. Ben won't hesitate to pull liquidity and crash the stock market if he can't sell his treasuries. He knows that investors will run to bonds if the market falls apart.

2010 will be another year of caution for investors. "Buy and hold" worked this year. I don't see anyway possible that we see a repeat this next year. The road we are travelling heading into 2010 is filled with potholes and landmines.

Buyer beware.

Disclosure: No new positions at the time of publishing. Short treasuries via TBT in longer term accounts.

Inflationary Fears Creep Back into the Market

Despite golds recent plunge, today's auction tells you that the bond market remains extremely worried about inflation.

Today's 30 year bond auction was a complete disaster:

My Take:

Folks, I can't even begin to describe how ugly this is. Before I get into this, let me preface this by saying that we could see a short term higher move in the dollar as a result of global fears around sovereign defaults forces capital into the US.

This would then possibly trigger a huge short covering rally of the US Dollar as a result of an over crowded short dollar trade. Many may interpret this to be very deflationary. I just don't see it longer term. In my eyes, the trend for the US dollar and our economy is heading only one way: DOWN!

The 30 year bond auction confirmed that the bond market sees nothing but further printing and dollar devaluation. The world's FCB's are basically telling you that they don't want to hold any long term investments in the US as long as our government continues to print. This eventually is going to force interest rates to move significantly higher in order to attract demand.

BTC

As you can see above, the BTC was a measly 2.448. CNBC's Rick Santelli gave this auction a big fat "F".

It's pretty simple folks:

The bond market is scared to death of inflation. I mean who wants to hold a 30 year bond at 4.5% when inflation could rise 10% a year as we power up the printing presses?

You must also assume that the bond market presumably expects the US to continue to spend themselves into oblivion. IMO, it's becomes increasingly obvious that we cannot eliminate all of our debt without printing out of it.

Today's auction was very ominous: If we cannot sell our debt the jig is up. In my eyes, this was warning shot across the bow from the bond market.

Take a look at Jim Rogers appearance on CNBC today. His investment thesis continues to be focused around inflation:

Disclosure: No new holdings at the time of publishing.

Expect Continued Volatility as the Economy Hangs in the Balance

Hello all!

I know it's been awhile and I apologize.

Let's take a look at these choppy equities.

Mr Market appears to be confused. The positive jobs number last week(which was actually pretty impressive) really threw a wrench into the Fed's plans.

I find it interesting that the market sold off on the news. You would have thought the bubble boys would have taken the market higher after a -11k jobs print vs. the -150k or so that was expected.

Following the quick bounce after the announcement the market nervously closed pretty flat. Why?

There are a variety of reasons. As I explained in my last post, the banksters on Wall St really don't want to see an economic recovery. The reason for this is higher interest rates would soon follow because inflation would begin to start rearing its ugly head.

This would then flatten out the yield curve which in turn results in a less profitable environment for the banking system. I mean think about it folks: Borrowing at 0% right now and then lending at 5% is a pretty sweet gig for the banks. Any moronic banker can make money in this environment.

An even sweeter gig for these criminals is being able borrow at zero while charging 30% annual interest on a credit card balance. When you see this type of things, you really gotta wonder if any of these people have anything that resembles some type of conscience. I already have my answer.

I sometimes ask myself: Should this type of pillaging be regarded as criminal? IMO yes, but it's legal nonetheless. It's pretty sad when you can get a better deal lending money from the Sopranos instead of a bank!

I think it's absolutely disgusting that these arrogant banking gangsters have the gonads to charge 30% on credit cards after we bailed their behinds out! Where are the torches and pitchforks?

I guess I shouldn't be surprised after watching Wall St basically extort $700 billion from Congress in the form of TARP. Arghhh...I could go on and on about this but I feel my blood pressure rising so I better stop.

The bottom line here is this:

If the economy recovers, interest rates will eventually rise: Banking profits on lending would then shrink as a result. Housing prices would then drop because buyers will be forced to borrow at a higher interest rates.

Making matters worse, rising rates would lower the value of the bankers bloated mortgage bubble assets(MBS etc) that they continue to hold on their balance sheets. Banks would also have to pay higher interest rates on CD's.

So you see, an economic recovery isn't very profitable for the banksters. It could actually be very painful, especially if they borrowed at near zero and then bought 30 year bonds at 4+% and pocketed the spread. This is a great trade as long as interest rates stay low!

Many banks went under during the last economic crisis when they got caught on the wrong side of the interest rate trade like the one I described above as rates soared in the late '70's/early '80's.

A reminder to all:

Don't ever be fooled by these snake oil salesmen when they cheer about an economic recovery. They will tell you over and over on CNBC that things are getting better in an attempt to pump up stocks. However, behind closed doors, a floundering economy with zero interest rates is what the banks really want because they can make a fortune. They will never admit this of course.

Market Volatility and Gold

In the short term I expect a lot of volatility. Currencies are bouncing all over the place as a result of recent worldwide economic events. The Dubai debacle continues to rattle the world markets(this one ain't over folks).

We also face the threat of sovereign defaults of countries like Greece. Germany's production number was also very poor today.

All of this worldwide turmoil is forcing capital back into the dollar. If we have learned one thing in the past few weeks, the world still flocks to the US when things look shaky.

This surge in the dollar has taken its toll on the short dollar/long gold trade. Longer term I still remain bullish on gold because I think the US dollar will continue to drop as our own economic skeletons continue to come out of the closet.

Remember folks, history repeats itself so let's take a look at gold back in the 1970's:



Quick Take:

As you can see above, we saw a lot of volatility is the gold market as the world panicked about deflation, inflation, and the value of paper currencies. Inflation adjusted, gold would have to reach $2176 in order to match its highs in the early '80's.

We have done MUCH more damage to the dollar this go around as a result of our ridiculous spending deficits so I expect to see gold at least reach the previous inflation adjusted high of the early '80's.

Get used to the volatility! I expect to see see some serious wild swings in gold before we get there. You could see currencies bounce all over the place in the near term as various countries(including the US) teeter on the brink of disaster.

I continue to believe that its a good idea to hold gold because I think everyone should have "economic insurance" from the dollar in a market like this. If you are looking for a hedge your gold holdings, shorting the S&P at these levels makes a lot of sense.

The Bottom Line:

The market could get real choppy here in the near term. The jobs number threw everyone for a loop. The Fed will most certainly become more concerned around inflation if continue and see continued signs of an economic recovery.

Short term keep an eye on the bond market. Rates may begin to rise if the economic numbers continue to improve.

Don't misread me here folks, I am still extremely bearish longer term(Shocker eh?). My point is the market will begin pricing a recovery in if the numbers continue to improve regardless if they are accurate or not.

Remember:

Never underestimate the government and their ability to spin the numbers positive. I am highly skeptical of that jobs print. I bet that number would have looked pretty ugly if you took out the part time holiday workers and added the unemployed that have ran out of benefits.

I don't expect to see a sustained recovery anytime soon. IMO, The chances of seeing any consistent economic growth in the next few years are between slim and none.

That being said, the volatility should continue in the shorter term because the economic numbers continue to come in mixed.

Disclosure: Long gold and silver via GLD and SLV in longer term accounts. Short treasuries via TBT in longer term accounts.

Raise Cash...Another Crisis is on the way

Good evening Folks!

First of all, I apologize for the lack of posts. The collapsing economy has forced me to focus on other work for the time being.

The next two weeks will be busy, but I hope to be back up and posting more often in December.

Folks, I consider this to be one of my most important posts. I am going to offer a warning and some advice.

I am EXTREMELY concerned about the things that I am seeing in the markets. The US dollar carry trade, soaring gold(up another $15 tonight), and the apparent imminent passing of health care reform are the last straws that are going to eventually break this market's back.

As a result, I have tweaked my investment strategy. I will explain my concerns in further detail later on in this post.

Here is my advice: Raise Cash!

If you are looking for a number, I would have enough physical cash at home to pay one months worth of bills. I would also advise having 6 months worth of available cash in a safe conservative bank or credit union.

If you do not have the money to do this and live paycheck to paycheck, I would suggest cutting back your 401k contributions to the minimum amount at which your company matches.

For example, if you contribute 10% to your 401k and your company matches dollar for dollar up to 4% then you should drop your contributions back to 4% until you raise enough cash.

I did this in my own 401K within the past month. 401k's are great because they cannot be touched if you go bankrupt. However, I'll be honest folks, if it wasn't for that, I would probably advise you to liquidate the whole damn thing.

I say this because taxes are going to soar down the road as a result of our bulging deficits. You would probably be better off taking the 50% hit on your 401k now because at the rate we are currently spending, the tax rate might be 70% or higher when you are retiring and getting ready to use it.

Remember, when we paid off our war debts in the '40's, the tax rates for the wealthy were as high as 90% as seen below:

"During the Great Depression and World War II, the top income tax rate rose from pre-war levels. In 1939, the top rate was 75% applied to incomes above $5,000,000 ($75 million 2007 dollars). During 1944 and 1945, the top rate was its all-time high at 94% applied to income above $200,000."

There is no reason why we won't see the same thing happen all over again if we ever plan to pay off our trillions in debts.

Our debt vs. GDP is completely out of control. It's beginning to make The Great Depression look like a walk in the park:

Quick Take:

This is not sustainable! The world is rapidly losing confidence in the US dollar as our debt load continues to soar. Gold is slowly decoupling from the dollar and continues to move higher regardless of what bucky does. This is a very troubling sign.

The New Carry Trade

Move over Yen! There's a new carry trade in town: It's the US dollar! This is what has been holding up the equity markets recently. If you haven't noticed, the market trades right in synch with the US dollar.

If bucky drops, the markets rise. If bucky rises, we tend to see moderate sell offs.

So how does the carry trade work? John Mauldin does a great job explaining it here.

Essentially, the Fed is trashing our currency with massive deficits while keeping interest rates at zero at the same time. This is the perfect setup for a currency carry trade which I will get into a little later in this post.

Take a look below at the current zero interest rate policy below:

Before I get more into the carry trade I wanted to explain why I am so fearful.

What really spooked me into my cash call was when I saw the IRX(13 week T-bill) drop below zero for a bit last week. This means at one point last week you actually paid to keep your money in treasuries! The last time we saw rates that low on the IRX was when the market crashed last fall.

This tells me that the big boys are really spooked. They would prefer to sit and actually lose money in treasuries versus investing in the equity market.

No back to the carry trade:

This is how the carry works: Investors borrow dollars at zero interest rates and then sell the dollar and buy an appreciating currency. After converting the money into a stronger currency like the Aussie dollar, they then run around and buy up assets around the globe that offer a higher yields then the zero yield they get sitting in treasuries.

This is a beautiful trade for now because you win twice. You make money based on the simple appreciation of the currency as the dollar continues to fall, PLUS, you also get a nice yield spread off the foreign bonds that you bought that offer yields of say 5% or so.

The problem here folks is everyone is piling into this trade. This is rapidly turning into a speculative mania. Congratulations Fed!: You just blew up another bubble that now has to burst just like every other one has.

So what are the risks here?

There are a few that really concern me. The first one is what if the the falling dollar gets disorderly and begins to plunge? The Fed would then be forced to act and protect the dollar by raising interest rates.

This would be disastrous for the economy, and anyone stuck in the dollar carry trade would get slaughtered because the dollar would soar as a result. Many of the carry traders use huge leverage so they could potentially get wiped out.

Higher interest rates would also be a disaster for the housing industry and the banks balance sheets that are filled with garbage loans. We would also see the market plunge because of the damage higher rates would do to the economy.

Another concern I have here(like Mauldin) is what if the dollar starts to rise on its own which then triggers a short squeeze on all of the investors on Wall St who have gone short the US dollar which is practically everyone at this point?

We all know when too many people get on one side of the boat it usually flips over. If this occurs, we will see the same cascading effect that I presented above.

The Bottom Line

I see no way out of this fiasco without a lot of pain. You may ask why I advise you to build cash positions if the dollar is in such dire straights?

My answer to this is for the immediate future, it will remain the currency that we use in this country. There are also some people out there who believe holding FRN's(Federal Reserve Notes) otherwise known as physical paper dollars is the way to go.

The reasoning behind this is the amount of actual dollars in circulation pales in comparison to the amount of debt we have in this country. Some believe that if the economy blows, actual dollars will be very valuable. I am not entirely sold on this idea but it's an interesting theory.

The market in the meantime could still move higher as long as the dollar carry trade is working. The chance that this can last for a sustained period of time without eventually crushing the dollar is very low IMO.

Also keep in mind: The Fed is rapidly running out of QE money and without government stimulus this market is toast because there is not enough liquidity in the economy to replace the Fed and its dollars.

This massive debt bubble is going to implode once the Fed pulls it's liquidity.

Ironically, if the economy begins to recover globally(and there are some signs of this in some countries), this could potentially be the trigger that pops the debt bubble because a recovering economy would force the Fed to pullout and raise rates as a result of the risk of inflation.

The market basically doesn't want a recovery right now. It loves high unemployment and a bad economy because it allows the Fed to keep rates at zero which is highly profitable for Wall St via the games that I described above.

Of course our crippled economy is an absolute nightmare for the rest of us as we lose our jobs and our homes as Rome continues to burn.

It is extremely sad for me to watch what has happened to this country.

The fraud has gotten so far out of control that I sometimes question if the criminals that created this disaster will ever get what they deserve.

I am going to watch the market closely this week. I will be placing some long term hold short positions on the S&P in the very near future because one thing is clear: THIS IS NOT SUSTAINABLE!

Please be careful with your investments. My call for cash of course is up to you. Things are really starting to look ugly out there. I haven't been this bearish since 2008 and you all know how bearish I can get!

Have a great Thanksgiving and be safe. I will put up a post when I can.

Disclosure: No new positions at the time this article was published.

Meridith Whitney Interview/Bernanke's Blunder

Good Evening Folks!

This is a must watch video from Meridith. Like me and many others that visit here, she has no clue why the market is trading where it is.

She also sees the same MBS nightmare that I have discussed recently. The Fed's MBS purchasing program is about to run dry and rates are going to soar when they do.

Like Meridith said: Who on earth is going to replace the Fed when it comes to buying these loans that are based on reckless lending standards?

FHA has learned nothing from Fannie and Freddie's bad lending practices that created the housing bubble. They continue to lend out money like a Ponzi machine. The only way this debt ever gets sold to the private sector is at distressed asset prices. This will then cause another cataclysmic round of losses for the banks.

The parabolic move in gold was also worth noting today. The world is continuing to lose confidence in the dollar. Bernanke MUST come out with an exit strategy or the dollar is going to continue to get slaughtered.

Gold soared after his speech because he spoke of no exit strategy. He continued to talk about cheap money and low interest rates.

His explanation as to why the dollar is selling off was ridiculous. He stated in his speech that he believes(and I don't really believe he thinks this) that the dollar moved higher late last year during the crash because the world ran to the US dollar with their assets in a flight to safety move. He then explained that once the crisis was over, the world moved out of the dollar and back into their normal asset classes. The dollar then sold off as a result.

HA! Yeah OK. Was that the real reason Ben? Or is the world starting to get spooked that the US is now carrying $12 trillion in bad assets and liabilities via various lending programs?

After Ben spoke about the dollar, the currency and the gold market chose option B from above and proceeded to shove Ben's "dollar talk"up his behind by selling of the dollar and pushing gold up to $1140. The market has a brutal way of calling all bluffs.

Despite the concerns around the US dollar, the markets continued to rise the "wall of worry" as Wall St bets on an economic recovery.

Meredith explains eloquently why this ain't gonna happen. The risk of a double dip recession is much higher.

Meridith's worries are right on target: Consumer credit continues to vanish almost as fast as the jobs in this country

MAking matters worse: The banks have realized that borrowing money from the Fed at zero rates and then buying longer term treasuries and pocketing the spread is very profitable and carries much less risk versus lending it out to the tapped out US consumer.

Can you really blame them? Who on earth wants to lend to J6P as they continue to lose their jobs and and sit in debt up to their eyeballs.

Enjoy Meridith. Double dip recession here we come!




Disclosure: Long gold via GLD and short treasuries via TBT.

Zero Interest Rates Can't Last Forever

Hi All!

I apologize for being so quiet this week. I am exremely busy recently so please forgive me!

Alrighty, let's get to these wacky markets.

I wanted to share some thoughts with all of you around the US dollar and the current "easy money" interest rate policy of the Fed.

Before I get into this, let me start by saying the market makes no sense right now when it comes to fundamentals(Surprise! Not!). A strong dollar is usually associated with a strong economy in most countries.

Our stock market is doing the exact opposite right now as the banks continue to buy the S&P using US taxpayer dollars.

The trend that's been working recently is short the dollar/long equities trade. Whenever the dollar strengthens(like today) the trade reverses and the market tends to fall apart.

This of course makes no sense. However, Should this really be a surprise when it comes to the crazy price action in our market lately?

The way I see it, the market is basically caught between a rock and a hard place as the economy continues to suffer. The only way for the banks to make money right now is in a zero interest rate environment.

This allows for them to borrow from the Fed at practically zero and then buy things like longer term treasuries that yield 3-4%. This is a sweet spread for the pigmen.

Ironically, the pigs on Wall St have no desire too see a recovery in the short term because the profitability of the trades like the one I explained above are beautiful in their eyes. This low rate environment basically enables the banks to make sweet profits with very little risk compared to lending out money to J6P.

The current scenario described above is also having an effect on how the stock market trades:

Stocks today tend to rise as the economy continues to suffer because Wall St understands that the Fed cannot take away the punch bowl and raise interest rates as Rome burns.

As a result, traders and investors buy equities and gold based on the idea that the dollar will fall. This is the "reflation trade" that you hear about on CNBC all day.

This trade has been extremely successful recently as gold and equities have soared. Gold now sits near an all time high of over $1100(this must make the Fed nervous). The Dow has flattened out a tad recently but still sits over 10K.

However, when the dollar reverses and rises, equities begin to sell off as the world begins to fear deflation. We saw this type of price action today as the dollar stabilized. This stabilization often occurs as a result of countries buying our dollars in an attempt to stabilize the buck in order to keep their own exports attractive.

A weaker market as a result of a stronger currency is the exact opposite of what should happen. A strong national currency usually is representative of a country that has a strong economy. This should be a boost for stocks during normal times.

As we all know, these are not normal times.

So what do you do when the market is zigging when it should be zagging after a 50+% bounce? Stay away IMO. I am tempted to short at these levels. In fact, I bought a few short contracts two days ago for **its and giggles.

For the most part as you all know, I continue to sit in cash and go long metals as the dollar continues to depreciate as a result of endless bailouts.

The risk of buying stocks with PE ratio's of over 100 is simply too risky for my taste.

So where are we headed?

IMO, I don't see why the dollar will strengthen anytime soon. As long as the fraud on Wall St continues and real price discovery continues to be ignored, the dollar is going to continue to get crushed.

The economy will not recover in such a scenario because the prices have not been allowed to "revert to the mean".

This forces buyers to sit on the sidelines thinking that prices are still too high which then kills the economy. Rising unemployment only exacerbates this problem. We now sit at a staggering 17.5% U-6 unemployment rate.

Don't forget: The real economy is dead folks. The government stimulus is the only thing keeping things afloat. Remember, the Feds would never spend like this and risk inflation/hyperinflation if they believed the economy could sustain itself.

As a result, the Fed's continued massive spending binge will dig us even deeper into trillion dollar debts. The US dollar will continue and take a beat down as a result..

Eventually this game will end because there will be no one left to borrow money from in order to keep the game going. Also keep in mind that the quantitative easing by the Fed is about to come to an end.

The Fed's treasury purchases are just about done, and the MBS QE purchases should be completed by March in my estimate. When this buying binge ends in the spring the market is in for a VERY rude awakening.

I predict interest rates are going to soar as the world's appetite for treasuries disappears once they realize the Fed is no longer a buyer!

Take a look at Japan if you want a preview of what happens to rates when a central bank stops QE'ing:

The Bottom Line:

As you can see above, once Japan's QE spending binge ended, rates began to rise. Are they still ridiculously low? Yes. However, Japan's famed deflation was not nearly as serious as it is usually depicted.

I expect a violent rise in interest rates next year when our QE ends. I also predict that the short dollar/long equities trade will fall apart once the dollar gets below the 72 area.

When the dollar falls to a certian level, it will be hard for the pump monkeys to continue and smoke the bull crack pipe when oil goes back up to $150 as a result of our collapsing currency.

The Fed is on a bridge to nowhere. They can't raise rates because the economy is too fragile, and the dollar will continue to fall the longer rates stay at zero. This will of course will create tremendous inflationary pressures on the economy.

Heading into early next spring I believe higher interest rates are inevitable as the various QE programs come to an end.

If the Fed ignorantly decides to extend these programs in an attempt to continue and bailout America, you better go out and a skateboard because it will be the only way you will be able to afford to commute to work.

Disclosure: Short a couple contracts via SPY for fun. Long Gold.

Is Buffet's Railroad Purchase a Bearish Bet on the US Economy?

Hi All!

I apologize for how quiet it's been around here.

I wanted to hop on and discuss Warren Buffet's purchase of BNSF.

The world of course cheered the move. CNBC hyped this all day yesterday claiming that the "animal spirits" in terms of M&A were now back on Wall St!

Ha! Yeah right....

After laughing at this headline, I spoke with a very wise bond trader following the news. His take was the same as mine: This is a huge bearish bet on both the US Economy and the US dollar versus the bullish spin you see on CNBC.

When you break it down, how could you interpret this move any other way if you had a brain in your head?

I personally think this was a brilliant move by Buffet but it also scares the crap out of me. This is the LARGEST deal that Buffet has ever made with his money. He funneled a good portion of his cash holdings into this deal.

Question here:

Why would the smartest investor in the world put most of his cash into an antiquated railroad system in the 21st century?

IMO Buffet did it for a couple of reasons:

#1: Fear of inflation. As a veteran of selling commodities, I understand the cost of transportation. The cost of rail is a fraction of shipping via truck. Does Warren fear $200 oil? I sure think so after watching him place a multi billion dollar bet on the rails.

#2: Hedging against the US dollar: Warren obviously sees the same writing on the wall that the world does(as well as me). He realizes we will most likely will never payback our $13+ trillion dollar deficit.

All you need to do is look at gold in terms of the lack of confidence in the US dollar or ANY world currencies for that matter.

The Bottom Line:

IMO, Buffet realized he needed to get diversify his dollar holdings. I am sure he was scared ****less when gold rose close to $1100 this week. I am also sure every central bank feels the same way.

Treasuries are also rising as a result of the deficit lunacy. Who knows what the bond traders will do if gold continues to soar. Will yields rise in order to keep up with gold? I sure think so.

Warren Buffet basically found the perfect opportunity to diversify out of the US dollar via his rail purchase without losing face around his so called "confidence" in the US Economy.

The networks and Buffet can spin this purchase positive for the economy all they want. The reality here is this is much more of a bearish bet on the economy versus a bullish one.

Warren obviously sees higher fuel costs or a crashing dollar down the road. Why else would you spend $10's of billions on an "old school" technology that's been around since the 1800's?

Ironically, one of the worst depressions we saw in this country was the aftermath of a railroad speculative bubble in the 1870's.

How fitting is this! What comes around goes around!

I want to thank Warren Buffet for reinforcing my belief that the US economy is toast.

Disclosure: No new positions but I agree with Buffet.

Bill Black on CIT

Another busy week folks. I will post when I can. Take a look at this Tech Ticker featuring Bill Black. Bill was one of the good guys that cleaned up the housing bust as a bank regulator back in the late '80's/ early 90's.

Geithner essentially placed the taxpayers at the back of the line when it came to setting up this pre-packaged BK for CIT. The bondholders were placed ahead of the taxpayers and were paid on at least some of their investment while the taxpayers got a big fat 0 on their $2.3 billion investment!

Geithner is not looking out for the taxpayer folks. In fact, he is totally hell bent on screwing you as he foolishly tries to bailout his Wall St friends.

Wake up!

Thomas Jefferson Rises From the Dead!

Dylan is simply awesome here. A must watch if you missed it:

Visit msnbc.com for Breaking News, World News, and News about the Economy

Be Careful!

I just wanted to hop on tonight and issue a warning to anyone who has participated in this rally or has a high exposure to equities.

The price action today was absolutely frightening! I guess it was perfect timing considering Halloween is tomorrow night. IMO it is time to lighten up considerably if you are on the long side.

As most of you know, this blog focuses more on the macro/long term outlook on the economy. I have remained consistently bearish because we have not fixed the problems that continue to plague the economy.

When I see nasty sell offs like we saw today, I feel compelled to at least warn everyone that IMO the market is not reflective of the economy. I really don't want to see anyone get hurt like many did in 2008. I remain convinced that we still haven't seen the final capitulation sell off that will finally end this nasty bull market.

I recently have rarely discussed trading because the market simply hasn't traded based on any fundamentals. I tend to run away from markets like this because it's easy to get slaughtered when the bottom drops out! 2000 ring a bell?

The problems remain the same: We are not doing the things that are needed to fix this economy over the long term. We continue to spend money we don't have in an attempt to stimulate the economy. This approach has been a colossal failure. Consumer spending which is 70% of our economy continues to contract as the economy tanks.

Making matters worse: Banks continue to refuse to lend, unemployment continues to soar, and the end of the housing collapse appears to be nowhere in sight.

Here is a perfect example:

Fannie Mae announced today that their 90 day delinquency rate has tripled:

"NEW YORK, Oct 30 (Reuters) - Fannie Mae (FNM.P)(FNM.N), the largest provider of funding for U.S. home mortgages, said on Friday that delinquencies on loans it guarantees accelerated in August, while its mortgage investment portfolio grew in September from the previous month.

The delinquency rate on loans in its single-family guarantee business gained 0.28 percentage point to 4.45 percent in August, the most recent data available. A year earlier it was 1.57 percent."

Quick Take:

Bbbut Wall St said the recession was over! Yeah Riiiight. Are you all tired of continually being lied to yet? Only a fool would believe that a recovery is right around the corner.

BTW, We had 9 more bank failures tonight. Here is the list in case you are worried about your deposits:

North Houston Bank Houston TX
Madisonville State Bank Madisonville TX
Citizens National Bank Teague TX
Park National Bank Chicago IL
Pacific National Bank San Francisco CA
California National Bank Los Angeles CA
San Diego National Bank San Diego CA
Community Bank of Lemont Lemont IL
Bank USA, N.A. Phoenix AZ

The Bottom Line:

Things are bad and getting worse. We have now had two 90%+ down days on the S&P in the last three days. This is a sign of panic selling folks. We also broke through the key resistance level of 1042 on the S&P after closing at 1036.

This could possibly set us up for another sell off on Monday. I am starting to believe that the market technicians may be back in control of this market. This market is folding like a tent after seeing a 50% retrace.

Many TA traders are now worried we may be seeing the beginning of the famed "cataclysmic wave C down". I am not sure we are there yet because the bulls become emboldened after this retrace. They may believe a 10% pullback will create a"buying opportunity". Yeak OK, Good luck with that one!

If wave C down has really arrived we could see a devastating collapse in the market. I have said since day one of this rally that there was no liquidity behind it. It was a government backed stimulus rally.

The stimulus is now done and there is no money left for round two. We are trillions in the hole and the dollar will get crushed if the government attempts to go on another spending binge.

If you have been long I think now might be the time to take some profits. Cash looks like the best option in the near term because there may be some buyers on this pullback.

I will be taking a long dated short position on the S&P via SPY PUTS on any rally because I believe this will be the bulls last stand. Once the Fed stops buying MBS in March it's going to get really ugly.

One last point. Take note that gold and silver held up rather well despite the sell off. Does this mean the world is continuing to lose confidence in the dollar despite it's recent rally? This is certainly something worth watching.

Disclosure: No new positions at the time of publication.

CNBC Ratings Plunge 50%

Kudos to Zero Hedge for catching this gem:

My Take:

I guess financial propoganda only goes so far before investors pick up the remote and click to another channel.

To be fair to CNBS, the ratings collapse seen above is exacerbated by the fact that the ratings are being compared to last October when the financial system was on the brink of collapse.

That being said, the fact that Jim Cramer's Mad Money has lost half its audience after a 50% move HIGHER is pretty pathetic. The guy is the biggest bulltard on TV. Why aren't investors flocking to his show by the millions after such a gigantic move?

Meanwhile, the blogosphere continues to grow as people look for the truth instead of listening to a bunch of self serving banksters that are constantly rolled out hour after hour on bubblevision.

I can tell you that my viewership is up considerably over the same time period despite the fact that this is a bearish site! Many other bearish blogs are also seeing large increases. If the economic recovery was here for real, wouldn't the viewer trends be the exact opposite?

Even without an economic recovery, shouldn't CNBC's ratings be up after seeing such a huge move higher in the markets? Shouldn't a bullish biased network thrive in such an environment?

The way I see it, Americans are losing faith in both Wall St and the financial media. They have burned twice by both of them in the past 10 years to the tune of 50% thanks to the bursting of the tech and housing bubbles.

Perhaps CNBC needs to re-evaluate their programming and begin reporting the TRUTH about how Wall St has robbed the taxpayers blind instead of helping them hide their skeletons in the closet!

Note to CNBC: Without ratings you have no network. It made sense for CNBC to bow to Wall St when times were good and the banks were throwing them millions of dollars in ad revenue at them every year.

Those days are now gone! The only ads I see on there today are "cash for gold" that have those cheesy phones ringing in the background.

CNBC Documentaries

Here's an idea: How about doing documenteries on the fraud instead of wasting an hour of my time giving me a behind the scenes look of Wal Mart?

Perhaps their next hour long "special report/documentary"" should focus on an investigation into how the AIG bailout put $12 billion right into Goldman's back pocket instead of doing a piece on the porn industry.

How about a "special report" showing how the TARP was illegally spent. I would find this far more interesting than their recent segment on highclass callgirls.

The Bottom Line:

This network is rapidly becoming a laughing stock. If CNBC needs to increase viewers they should just sell an hour of airtime to the makers of ShamWow. I am sure that could pull a .2 share and CNBC would get paid for airing it!

Why pay Jim Cramer a salary when you could make money selling the Snuggie blanket?(scarcasm off)

IMO, if CNBC wants to gain back any credibility they need to start thinking about lifting up the curtian and exposing the criminals on Wall St.

Instead of embracing the fraud they should be reporting about it!

The way I see it, CNBC's ratings will continue to plunge the worse this recession gets. Nobody wants to hear "The Recession is over" or "The Good Times are Back!" when they are worrying about where their next meal is coming from.

Let's hope that CNBC will begin to embrace the fact that the recovery ain't happening.

If they are smart enough to come to this obvious conclusion, they MUST begin to start exposing the fraud.

Is the Rally Toast?

The market was down for the 4th time in 5 days today as bonds sold off and the dollar strengthened.

A few folks out there have called me a "permabear" claiming that I missed the recovery. I wanted to try and explain to you why being bullish after a 50% bounce is simply silly.

Before I start:

I thought many of you might be curious as to how I have invested during this huge bounce.

Let me admit my mistakes by answering the following question and update you on where I stand with my portfolio:

Did I miss a nice move in stocks since March? Yes!(although I was hedged long(an S&P 500 fund, and a few other typical long funds) and short(BEARX) in some retirement funds).

Overall however, despite my super permabear stance(according to a few readers), my portfolio has done pretty well because the government backed equity bounce has also been very positive for bonds and metals which is where I hold some large positions. My largest individual holding is PIMCO's PTTRX which is up 12% YTD.

As a result I am up since March and pleased with my portfolio's performance. I will be reallocating some positions here in the near future as I prepare for the next storm that appears to be just over the horizon.

Also, to be fair and transparent(unlike our banks) let me also add that my trading account was repeatedly raped for a few months starting in March.

This wasn't too painful because my trading account is a small piece of my retirement. However, like all investors I made some mistakes:

Did I own some options that expired worthless? Yes. Did I get humiliated by SRS? Yes. Did I learn some valuable lessons? Of course. Did I blow up my trading account? No but it was down big at one point.

I have always stressed diversification on this blog, and I have also repeatedly advised everyone that money used for trading this type of market should be a very small piece of your nest egg. Congrats to anyone who caught this move.

Alrighty back to my post:

So why do I think this rally is toast? Because essentially the market is currently a total sham with zero liquidity.

As you can see below, the P/E ratios of stocks have now surpassed even the insane levels seen at the top of the tech mania:





P/E's close to 150? How did this happen?

In a nutshell: The market morphed into a rigged casino. The people that rigged the game of course were the major players on Wall St. They did it using HFT's(high frequency trades). Where did the liquidity come from that allowed them to begin such a trading game? The taxpayer bailouts of course! The Reuters piece below does a nice job explaining how it all worked.

So how out of control did this HF trading game get? Well It appears the SEC is about to dig in and find out because HFT's now account for up to 70% of all daily trading:

""High-frequency trading now accounts for an estimated 50 percent to 70 percent of all U.S. equity trading and is growing fast in other regions and asset classes. In it, banks, hedge funds, and independent shops use ultra-quick algorithms to make markets and capitalize on tiny spreads and market imbalances.

Some politicians and investors have raised concerns the practice, which effectively replaced traditional market-makers over the last decade, creates a two-tiered market favoring the most sophisticated players."

My Take:

Wall St has once again found a way to create another bubble. Basically what is going on here folks is the banks have taken your taxpayer money (via the TARP and other Fed bailouts) and created an equity bubble in the stock market by buying practically every stock under the sun(good or bad).

Look no further than the the P/E ratios above if you don't believe this is going on! The fundamentals are being completely ignored as the trading desks continually press the BUY button on their quants and bid up the markets.

Stocks now sit at unsustainable bubble levels as the economy continues to burn. Don't believe me? Take a look at Andrew Smithers comments in the Bloomberg article below:

"Oct. 26 (Bloomberg) -- U.S. equities are about 40 percent overvalued and headed for a decline as central banks pull back on quantitative easing that pushed up asset prices, according to economist Andrew Smithers.

“Markets are very vulnerable to an end of quantitative easing,” the economist said in an interview at Bloomberg’s Tokyo office on Oct. 23. “Central banks, they’ve got to stop some time and if that happens everything will come down.”

In “Valuing Wall Street,” his March 2000 book co-authored with economist Stephen Wright, Smithers argued that U.S. equities were grossly overvalued and should be sold. The Standard & Poor’s 500 Index plunged 49 percent over 2 1/2 years from a then-record high reached that month. Smithers said he stopped buying equities in the 1990s and began purchasing them again only for a brief period during the lows of the current crisis.

Asset purchases have doubled the size of the Federal Reserve’s balance sheet to $2.1 trillion since the start of the current financial crisis. The Bank of England has spent 175 billion pounds ($286 billion) over the last seven months to rescue the economy. Both banks are sending signals they may be ready to start winding down their programs."

The Bottom line:

As you can see above, Smithers is no slouch. He correctly predicted the tech collapse back in 2000.

I am very close to hopping back on the short bus. If the bond market continues to rumble the banks are going to get crushed.

The risk of higher yields in the bond market is increasing for a variety of reasons. Unimaginable government deficits and the threat of even higher deficits as a result of healthcare reform are at the top of the worry list in the bond pits.

Let us not also forget about the massive bond issuance's that must be sold this week.

Another concern regarding higher yields in the bond market is the risk that the economy might be beginning to recover. This sounds counterintuative but its factual.

Why?

Because if the economy recovers, inflation will become a large risk because rates are too low. The Fed may be forced to raise rates as a result which would be catastrophic for the banks and their bloated mortgage filled balance sheets.

Ironically, a bad economy with low rates is the perfect "sweet spot" for the banks. They can borrow short for next to nothing as rates sit at zero and then lend long. Even the dumbest of all bankers can make money in this environment. The spreads are to die for as long as the loans are good.

Overall folks, this rally looks to be on its last leg. As the government stimulus dries up, so will the economy and there is no money left for another one because we are trillions in the hole.

I think we are close to seeing another big rollover in equities. Please be very careful with your nest eggs at these levels.

Also, Keep an eye out for my 401K post that I am currently working on. Hint: It may be time to say goodbye to this investment tool.

More Later.

Disclosure: Short treasuries in longer term accounts via TBT. No new positions were taken at the time this article was published.

Long gold and silver via GLD and SLV. Long bonds via PIMCO's (PTTRX).

The $23 trillion Fraud

Dylan is on a roll. Too big to fail is a joke!

You will want to throw a banker out a window once you get done watching this video. This is a must watch!

Also FYI,

I will be away for a little R&R until Monday. Have a great weekend!

Wells Fargo: The First Leak in the Dam?

Ahhh....

There is nothing like the smell of an economic collpase in October. The road to recovery on Wall St hit a pothole today as banking analyst Richard Bove downgraded Wells Fargo to a "SELL":

"Oct. 21 (Bloomberg) -- U.S. stocks tumbled in the final hour of trading after analyst Dick Bove downgraded Wells Fargo & Co., erasing an earlier rally spurred by better-than-estimated results at Morgan Stanley and Yahoo! Inc.
Wells Fargo, the largest U.S. home lender this year, slid 5.1 percent after Bove of Rochdale Securities cut the shares to “sell” and said earnings were boosted by mortgage-servicing fees rather than improving business trends.

‘Most Disturbing’

Bove said the “most disturbing” thing about Wells Fargo’s results is that loan losses seem to be accelerating. Assets no longer collecting interest climbed 28 percent to $23.5 billion from the second quarter, Wells Fargo said, while the reserve to cover future loan losses grew by $1 billion from the second quarter to $24.5 billion.
“It’s definitely had an effect on the market,” said Tim Smalls, head of U.S. trading at Execution LLC in Greenwich, Connecticut. Bove “has a very good following and very long track record of consistency,” he said."

My Take:

All I can do is laugh at the fraudsters on Wall St. The paragraph in bold is all you need to know folks.

The banking system remains basically insolvent as unemployment soars and the economy worsens. People are continuing to walk away from their homes in record numbers as home prices continue to nosedive.

The Wells number proves that the loan losses that the banks have bee hit with are STAGGERING! Please note that Richard Bove is a screaming bull when it comes to the major banks in the US. In fact, he was raving about Wells Fargo on CNBC this morning until he got a chance to see Well's numbers.

The housing problem continues to worsen and Wall St refuses to accept it. They continue to obsess about a recovery when in fact there isn't one.

What scares me most about the housing crisis is no one really knows how many empty homes the banks now sitting because they refuse to take the losses. The shadow inventories are still incredibly high. Just think, Wells only admitted to $23 billion of bad loans. Imagine what that number looks like when you include Well's shadow inventories?

Let's get real here folks: The banks would prefer to let empty houses sit versus forcing the buyer into foreclosure because they would then have to take the loss when the house was sold.

In other words, in this new world of zero mark to market accounting, it's in the banks best interest to just let the empty homes sit in limbo because they can keep a loan marked at full value versus taking a 40% loss on a sale via foreclosure.

THE SCAM ROLLS ON!

There was lots of chatter about a housing recovery in the comments section in this blog over the last few days. I think the data from Wells puts that issue to rest. The ONLY part of the housing market that is moving right now is the low end of the market(under 300k), and the foreclosure markets in the bubble areas that were the hardest hit with losses of 50% plus...Vegas/Florida anyone?

The housing market in general remains a complete disaster.

Chart of the Day

Hmmm....Take a look at this comparison of the bounces post the 1929 and 2008 stock market collapses.

Quick Take:

Keep in mind this was as of the end of August. The 2008 retracement has pretty much equalled the one seen following 1929.

Like today, Wall St screamed "The worst is behind us!" and "the recovery has begun!" as the market roared back in 1929/1930. Reality hit two years later in 1932 when the economy failed to turn around. The market then once again rolled over and eventually bottomed 90% from the highs in 1929 as the world realized the worst was yet to come.

Will the same thing happen again today? Every collapse is different and each one has its own unique way of playing out so it's difficult to predict. History however does tend to repeat itself.

The Bottom Line

The problem with relief rallies like the one we are seeing today is they are based on zero fundamentals. The profits that are currently being reported reported in the financial sector are rigged by vague accounting rules in order to keep the game going. This is the same type of thing we saw when the tech bubble crashed.

The banks recent record profits are a fraud because they aren't taking the losses from the previous housing bust. It's like they are pretending it never happened. The government has totally become an enabler to the banking system and refuses to force them to clean up their act via regulation and accounting standards.

Basically, they are letting the number crunchers on Wall St get away with bloody murder just like they did during the tech bubble.

The street continues to throw some bright red lipstick on this pig in an attempt to keep the game going.

However, like we have learned with every other on Wall St scam, the fraud can't be hidden forever. The truth always comes out and the fundamentals then take over:

The Wells Fargo surprise today allowed you to take a rare peek into the skeletons that sit in Wall St's closet.

After taking that peek we now know one thing for sure: It ain't pretty.

We have a long way to go before this is over folks. Please also take note that the dollar was once again down today. Oil almost hit $81/barrel.

As the dollar continues to drop you need to wonder: Has the world already concluded that we have already destroyed ourselves?

Disclosure: No position long or short in Wells Fargo.

Black Magic

Priceless!

Visit msnbc.com for Breaking News, World News, and News about the Economy

America's Bubble Addiction

Happy Friday!

It's happy hour so I will try to be brief. I wanted to share today's CNBC interview with Yale's Robert Shiller. Dr. Shiller in my mind is one of the strongest voices of reason when it comes to the financial markets and bubbles.

One of Dr. Shiller's consistent views on bubbles is that psychology is the key element as to how bubbles form and then burst.

He was asked about the current "rebound" in housing and his take IMO is right on the money:



Final Take:

So are we about to see housing bubble #2? This remains to be seen, but I am leaning the same way Dr. Shiller is which is the likelihood of this occurring is high.

I say this because this recovery has been too predictable given the horrible state of the economy. As Dr. Shilling explains, our addiction to bubbles is probably as powerful a force as the housing tax credit when it comes to explaining the powerful reversal in home prices.

The 800lb gorilla in the room when it comes to housing's future is interest rates moving forward. The risks of rates rising are extremely high IMO.

The main threat of higher rates of course is inflation. We are already seeing increasing prices as a result of a falling dollar. Oil has touched $77 in the past couple days. Gold remains firmly over the $1000 level. These are some of the "unintended consequences" when you print money in an attempt to keep the USA's debt bubble inflated.

The Fed eventually will be forced to address the falling dollar. What's the easiest way to strengthen the dollar? Why raise rates of course. Higher interest rates down the road could very well trigger another housing collapse.

Also, keep in mind that the Fed's quantitative easing fund is now down to a measly $3 billion. That's the equivelant of a penny when you have a deficit of over $10 trillion dollars like we do.

The question I have regarding the QE is this: If the Fed doesn't replenish the QE program, will the bond market sell off treasuries in an attempt to force the Fed's hand in terms of what their next plan of action is?

If the Fed does decide to extend the QE program, what will the dollar look like as a result? Something tells me a piece of toilet paper may be worth more than a greenback if this insanity continues.

The bottom line here is the Fed has no way out of this mess. If they decide to pull the liquidity from the markets, housing will once again get decimated because higher interest rates will rise and that combined with tighter lending standards will once again force prices to tumble.

If the Fed continues to QE, inflation is going to soar and $200 oil will be right around the corner.

IMO, Stay on the sidelines if you are looking to buy a house. The recovery we are witnessing in real estate is a nothing but a "housing bear market rally" and the speculators/bubble makers will once again take it on the chin.

Disclosure: Short treasuries via TBT in longer term accounts.

Hooverville 2009 Style

Just a quick note tonight.

The signs that we are slowly sinking into an economic depression are becoming rapidly evident.

Lets get real for a second: Most of the middle class in this country of people live paycheck to paycheck. Perhaps some have a few thousand squirreled away in the bank. This might buy them a month or so...nothing more.

The video below is a sobering reminder of what happens to many of these people when they lose their jobs. How many millions have to go on permanent camping trip before Washington puts an end to the fraud on Wall St?

Millions of middle class Americans are running out of options as Rome continues to burn.

Don't worry though, not everyone is suffering, Wall St is preparing to pocket record bonuses in the billions of $$$ courtesy of speculation using the US taxpayer as a backstop.

Again America: Where is the anger?

Go Dylan Go!

Hello All!

Before I start, I wanted to let everyone know that The Housing Time Bomb was just recently certified by the prestigious financial website Seeking Alpha.

I want to thank Seeking Alpha for their certification and I want to thank all of my loyal readers for being so supportive since this blog began a little over 1-12/ years ago.

I really didn't know what to expect when I started my journey into the blogosphere. What I do know is its been extremely rewarding. This voyage has far exceeded my expectations, and I look forward to many more posts!

Let's get back to biz!

You gotta watch this clip from MSNBC's Dylan Rattigan this morning. Dylan pretty much went postal on Tom Donohue from the US Chamber of Commerce.

Tom pulled out the typical Wall St "Capitalism talking points" when he was asked how America can begin to create new jobs. Mr. Rattigan simply didn't want to hear it today. Tom's answer was a load of crap and you will understand what I mean after you watch the video.

Let me add before you continue reading that Mr. Dononue's organization grabbed $20 million out of the AIG bailout kitty. Need I say more about this lying piece of garbage?

In response to Mr. Donohue, Dylan accurately points out below that NO ONE has been allowed to fail on Wall St, and the "safety net" of the taxpayer backstop has refueled the same wild speculation that led to the banking collapse in 2008.

If we don't change out bubble blowing ways, we will undoubtedly see another collapse that will be far worse then the one we saw last year because we are now trillions in debt.

There will be no money for a second round of bailouts this go around when the market rolls as a result of another speculative mania on Wall St.

Visit msnbc.com for Breaking News, World News, and News about the Economy

Quick Take:

Dylan is pissed and he has every right to be. All you need to do is look at JP Morgan's blowout quarterly announcement of a $3.6 billion in profit this past quarter for proof that Wall St is back to its fraudulent speculative ways.

I warned a few of you yesterday in the comments section a few days ago that the big banks could report blowout earnings this quarter.

Why wouldn't they be making a fortune? They are making a KILLING in the bond market, and they don't have to mark their bad assets to market.

The bankers will once again throw billions more into their pockets in the form of bonuses at the end of the year as the fraud rolls on. Meanhile the rest of Rome continues to burn.

The world is clearly starting to see right through this sham depite Wall St's profits: The dollar broke tesistance to the downside and is now hitting new lows for the year.

The thoughts by the leader of the Chamber of Clueless above almong with the others in Washington and on Wall St will eventually destroy this country. Just look at the currency folks. That says it all.

Today's developments only confirm that the elite remain firmly in power, and it's becoming increasingly obvious that they could care less about the little guy.

Are you angry yet America? If not now, WHEN?

Disclosure: No new positions at the time of publishing. Long precious metals via GLD and SLV in longer term accounts.

Are Young Workers Already Facing a Depression?

I wanted to share a great article from Business Week. The future for the current generation of young workers is looking increasingly grim as the first depression since the 1930's continues to wreak havoc on our economy.
The numbers are grim:

Let me share a few statistics from the piece:

"Affected are a range of young people, from high school dropouts, to college grads, to newly minted lawyers and MBAs across the developed world from Britain to Japan. One indication: In the U.S., the unemployment rate for 16- to 24-year-olds has climbed to more than 18%, from 13% a year ago."

"What's more, the baby boom generation is counting on a productive young workforce to help fund retirement and health care. Instead, young people risk getting tracked into jobs that don't pay as well, says Lisa B. Kahn of the Yale School of Management. That would mean lower tax payments for Social Security and Medicare.

Only 46% of people aged 16-24 had jobs in September, the lowest since the government began counting in 1948. The crisis is even hitting recent college graduates. "I've applied for a whole lot of restaurant jobs, but even those, nobody calls me back," says Dan Schmitz, 25, a University of Wisconsin graduate with a bachelor's degree in English who lives in Brooklyn, N.Y. "Every morning I wake up thinking today's going to be the day I get a job. I've not had a job for months, and it's getting really frustrating."ANXIETY AND FEAR"

"The sense of stasis in many Western countries is reminiscent of Japan, where talk of a lost generation has been around since as long ago as 1995. Some 3.1 million Japanese aged 25 to 34 work as temps or contract employees—up from 2 million 10 years ago, according to the Ministry of Internal Affairs."

My Take:

This article was quite eye opening to me. I hadn't really taken time to think about the impact that our depression will have on young workers over the long term.

The fact that 46% of workers aged 16-24 are jobless is flat out frightening. How will these kids ever get ahead? How will they ever be able to earn enough money for a stable retirement if they lose a decade before the economy recovers? Even then, who is to say that the economy sharply recovers within 10 years?

Japan still hasn't recovered from its post bubble malaise and it happened over 20 years ago! America wasn't able to recover from the depression in the '30's despite the government trying everything under the sun to stimulate it. WWII finally got the economy kick started again towards the end of the decade.

You need to ask yourself: After a euphoric 25 year bull run, could we not see a 20 year bear now after such prolonged prosperity?

Another thought here is how in the hell are we ever going to pay off our trillions in debts without young prosperous workers from which to tax from? Also, who is going to fund the massive medicare and social security programs that will be dramatically drained as our baby boomers retire?

The Bottom Line:

I'll tell ya folks. The more I think about the future the more frightened I become. I see no way out of this fiasco without years and years of pain. NONE!

As I watch the dollar fall on an almost daily basis I can't help but think: Is it time to buy guns and gold and move up into the mountains? It's starting to look like this might be the best alternative.

The economy and our currency are both in a free fall and the elites in the ivory towers simply don't seem to care.

When is America going to rise up and say Enough?

I'm waiting.

Steve Meyers on the recent rally

A hat tip to one of my readers flipdippy for finding this little gem.

Steve Meyers is a 20 year veteran commodities and futures trader. You can find Steve here at his site which is called Grainbeltcommodities.

I believe Steve pretty much nails it here as he describes whats fueling the recent stock rally.

The United States is now a desperate nation that's in decline.

Enjoy!

When Will the Fundamentals Trump Trading?

As I sit here and watch the insanity of the markets I continue and ask myself the question seen above in the title of this post.

The relentless rise in the market has fooled even the best traders on Wall St. Many of them have taken a time out at this point and sit on the sidelines. I say why shouldn't they? We haven't really seen any meaningful pullback since the March lows.

The economic disconnections seen today are beyond belief: Bonds continue to rise even though we are issuing $100 billion a week at times. Something of note: Yields were up sharply today, but overall, they are priced far too low when you look at the risk of treasuries as the government relentlessly continues to dig itself into unfathonable levels of debt.

The rise in bonds in relation to the massive treasury issuances really makes you wonder if the world has gone mad. Has the law of supply and demand now been thrown out the window? In today's wacky world, does extra supply mean prices go higher? Insanity! Where are the trillions of dollars going to come from in the long term that will be needed to mop up all of the bond supply?

The answer in the short term is two fold: Either the Fed is printing like crazy ,or some very wealthy people(including FCB's) don't trust this rally and continue to hide in bonds.

Gold and the huge drop in the dollar tell you that the world is losing confidence in the US. The dollar is about the only thing that's trading rationally.

As the rally rolls on, I sit here and ask myself why the market moves higher as the economy continues to show zero signs of zero growth. Don't be fooled folks, Alcoa earning a measly .04 a share hardly represents a robust recovery. Earnings estimates have been dropped have been dropped to practically nothing.

If a company earns a profit or just breaks even, the market treats the stock like it's the next Google. The raves around Family Dollar's impressive quarterly beat cracked me up this week. Like that's a positive for the economy! The fact that we are forced to shop at a dollar store speaks volumes where we are today economically.

Despite the obvious, Wall St continues to effectively spin the "recovery" web. How this happens at a time in which the unemployment rate in Detroit hits 29% is any one's guess.

The only answer I have when it comes to explaining the craziness on Wall St is speculation. I believe that the traders have overwhelmed the long term investors in the stock market. "Buy and hold" in this new world means holding a stock for a week versus the old days where long term investors held a stock for a generation.

The quants at Goldman, day traders, hedge funds, and the rest of the trading desks on Wall St have pretty much taken over the trading volume each day in the market. As a result, the market from a fundamental standpoint means nothing. It's all about the short term price action.

The Bottom Line

Too many people keep looking at the market like its a trading mechanism versus a place to invest for the long term.

Anytime a stock, oil, or the dollar makes a big move higher or lower, the first thought is "Wow! There are too many people on one side of the trade!".

The thinking in a traders market like this then becomes"lets take the other side" because its overdone.

This mindset is why I believe you have seen insane moves to the upside on stocks. I mean how many insolvent banks are up 300% since March?

The same price action has been seen in the broke broke REIT's that have doubled since the lows?

I mean granted: The market loved all of their capital raising, but all it has done is allow the REIT's to pay off bad debts on their balance sheets. They are not putting this money to work. This money will not lead to future profits. All this will do is prolong the agony of the inevitable collapse of commercial real estate.

My point here is way too many people have become obsessed with becoming a "trading" contrarion/speculator versus looking at the actual fundamentals!

As a result, the market has gone haywire. The problem with the trader"contrarions/speculators" is they only hold positions for hours or days. This is a big negative for the market longer term.

I say this because the result of such short term trading does nothing scare long term investors out of the market because no longer makes any sense fundamentally. Just look at treasury yields if you don't believe me.

I think it's time that we all stop looking at the market as a speculative casino. The longer we treat the market like MGM Grand, the more distorted the price action will become. The problem with this of course is at some point, the fundamentals will return because they always do.

When this occurs, there will be a lot of people caught with their pants down.

The time to own stocks is when they are trading based on fundamentals. You are asking for a beating if you continue to speculate. Don't believe me? Go find a house flipper and ask them how they are doing

Buyer Beware!

The Bond Market says it all

By now all of you know that I have ten times the respect for the bond market traders than I do for the bull obsessed equity traders on Wall St.

The bond market sent a strong statement today about their confidence in both the stock market rally and their fears around inflation.

As you can see below, we had a 4 week treasury auction today that saw a very strong BTC(bid to cover) of 4.7:

Quick Take:

Note that the participation in this auction from the indirect bidders(Foreign Central Banks) was over 61% which is a very healthy number. This was an A+ auction in anyone's book.

The problem here folks is it's a 4 week auction with an interest rate of .04%! There is basically ZERO risk if you decided to participate in this auction.

My querstion here is if there was a lot of confidence in the recent stock rally then why would be see such a strong flight(nearly $5 bid for every one dollar accpeted!) into short term bonds that pay virtually nothing?!!!!

Can you say Capital Preservation?

Now let's take a look at the 3 year treasury auction from today:

Final take:

As you can see above, the BTC was an underwhelming 2.76 and the indirect interest fell below 50%.

Personally I am not impressed.

The Bottom Line

So what is the bond market telling us? It says short term treasuries are safe.

However, over the long term, the lack of interest in the 3 year auction tells you that the bond market has no interest in holding a 3 year bond with an average interest rate of 1.44%.

To me this signals that the bond market is worried about both inflation and the potential of a breakdown in the US dollar. Why wouldn't they be after seeing gold rising above $1040 an ounce today?

The FEAR of inflation and a dollar collapse is why the bond market is acting this way. Keep in mind that there are still tremendous deflationary forces on the economy via the consumer. The Fed is fighting this deflation by throwing trillions of dollars at it?

So who wins? IMO this is still anyone's guess. However, I continue to be attracted to metals in this scenario because I am beginning to believe that the world is losing confidence in the US and their ability to control their deficits and spending.

If they lose confidence in our ability to pay back our debts, then the dollar will eventually breakdown.

As a result, the world now feels they must diversify out of the dollar and into things like commodities and precious metals.

Bond Auction Alert!

We have a huge 10 year auction tomorrow at 1:00 that will be fascinating to watch given today's action in the bond pits. If the world bails on the 10 year auction tomorrow, you could see bonds sell off severely.

I expect a volatile day tomorrow. Hang on tight boys and girls!