Fed announces $165 billion in bond auctions next week
Folks, this is getting ridiculous. Get ready for another bond watch like we had last week. The auctions will once again be the focus of the markets. This should further pressure te dollar and push bond yields higher. Yields soared up to over 3.8% on the 10 year on the auction announcement.
BTW, if we continued this rate of auctions over the course of a year, it would represent an $8 trillion annualized pace. The music WILL stop very quickly if Ben continues to pull this crap.
As the Fed continues to sell treasuries at this ridiculous pace, inflation MUST be respected.
Take a look at the inflation chart below that compares the pricing of our current crisis(red) and compares it to our previous recession's and The Great Depression:
As you can see above, the deflationary pricing collapse seen during The Great Depression had already started at this point during the 1930's.
Currently, we are not seeing much evidence that we are headed down the same path. In fact, prices have continued to increase throughout this crisis.
This is a different animal then the 1930's and Japan because the policy response from the Fed has been MUCH more rapid and aggressive in terms of fighting deflation.
If the Fed does not stop spending, and we have no reason to believe that they intend to given the $165 billion treasury auction announcement today, the dollar is at SERIOUS risk.
Go back to the late '70's and look at Carter/Volker's battle with inflation to see what happened the last time we saw an environment like this where we carried massive deficits.
This eventually created a currency crisis and commodities fluctuacted alover this place. $50 moves in gold up or down were common.
The reason you saw this during this period was due to several FCB panics between inflation and deflation.
The panics this go around could be even worse because this crisis is larger and much more unpredictable. Geithner even admitted today that he has no idea how this all plays out. Makin things even worse this go around is we now have much larger speculator's that can exacerbate pricing panics.
Bottom line here is deflation is probable, but don't bet the house on it! The treasury sales eventually will put a beat down on the dollar. This puts a risk of a currency collapse on the table. Own something hard as a hedge to protect your wealth. If the dollar collapses you would lose everything if your assets are all in dollars.
I see a lot of over confidence in deflation on many message boards and blogs.
History has shown us that it's not that easy. IMO, we will see both deflationary and inflationary panics as we work through this crisis. I plan on protecting myself against both.
Jobs, Jobs, Jobs!
The last chart just puts into perspective how historic this unemployment collapse is. More of the population is now unemployed than at any time since The Great Depression. Even scarier, we are still losing them. Who knows what the final number will be. Green Shoots my ***!
Be careful tomorrow, we have an options expiration triple witching hour! Stocks could be all over the place tomorrow.
The focus is back on he credit markets next week folks!
I may have something small up tomorrow. I am going away for the weekend.