Run Forrest Run!

Before I get started I wanted to make an announcement: The Housing Time Bomb was just officially approved to be a contributor on Seeking Alpha. Here is the link to the last article that got published(Yesterday's post). I want to thank Economic Disconnect for getting this ball rolling. I was notified this week by Seeking Alpa's editors that they would be publishing some of my work.

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It was another Ponzifest on Wall St today as better than expected home sales took stocks to new highs.

There was also a negative side in this report: Home inventories failed to shrink as more condos were dumped onto the market. This part of the news of course was ignored as Wall St's bubble making machine rolls on!

I find it amazing how the street can tune out all of the bad news and take stocks higher based on one meaningless data point. What the bubble boys need to realize is the housing crisis will continue as long as inventories are bloated.

This home sales bump should have been expected as many buyers took advantage of the $8000 first time home buyer tax credit.

I spoke to a mortgage analyst today who explained to me that this is where the big jump in sales is. Basically this boost is nothing but first time home buyer's buying low end 1-300k houses.

I fail to see why the street is so giddy about this recent bump in sales.

Anyone stuck in a bubble loan at 600k and up is still basically screwed because most buyers are no longer able qualify for mortgages that are needed buy these homes.

The lending products that were used to purchase homes at such high prices are no longer available. This is why inventories at the high end still stand at around 20 months or so.

The analyst I noted above also shared with me that he is extremely concerned about what happens to the housing market after October 1st when this tax credit expires.

The thought of the tax credit disappearing at a time when real estate seasonally slows down anyway probably sends chills down the spines of the Realtors. I can hear the crickets now!

I understand the government's premise behind stimulus deals such as the home tax credit and "cash for clunkers". The problem with such programs is you are stealing future growth away from the economy.

I can't wait to see the car and home sales after these programs vanish. All these programs have done is further burden our consumers with more debt. This is what got us here in the first place!

Is the World running away from our debt?


I don't normally post much from the gold bugs, but I thought this chart was extremely interesting:



My Take:

Some of this article seemed a bit "tinny" to me but the data above is both interesting and frightening.

Other than treasuries, the world is pulling a "Forrest Gump" and sprinting away from our various types of corporate and agency debt.

This is happening because the world isn't stupid. They realize that our market is filled with fraud in the form of asset prices that are nowhere near marked to market.

Banks in this country are allowed to carry loans at "fantasy" prices without any penalty. Our previous accounting standards have been thrown out the window as the fraud on Wall St rolls on.

This reckless behaviour makes the risk of default too high for the rest of the world's taste.

You need to begin to wonder if the Fed might start monetizing the debt if they run out of bidders.

The Fed has claimed that they would never do such a thing. However, based on the graph above, they may not have a choice unless they decide to pull the plug on liquidity which will then trigger a 1930's style collapse. I wouldn't want to be Ben right now: Rock Meet Hard Place!

Its going to be very interesting to see how long the world continues to have an appetite for our treasuries. The Fed announced another $200 billion in treasury auctions this week. We just recently finished up a $250 billion auction week. At this ridiculous pace, we will be selling $5 trillion of treasuries per year! Can you say unsustainable?

The Bottom Line:

At some point, the world is going to say "no mas" as we continue to build trillion dollar deficits. IMO, the Fed continues to arrogantly march this country right into default.

The 10-year was up sharply today as the bond market nervously awaits the results of the next round of massive auctions. You need to be careful in the short term if you are shorting treasuries right now.

A credit trader explained to me that these rises in yield prior to auctions is an "old school" bond game from the '70's. The bond market sells off treasuries heading into the auctions so that the PD's(primary dealers) can buy up whats left of the auctions the following week at a cheaper price.

Then once the auctions get completed, treasuries rise and the PD's turn around and sell the bonds and make a nice profit on the spread.

The bond market is currently extremely profitable for the PD's as long as the appetite for treasuries remains high. If yields start to steadily march higher then they are going to be in a world of hurt. However, so far, the auctions have ran fairly smoothly except for a blip or two.

This has made bonds extremely profitable for the PD's of Wall St.

Remember folks: Never underestimate Wall St's ability to find a game that can make them billions. This is a classic game that's right out of the old playbook.

Shorting treasuries via TBT before the announcement of the auction results at 1:00 PM is a nice play when you see a moonshot in yields leading up to the auctions. This trade looks like its setting up nicely after today's move in the 10-year.

Long term however, this action in bonds is not sustainable as the world prepares to pull a Forrest Gump and runs for the hills.

Disclosure: Short treasuries via TBT in long term accounts.