I just wanted to share some thoughts today.
I asked myself the question above in my headline today, and once again the contrarion in me has me leaning against what the majority of Wall St believes.
Most pundits argue that we are screwed but the rest of the world is screwed worse. As a result, many think that when this worldwide financial house of cards comes tumbling down, the rest of the world will come running to the USA with their money to hide.
Another common belief on Wall St is "we were the first to go into a recession so we will be the first to come out of it". My first thought here is "says who?".
I am starting to believe that this is no longer the case as we spend ourselves into oblivion.
If I was an alien with assets(I know I'm stretching it here) and I landed here on earth without knowing anyone's financial history, I think the last place I would invest is the USA.
I mean think about it: Why would you place your money with a country that has more debt than anyone else?
Many believe that deflation is inevitable and as a result, the US dollar will strengthen as we see massive debt defaults while our economy "resets" to a more affordable standard of living. Cash will be king in such a world! This is true in such a scenario.
Money from around the world according to this thesis would then come flying into the US dollar because there is simply no other safe haven alternative. Wall St will claim that this is the only alternative because the Euro is a mess and no other currency is a viable. This could very well happen, but I think that this belief is far from being a lock.
I say this because I have seen ZERO evidence that Ben will stop inflating this bubble. I pray to god that he won't flat out print money, but after watching his helicopter respones to this crisis, how can you strongly believe that he won't do it?
The recent trends worldwide suggest that the world is also concerned about our reckless monetary response to our financial crisis. Doug Noland from Prudent Bear discussed this yesterday.
The reflation trade is telling you that money wants to flow outside the US into natural resources and emerging markets. This trade got hit hard on Friday but its far from over in my view. The reason I say this is because there is no fundamental reason for money to flow back into the US.
I mean why would money want to flow into a country like the USA that is destined to default on itself? The money flows into the US for two key reasons: Fund our consumer and our economic reputation. I don't think you would see a dime come over if it was based just on our current piss poor economic policies.
I think the world is slowly coming to this conclusion that the USA isn't the place to be anymore. The doubling of treasury yields in about a month is pretty much telling you that this is the case. I used to believe that Peter Schiff's "decoupling" was wrong. I now believe that he just might have been too early.
In my view, we have destroyed our reputation economically. China and Russia are running for the hills looking for alternatives. Both have agreed to buying IMF bonds. China comtinues to scramble around buying as many natural resources as it can find. Their gold reserves have doubled from a few years ago.
I think Jim Rogers may turn out to be right. China and the Far East may be where it's at in the next cycle. I mean if you had billions to invest, would you invest your money in a county that has a $2 trillion surplus like China or would you choose a country like the USA that has $2 trillion in debt and another $9 trillion in guaranteed debt that backs our financial and housing corporations(Fannie, Freddie, AIG etc.)?
Bottom Line
It's time for this country to wake up and smell the coffee. Its become clear that the world has lost confidence in our economic ways. Eventually, viable alternatives will arise in the wake of our economic death. The USA stock market despite its recent rise is under performing versus the markets in the rest of the world.
If inflation hits down the road as we continue to destroy ourselves economically which will result in a cheaper US dollar, many viable investment alternatives will arise. Natural resources like oil, gold, and other commodities will become the rage. Money will flow into the countries that have them.
Other money will flow into countries that are more financially sound.
As for the USA? Run Forrest Run!
The signals that this is the case are sitting there right in front of you. If the USA was such a sure bet as a safe haven then why have our treasuries(which are considered to be our safest haven) been selling off at such a frightening pace?
If our country continues down the economic path they have chosen, we will lose our status of being the place to be economically.
The economy has become global and the fallout from this change means that there are many alternatives to the US when it comes to investing. I still hold a small sliver of hope that our government will wake up and begin to make the tough decisions that will shrink our deficits and save our country from economic ruin.
This process(although painful) is a must if we plan on keeping up with the rest of the world.
Its time to quit resting on your economic laurels Washington! We are about to become a has been!
Saturday, June 13, 2009
Friday, June 12, 2009
The Fed's Trillion Dollar Wager
Boring!
Watching the tape today was like watching paint dry. Stocks pretty much flat lined for most of the day. We closed just a tad higher.
I wanted to talk a little bit about where I think we are in this mess. The way I see it the market is being seen in three different ways by investor's:
- Some believe that we are in the midst of a new bull market as the economy continues to recover.
- Others think that we may be in a new bull market, but believe stocks have gotten ahead of themselves after a huge 35+% move on the S&P.
- The rest(including myself) believe that this recovery is a sham and, as a result, the market will eventually roll over and make new lows before this bear market is history.
When you add this all up, you get a market that appears to be lost. We continue to trade in a pretty tight range. The market continues to repeatedly fail once the S&P gets up to around the 950 level.
What I find strange is the fact that we haven't seen one decent correction since this bounce began in March. The markets rarely(if ever) trade like this. Zero Hedge posted a pretty frightening rumor around the Fed potentially buying stocks and providing liquidity via State Street. Folks, if that ever turns out to be true it will go down as one of the greatest frauds in history.
The way the market is acting you gotta wonder if there is some truth behind it. I mean look at the recent market action: Every sell off that has started has been bought into by the end of the day. As a result, the sell offs often turn into green rallies by late afternoon. If the market does stay in the red its losses have usually been cut in half by the close.
How does this happen every time? We have seen headlines since March that have been god awful and stocks have completely ignored it and continued to march higher.
I mean think about it. How do stocks rise when jobless claims continue to stay over 600,000, unemployment continues to rise, and treasuries yields have practically doubled in the past month from 2% up to 4% despite the Fed's QE?
Almost every financial news headline has been spun positive(even if the news is negative) since the rally started. Yesterday's Beige book announcement was a perfect example. Look at the headline of the article:
"WASHINGTON (MarketWatch) -- Five of the Federal Reserve's 12 district banks reported that the downward trend in the economy is showing signs of moderating, according to the central bank's Beige Book report on recent economic activity released Wednesday."
Hey bubble heads: Perhaps a better more accurate headline would be "7 of the 12 Federal Reserve's banks saw ZERO signs that the economy is recovering". Wouldn't that be a more accurate summary? You should lead with what the majority of the banks are seeing not the minority!
If these bubble heads were sports reporters and the Red Wings win the Stanley Cup in game 7 tonight, tomorrow's headline would be: "The Pittsburgh Penguins win 3 out of 7 games in the Stanley Cup!". Back here in reality on earth, this would be called getting the story WRONG! Yet we see it everyday in the financial news. This is how asinine this whole sham has gotten.
The spin from CNBC is totally out of control. I must have heard the words "green shoots" a million times in the past 5 weeks.
Bottom Line
The Fed/government has made a multi trillion dollar wager in my view. They have bet "the house" that they can use their balance sheet to replace our spending and psychologically make the people of this country believe that happy times are here again and that the economy has recovered.
The Fed believes that if they can successfully do this, people will start spending again and the economy actually will recover.
What's frightening here is the lengths in which they will go in order to create this mirage of a "miracle" recovery.
I mean think about what "they"(the Fed, Treasury, and the government) have done:
"They" have bailed out practically everyone.
"They" have bought treasuries and MBS's.
"They" have strong armed banks into taking over insolvent banks that have wiped out the shareholders of the good banks like BofA.
"They" have broken the rule of law and crammed a shitty deal down the throat of the Chrysler bondholders.
"They" created a "backdoor bailout" in the form of AIG that allowed the Treasury to pay tens of billions of dollars to the banks in order to make them whole on bad CDS bets that AIG made.
"They" have changed the accounting standards in order to make insolvent companies lookprofitable.
"They" have manipulated every economic report.
Finally, today they are now accused of buying stocks and manipulating the market higher. Is their anything left for these scumbags to do?
The problem with their wager is we are all sitting here and rotting as the government plays these ridiculous games. Unemployment continues to rise, housing prices continue to fall, and most Americans have lost half of their retirement savings as a result of this economic crisis.
I would love to ask "They" a couple questions:
How can we have a jobless recovery? Why aren't "they" addressing the real problem here? The elites in this country are being made whole at the expense of the damn public!
There will be no recovery until the real problems are addressed. We need jobs and we need a more affordable standard of living. What we don't need are propped up assets that no one can afford. This sham can only be propped up for so long folks.
The market may very well meander along here as long as the Fed relentlessly pursues the reflation of the bubble. The downside risk far outweighs the upside the longer we sit here and flat line the way I see it. Many of the buyers of this market have moved to the sidelines. Even the bulls believe we need a correction here before we move to new highs.
If we continue to see no correction's as more inevitable bad news hits the markets, I am going to start to believe that Zero Hedge may be seriously onto something. The Fed/Treasury has already proved to us that they don't respect the rule of law in this nation.
As a result, no one should be surprised if they are eventually caught buying stocks through State Street.
The message from Washington has been clear throughout this crisis: They will do "whatever it takes" to win their trillion $$$ wager.
The Fed will lose this bet in the long run because the "skeleton's in the closet" will eventually become impossible to ignore.
Watching the tape today was like watching paint dry. Stocks pretty much flat lined for most of the day. We closed just a tad higher.
I wanted to talk a little bit about where I think we are in this mess. The way I see it the market is being seen in three different ways by investor's:
- Some believe that we are in the midst of a new bull market as the economy continues to recover.
- Others think that we may be in a new bull market, but believe stocks have gotten ahead of themselves after a huge 35+% move on the S&P.
- The rest(including myself) believe that this recovery is a sham and, as a result, the market will eventually roll over and make new lows before this bear market is history.
When you add this all up, you get a market that appears to be lost. We continue to trade in a pretty tight range. The market continues to repeatedly fail once the S&P gets up to around the 950 level.
What I find strange is the fact that we haven't seen one decent correction since this bounce began in March. The markets rarely(if ever) trade like this. Zero Hedge posted a pretty frightening rumor around the Fed potentially buying stocks and providing liquidity via State Street. Folks, if that ever turns out to be true it will go down as one of the greatest frauds in history.
The way the market is acting you gotta wonder if there is some truth behind it. I mean look at the recent market action: Every sell off that has started has been bought into by the end of the day. As a result, the sell offs often turn into green rallies by late afternoon. If the market does stay in the red its losses have usually been cut in half by the close.
How does this happen every time? We have seen headlines since March that have been god awful and stocks have completely ignored it and continued to march higher.
I mean think about it. How do stocks rise when jobless claims continue to stay over 600,000, unemployment continues to rise, and treasuries yields have practically doubled in the past month from 2% up to 4% despite the Fed's QE?
Almost every financial news headline has been spun positive(even if the news is negative) since the rally started. Yesterday's Beige book announcement was a perfect example. Look at the headline of the article:
"WASHINGTON (MarketWatch) -- Five of the Federal Reserve's 12 district banks reported that the downward trend in the economy is showing signs of moderating, according to the central bank's Beige Book report on recent economic activity released Wednesday."
Hey bubble heads: Perhaps a better more accurate headline would be "7 of the 12 Federal Reserve's banks saw ZERO signs that the economy is recovering". Wouldn't that be a more accurate summary? You should lead with what the majority of the banks are seeing not the minority!
If these bubble heads were sports reporters and the Red Wings win the Stanley Cup in game 7 tonight, tomorrow's headline would be: "The Pittsburgh Penguins win 3 out of 7 games in the Stanley Cup!". Back here in reality on earth, this would be called getting the story WRONG! Yet we see it everyday in the financial news. This is how asinine this whole sham has gotten.
The spin from CNBC is totally out of control. I must have heard the words "green shoots" a million times in the past 5 weeks.
Bottom Line
The Fed/government has made a multi trillion dollar wager in my view. They have bet "the house" that they can use their balance sheet to replace our spending and psychologically make the people of this country believe that happy times are here again and that the economy has recovered.
The Fed believes that if they can successfully do this, people will start spending again and the economy actually will recover.
What's frightening here is the lengths in which they will go in order to create this mirage of a "miracle" recovery.
I mean think about what "they"(the Fed, Treasury, and the government) have done:
"They" have bailed out practically everyone.
"They" have bought treasuries and MBS's.
"They" have strong armed banks into taking over insolvent banks that have wiped out the shareholders of the good banks like BofA.
"They" have broken the rule of law and crammed a shitty deal down the throat of the Chrysler bondholders.
"They" created a "backdoor bailout" in the form of AIG that allowed the Treasury to pay tens of billions of dollars to the banks in order to make them whole on bad CDS bets that AIG made.
"They" have changed the accounting standards in order to make insolvent companies lookprofitable.
"They" have manipulated every economic report.
Finally, today they are now accused of buying stocks and manipulating the market higher. Is their anything left for these scumbags to do?
The problem with their wager is we are all sitting here and rotting as the government plays these ridiculous games. Unemployment continues to rise, housing prices continue to fall, and most Americans have lost half of their retirement savings as a result of this economic crisis.
I would love to ask "They" a couple questions:
How can we have a jobless recovery? Why aren't "they" addressing the real problem here? The elites in this country are being made whole at the expense of the damn public!
There will be no recovery until the real problems are addressed. We need jobs and we need a more affordable standard of living. What we don't need are propped up assets that no one can afford. This sham can only be propped up for so long folks.
The market may very well meander along here as long as the Fed relentlessly pursues the reflation of the bubble. The downside risk far outweighs the upside the longer we sit here and flat line the way I see it. Many of the buyers of this market have moved to the sidelines. Even the bulls believe we need a correction here before we move to new highs.
If we continue to see no correction's as more inevitable bad news hits the markets, I am going to start to believe that Zero Hedge may be seriously onto something. The Fed/Treasury has already proved to us that they don't respect the rule of law in this nation.
As a result, no one should be surprised if they are eventually caught buying stocks through State Street.
The message from Washington has been clear throughout this crisis: They will do "whatever it takes" to win their trillion $$$ wager.
The Fed will lose this bet in the long run because the "skeleton's in the closet" will eventually become impossible to ignore.
Thank You!
I just wanted to say thanks for visiting The Housing Time Bomb!
Traffic has soared over the past two weeks. The blog traffic is up 80% and is closing in on 1000 hits a day during the week. I realize this pales in comparison to many of the mainstream blogs out there but I personally consider this to be a rewarding milestone.
The friends that I have met over the past 1-1/2 years has made this voyage extremely rewarding. I will continue to to my best in terms of interpreting the insanity in our financial markets.
There are many opinions as to how all of this plays out. I went into this realizing that I would make both good and bad calls. This market is extremely volatile and even the best out there have gotten it wrong at times. I hope that all of you have found a nugget or two on here that has helped you with your investing.
I appreciate all of your support, and please don't hesitate to e-mail me with ways in which I can make this blog better.
All the best,
Jeff
Traffic has soared over the past two weeks. The blog traffic is up 80% and is closing in on 1000 hits a day during the week. I realize this pales in comparison to many of the mainstream blogs out there but I personally consider this to be a rewarding milestone.
The friends that I have met over the past 1-1/2 years has made this voyage extremely rewarding. I will continue to to my best in terms of interpreting the insanity in our financial markets.
There are many opinions as to how all of this plays out. I went into this realizing that I would make both good and bad calls. This market is extremely volatile and even the best out there have gotten it wrong at times. I hope that all of you have found a nugget or two on here that has helped you with your investing.
I appreciate all of your support, and please don't hesitate to e-mail me with ways in which I can make this blog better.
All the best,
Jeff
Thursday, June 11, 2009
Nothingburger!
Today reminded me of a lot of the Super Bowls that I have watched over the years. Lots of hype followed by little action!
Well, the contrarion in me that I talked about on Tuesday turned out to be right. The Fed found a way to get these sales done.
Here are the 30 year auction results:
"The Treasury Department sold the 30-year bonds to yield 4.72%.The auction is a reopening, meaning the debt sold will mature on the same date and carry the same coupon as the previous sale. Reopenings are always smaller than the initial sale, and this month's offering matches the amount of the last 30-year reopening in March.
Bidders offered 2.68 times the amount of debt being sold, the highest in a year."
My Take:
This was a very impressive auction that saw strong demand. There are many theories as to why we saw so much demand for the 30-year today. There was a lot of talk about Barclay's decision to include Fed mortgage holdings in the old Lehman Indices index. Across the curve does a nice job explaining what may have happened here:
"Barclays inherited the Lehman indices against which many portfolios index or measure performance. Barclays announced today that the mortgages which the Federal Reserve owns will be included in the index. Apparently, many thought those bonds would not be and many investors were instantly underweight the 4 and 4 1/2 coupons and that was the catalyst for a round of buying."
Quick Take:
Hmmm...So could this have created some artificial demand as investor's were forced to re balance their portfolio's? Rick Santelli spoke at length about this same topic today. It certainly makes a lot of sense. The problem moving forward is now that they are rebalanced, what happens when we see the next 30 year auction?
You see that's the problem here folks. We are going to see auction after auction after auction after auction this year. If the market has to sweat out every treasury sale how can the market really make any progress over the long term. Answer? It can't. The supply of treasuries is simply too overwhelming for demand over the long haul in my view. At some point one of these suckers is going to fail.
I think that's why you saw the bounce fade late in the day. Things are looking very toppy in the S&P BTW.
Indirects(FCB's) grabbed 50% of the auction:
Lets take a look at the bond auction results:
Well, the contrarion in me that I talked about on Tuesday turned out to be right. The Fed found a way to get these sales done.
Here are the 30 year auction results:
"The Treasury Department sold the 30-year bonds to yield 4.72%.The auction is a reopening, meaning the debt sold will mature on the same date and carry the same coupon as the previous sale. Reopenings are always smaller than the initial sale, and this month's offering matches the amount of the last 30-year reopening in March.
Bidders offered 2.68 times the amount of debt being sold, the highest in a year."
My Take:
This was a very impressive auction that saw strong demand. There are many theories as to why we saw so much demand for the 30-year today. There was a lot of talk about Barclay's decision to include Fed mortgage holdings in the old Lehman Indices index. Across the curve does a nice job explaining what may have happened here:
"Barclays inherited the Lehman indices against which many portfolios index or measure performance. Barclays announced today that the mortgages which the Federal Reserve owns will be included in the index. Apparently, many thought those bonds would not be and many investors were instantly underweight the 4 and 4 1/2 coupons and that was the catalyst for a round of buying."
Quick Take:
Hmmm...So could this have created some artificial demand as investor's were forced to re balance their portfolio's? Rick Santelli spoke at length about this same topic today. It certainly makes a lot of sense. The problem moving forward is now that they are rebalanced, what happens when we see the next 30 year auction?
You see that's the problem here folks. We are going to see auction after auction after auction after auction this year. If the market has to sweat out every treasury sale how can the market really make any progress over the long term. Answer? It can't. The supply of treasuries is simply too overwhelming for demand over the long haul in my view. At some point one of these suckers is going to fail.
I think that's why you saw the bounce fade late in the day. Things are looking very toppy in the S&P BTW.
Indirects(FCB's) grabbed 50% of the auction:
Lets take a look at the bond auction results:
My Take:
As you can see, the indirect(commonly known as the FCB's of the world) grabbed half of the bonds in this auction. Many are wondering why. The defaltionist's like Karl Denninger believe that the FCB's are piling in here thinking that in the long run think that we will see a deflationary collapse and a stronger US dollar. As a result, they believe holding longer maturity bonds at a 4.72% yield will be one hell of a return over the long haul if we see a Japanese style deflation cycle.
This will be a good bet by the FCB's IF this is how it all plays out.
Bottom Line:
I think we can't read too much into this one $11 billion auction. The amount of the sale is a drop in the bucket when you compare it to the trillions of dollars that we have pissed away on this collapse. The small size of the auction makes it very vulnerable to manipulation.
As a result, I am not surprised that they were able to kick the can down the road. The Fed has been kicking the can down the road for 25 years so what's one more week!
I think we need to see what type of trends develop in treasuries over the next several weeks as the Fed rolls out auction after auction. This week we saw one poor auction and one strong one. This leaves us with mixed results.
I continue to have a hard time believing that the Fed can continue to sell all of this long term debt without seeing yields soar. I also don't see how you can not worry about inflation when the Fed is growing the M2 money supply by 9% a year.
A nice way to hedge here if you are short bonds and the US dollar is to short the S&P. If bond's rise and the dollar strengthens as deflation takes hold, the stock market will collapse as we see debt destruction and bankrupties on a grand scale. Take a look at Japan in the early '90's if you want to see how this scenario plays out.
As for myself, I still remain stubbornly concerned about inflation. The massive flooding of liquidity by the Fed via QE, bailouts, and other vehicles make it very hard for me to see how we avoid inflation at some point in this cycle. The Fed has historically ALWAYS waited too long to pull back their liquidity. This has always led to problems with inflation. 1970's anyone?
Its hard to believe that it will be any different this time. Especially after watching how accommodating Ben has been when it comes to flooding the system with money.
The 1st inning of the credit market crisis is now complete and the score is tied at 1-1. More evidence is needed before any longer term conclusion's can be drawn.
Stay Tuned!
Wednesday, June 10, 2009
Credit Market Crisis: Round 2 Tomorrow!
Whoa! What a day.
I already went over the auction result's today so lets see how the 10 year finished trading:
Bottom Line:
Jim's video made me think a lot about where we are. One thing Mr. Grant notes is that the M2 money supply is growing at a 9% annual rate. Jim believes this is one big giant monetary experiment that's being conducted by the Fed. He worries that there our government has simply too many dollars!
The fallout from such an oversupply of money of course is inflation. Demand or no demand inflation will occur if you create too many dollars. Example? Uhhh...Zimbabwe? There is no demand over there because the whole country practically lives below the poverty level!
Theoretically, lack of demand and limited wages should have resulted in deflation. However, this is only true as long as the FCB that is reacting to the crisis doesn't attempt to fix the problem by printing money. Zimbabwe went the printing route and we all see how that worked out. This is why a USA deflationiory death spiral isn't a lock. Ben is dramitacally increasing the money supply!
How the Fed reacts from here will determine whether or not we see inflation or deflation down the road. I still think we will see a bout of deflation followed by an inflationary crisis.
I mean Christ how can it not end with inflation?: Where are all of these dollars going to go? What assets are they going to chase? How can we all afford to live if it chases bare necessities like oil at a time in which all of our own personal wages and access to money is shrinking? I'm telling you folks this is a frickin nightmare when you really think about it.
That being said, the market still found a way to hang in there today. Will a bad 30 year auction finally tip us into a badly needed stock correction? Time will tell. At this point it really doesn't matter because the credit market is telling you things are not well. The equity idiots simply have their ears plugged and refuse to listen.
The bond market is extremely nervous as they relentlesly continue to sell off ttreasuries. This cannot be ignored by equities forever. Without the ability to borrow cheap money, these bloated assets MUST collapse down in price to affordable levels before we can clear the debt and move on. When it does its going to be extremely painful for the Fed, the stock market, and our economy.
Things in my view keep getting worse and worse. Hang On!
Lets see what happens tomorrow!
I already went over the auction result's today so lets see how the 10 year finished trading:
My Take:
As you can see, the 10 year actually crossed 4% before pulling back a bit later in the day. It will be interesting to see if it can clearly break through the 4% level tomorrow following the 30 year bond auction results at 1pm.
Folks, today was only round one. Tomorrow's 30 year auction should be even more interesting because its even less appealing to FCB's. The 30 year sits on the longest end of the yield curve.
Jim Grant: Inflation/Is The Fed Insolvent?
So why are the FCB's so afraid of the 30 year? Because of inflation! You are screwed as a bondholder if inflation soars at double digits when your bond only pays you 4.5% like the 30 year does. It's basically a guaranteed loss on your investment.
Please take a listen to Jim Grant below. This is a must watch in my view. Jim is a major player in the bond market and his newsletter is read by the best and the brightest on Wall St.
My favorite line in this video comes after he is asked what we should do with the bank's toxic assets. Jim quoted a classic line from an anonymous bond trader: "There are no bad bonds only bad bond prices".
I have been screaming about this all along. We must let these "toxic" assets go to auction and sell for whatever people are willing to pay for them. If the bid is .10 on the dollar then that's what they are worth! These assets aren't toxic! They are simply overpriced!
If a bank goes BK as a result of taking a bath on selling their bad assets at market prices then so be it. They shouldn't have taken so much risk!
Jim also proposes that if he were a regulator, he would shut down the Fed because he believes it's insolvent when you look at The Fed's capital versus its balance sheet. Pretty shocking stuff.
Anyway enjoy Jim. This is a classic:
Bottom Line:
Jim's video made me think a lot about where we are. One thing Mr. Grant notes is that the M2 money supply is growing at a 9% annual rate. Jim believes this is one big giant monetary experiment that's being conducted by the Fed. He worries that there our government has simply too many dollars!
The fallout from such an oversupply of money of course is inflation. Demand or no demand inflation will occur if you create too many dollars. Example? Uhhh...Zimbabwe? There is no demand over there because the whole country practically lives below the poverty level!
Theoretically, lack of demand and limited wages should have resulted in deflation. However, this is only true as long as the FCB that is reacting to the crisis doesn't attempt to fix the problem by printing money. Zimbabwe went the printing route and we all see how that worked out. This is why a USA deflationiory death spiral isn't a lock. Ben is dramitacally increasing the money supply!
How the Fed reacts from here will determine whether or not we see inflation or deflation down the road. I still think we will see a bout of deflation followed by an inflationary crisis.
I mean Christ how can it not end with inflation?: Where are all of these dollars going to go? What assets are they going to chase? How can we all afford to live if it chases bare necessities like oil at a time in which all of our own personal wages and access to money is shrinking? I'm telling you folks this is a frickin nightmare when you really think about it.
That being said, the market still found a way to hang in there today. Will a bad 30 year auction finally tip us into a badly needed stock correction? Time will tell. At this point it really doesn't matter because the credit market is telling you things are not well. The equity idiots simply have their ears plugged and refuse to listen.
The bond market is extremely nervous as they relentlesly continue to sell off ttreasuries. This cannot be ignored by equities forever. Without the ability to borrow cheap money, these bloated assets MUST collapse down in price to affordable levels before we can clear the debt and move on. When it does its going to be extremely painful for the Fed, the stock market, and our economy.
Things in my view keep getting worse and worse. Hang On!
Lets see what happens tomorrow!
10-Year Auction Results
Quick Update!
Sale complete at a high yield of 3.99%!
Bid to cover was 2.62 which is nothing to write home about.
Market has been steadily selling off since the auction. DOW is now down about 70.
TNX(10 year) is soaring today. Now trading at 3.98%.
Rates are rising. Housing is in deep trouble.
More later.
Sale complete at a high yield of 3.99%!
Bid to cover was 2.62 which is nothing to write home about.
Market has been steadily selling off since the auction. DOW is now down about 70.
TNX(10 year) is soaring today. Now trading at 3.98%.
Rates are rising. Housing is in deep trouble.
More later.
Tuesday, June 9, 2009
Lets Get Ready To Rumble!
Well here we are folks. One day before the potential moment of truth. I feel like I am getting ready to watch a heavyweight title fight in Chicago tomorrow!
You could just feel the tension in the market today. Stocks were pretty flat as the stock market prepares to hold its breath awaiting the results of the 10 year treasury auction in the bond market tomorrow at 1pm.
Volume was extremely light. We traded under 1 billion shares. My guess is many traders are afraid to front run the long end auctions over the next two days. It was a perfect day for the sidelines!
We did have a 3 year treasury auction today that saw very strong demand. This may be ominous for the long end auctions tomorrow and Thursday because it reinforces the thesis that the FCB's want to stay in the short end of the yield curve. Treasury yield's remained fairly steady throughout the day.
My Contrarion Side:
Could the long end auction's go smoothly and turn this week's sales into one giant nothingburger event? Yes, and this is the risk if you are on the short side. Never underestimate the Fed's ability to find buyers for these auctions. They realize the game is over if they can't fund them so you need to be very careful here.
I have positioned short in equities but my positions are small. The Fed is like a large rabid dog right now that's been cornered(by the credit markets). This makes them extremely dangerous.
The contrarion in me is telling me to buy some SPY calls because it seems like everyone is bearish on these auctions. I am also tempted to go long treasuries via TLT calls for a quick trade based on the same thesis.
Both of these bets would pay off big if the Fed pulls a rabbit out of its hat and pulls of this week's long end auctions with strong bid to cover ratio's. I might actually pull the trigger on one or both of these as a hedge to my shorts.
You almost need to think like a criminal in order to trade these markets. You can never underestimate the Fed because they have taken fraud and manipulation to a level that's never been seen before. Betting with them has been more profitable then betting against them since March.
Either way, staying hedged going into this announcement is probably a smart approach if you are conservative.
Don't get me wrong here folks, its only a matter of time before we see a failed auction. The Fed's attempt to re inflate this bubble will ultimately result in a colossal failure. I am starting to wonder if the Fed will even be around after this crisis is over.
Today's news around the House filing a subpoena demanding that the Fed hand over internal notes around the BofA/Merrill merger is a VERY interesting developement:
"WASHINGTON -- U.S. House lawmakers on Tuesday said they would file a subpoena to compel the Federal Reserve to turn over internal notes and emails detailing the central bank's role in encouraging Bank of America Corp. to complete its acquisition of Merrill Lynch & Co.
The House Committee on Oversight and Government Reform, chaired by Rep. Edolphus Towns (D., N.Y.), has asked the Fed to turn over documents requested by the panel last week. The documents requested include emails to and from Chairman Ben Bernanke, as well as handwritten notes from meetings and conversations involving Bernanke, then Treasury Secretary Henry Paulson and Bank of America CEO Kenneth Lewis.
The request is being made ahead of a Thursday hearing in which Mr. Lewis is scheduled to appear before House lawmakers. Congressional investigators have been investigating the details of Bank of America's acquisition of Merrill Lynch, as well as the government's decision to give the company $20 billion in additional government aid in January.
Additionally, lawmakers have been examining testimony given by Mr. Lewis to New York Attorney General Andrew Cuomo in which he suggested top Fed and Treasury officials pressured him to complete the deal for Merrill Lynch despite ballooning losses at the securities firm."
Quick Take:
Whoa! What a story this could turn out to be if it gets some serious legs. The ramification's of this would be huge if there is strong proof that the Fed strong armed Ken Lewis into gobbling up Merrill Lynch and its billions of dollars in losses. We all know this is how it went down. Proving it however is a different story.
The fallout if these accusations are proven are mindboggling:
Gee...Do you think the BofA shareholders might have a lawsuit here the Fed is found guilty? Bank of America's shares have been down as much as 79% since the September 15th merger announcement.
Paulson, Bernanke, and the rest of the thugs at the Fed and Treasury all need to go to prison in my view. They have done nothing but lace the pockets of their banking buddies at our expense ever since this crisis started.
I pray that we see some justice here! The RULE OF LAW must be re-established in this country or we will never recover from this crisis.
The SCOTUS decision around the Indiana pensioner's is another critical case that the Supreme Court must take in order to restore the rule of law! The bondholder's were screwed in this deal as the White House threatened them with their lives if they didn't agree to take pennies on the dollar on their Chrysler bonds. This CANNOT be allowed to happen. PERIOD!!!
No one will want to invest in this country if its that's filled with a bunch of thugs at the top.
Bottom Line:
Let the fireworks begin! Tomorrow could be a historic day in the credit markets.
We could see a huge sell off if these bond auctions end up with ugly tails or even worse: FAIL. My hunch is that the long end auctions this week will be sold without too much pain.
However, if the auctions go off without a problem, it will come with a price:
I believe that the FCB's(specifically China) have most likely demanded reduced spending and deficits in exchange for their continued treasury purchases.
Lets face it. The FCB's know they have the Fed by the balls and so does Ben. I think all of the jawboning by the Fed this week about pulling liquidity and reducing spending followed by the president's speech today around PAYGO might have tipped their hand in terms of folding to worldwide pressure.
If the US caved on spending concessions, the sales will be strong this week.
If no promises were made to the FCB's, all hell could break loose tomorrow as the worlds begins to runaway from our debt. An equity crash isn't out of the question if the auctions are a disaster.
Disclaimer: The following paragraphs should not be taken as investment advice. These are just my thoughts:
If deals were made to the FCB's and stocks pop following successful 10/30 year treasury auctions today and Thursday, I believe it would be wise to then take some money off the table on the long side.
I say this because the Fed will then have to fulfill their promises to the FCB's of less spending moving forward. This will threaten many of the bailouts as liquidity is pulled and spending is cut throughout the government's budget.
This will be extremely bearish for equities because the bailed out companies will be forced to stop sucking off the government tit. Without this option, many of them will have no choice but to go bankrupt down the road.
Be VERY careful this week! This is an extremely dangerous market.
Stay Tuned! I will be here with extensive coverage tomorrow.
You could just feel the tension in the market today. Stocks were pretty flat as the stock market prepares to hold its breath awaiting the results of the 10 year treasury auction in the bond market tomorrow at 1pm.
Volume was extremely light. We traded under 1 billion shares. My guess is many traders are afraid to front run the long end auctions over the next two days. It was a perfect day for the sidelines!
We did have a 3 year treasury auction today that saw very strong demand. This may be ominous for the long end auctions tomorrow and Thursday because it reinforces the thesis that the FCB's want to stay in the short end of the yield curve. Treasury yield's remained fairly steady throughout the day.
My Contrarion Side:
Could the long end auction's go smoothly and turn this week's sales into one giant nothingburger event? Yes, and this is the risk if you are on the short side. Never underestimate the Fed's ability to find buyers for these auctions. They realize the game is over if they can't fund them so you need to be very careful here.
I have positioned short in equities but my positions are small. The Fed is like a large rabid dog right now that's been cornered(by the credit markets). This makes them extremely dangerous.
The contrarion in me is telling me to buy some SPY calls because it seems like everyone is bearish on these auctions. I am also tempted to go long treasuries via TLT calls for a quick trade based on the same thesis.
Both of these bets would pay off big if the Fed pulls a rabbit out of its hat and pulls of this week's long end auctions with strong bid to cover ratio's. I might actually pull the trigger on one or both of these as a hedge to my shorts.
You almost need to think like a criminal in order to trade these markets. You can never underestimate the Fed because they have taken fraud and manipulation to a level that's never been seen before. Betting with them has been more profitable then betting against them since March.
Either way, staying hedged going into this announcement is probably a smart approach if you are conservative.
Don't get me wrong here folks, its only a matter of time before we see a failed auction. The Fed's attempt to re inflate this bubble will ultimately result in a colossal failure. I am starting to wonder if the Fed will even be around after this crisis is over.
Today's news around the House filing a subpoena demanding that the Fed hand over internal notes around the BofA/Merrill merger is a VERY interesting developement:
"WASHINGTON -- U.S. House lawmakers on Tuesday said they would file a subpoena to compel the Federal Reserve to turn over internal notes and emails detailing the central bank's role in encouraging Bank of America Corp. to complete its acquisition of Merrill Lynch & Co.
The House Committee on Oversight and Government Reform, chaired by Rep. Edolphus Towns (D., N.Y.), has asked the Fed to turn over documents requested by the panel last week. The documents requested include emails to and from Chairman Ben Bernanke, as well as handwritten notes from meetings and conversations involving Bernanke, then Treasury Secretary Henry Paulson and Bank of America CEO Kenneth Lewis.
The request is being made ahead of a Thursday hearing in which Mr. Lewis is scheduled to appear before House lawmakers. Congressional investigators have been investigating the details of Bank of America's acquisition of Merrill Lynch, as well as the government's decision to give the company $20 billion in additional government aid in January.
Additionally, lawmakers have been examining testimony given by Mr. Lewis to New York Attorney General Andrew Cuomo in which he suggested top Fed and Treasury officials pressured him to complete the deal for Merrill Lynch despite ballooning losses at the securities firm."
Quick Take:
Whoa! What a story this could turn out to be if it gets some serious legs. The ramification's of this would be huge if there is strong proof that the Fed strong armed Ken Lewis into gobbling up Merrill Lynch and its billions of dollars in losses. We all know this is how it went down. Proving it however is a different story.
The fallout if these accusations are proven are mindboggling:
Gee...Do you think the BofA shareholders might have a lawsuit here the Fed is found guilty? Bank of America's shares have been down as much as 79% since the September 15th merger announcement.
Paulson, Bernanke, and the rest of the thugs at the Fed and Treasury all need to go to prison in my view. They have done nothing but lace the pockets of their banking buddies at our expense ever since this crisis started.
I pray that we see some justice here! The RULE OF LAW must be re-established in this country or we will never recover from this crisis.
The SCOTUS decision around the Indiana pensioner's is another critical case that the Supreme Court must take in order to restore the rule of law! The bondholder's were screwed in this deal as the White House threatened them with their lives if they didn't agree to take pennies on the dollar on their Chrysler bonds. This CANNOT be allowed to happen. PERIOD!!!
No one will want to invest in this country if its that's filled with a bunch of thugs at the top.
Bottom Line:
Let the fireworks begin! Tomorrow could be a historic day in the credit markets.
We could see a huge sell off if these bond auctions end up with ugly tails or even worse: FAIL. My hunch is that the long end auctions this week will be sold without too much pain.
However, if the auctions go off without a problem, it will come with a price:
I believe that the FCB's(specifically China) have most likely demanded reduced spending and deficits in exchange for their continued treasury purchases.
Lets face it. The FCB's know they have the Fed by the balls and so does Ben. I think all of the jawboning by the Fed this week about pulling liquidity and reducing spending followed by the president's speech today around PAYGO might have tipped their hand in terms of folding to worldwide pressure.
If the US caved on spending concessions, the sales will be strong this week.
If no promises were made to the FCB's, all hell could break loose tomorrow as the worlds begins to runaway from our debt. An equity crash isn't out of the question if the auctions are a disaster.
Disclaimer: The following paragraphs should not be taken as investment advice. These are just my thoughts:
If deals were made to the FCB's and stocks pop following successful 10/30 year treasury auctions today and Thursday, I believe it would be wise to then take some money off the table on the long side.
I say this because the Fed will then have to fulfill their promises to the FCB's of less spending moving forward. This will threaten many of the bailouts as liquidity is pulled and spending is cut throughout the government's budget.
This will be extremely bearish for equities because the bailed out companies will be forced to stop sucking off the government tit. Without this option, many of them will have no choice but to go bankrupt down the road.
Be VERY careful this week! This is an extremely dangerous market.
Stay Tuned! I will be here with extensive coverage tomorrow.
Monday, June 8, 2009
MBS Collapse!
Good Evening Folks!
Stocks were down much of the day before making a huge comeback heading into the close after Paul Krugman called for the recession to be over by September. Good luck with that call Paul! Sold to you!!!!
The way I see it: Today was the calm before the storm. The fireworks really begin on Wednesday and Thursday when the 10 and 30 year auctions are held respectively. The auction details will be announced at 1pm on both days. Make sure you catch Rick Santelli for the announcements. I expect them to be huge market movers one way or the other.
If the auctions go well we could see a big pump. If the tails are huge or god forbid we see a failed auction, I think an equity crash is possible.
MBS Disaster
There were some fireworks in the credit markets today but it had nothing to do with treasuries. MBS(mortgage backed securities) continued to totally collapse. The move today was stunning:
Stocks were down much of the day before making a huge comeback heading into the close after Paul Krugman called for the recession to be over by September. Good luck with that call Paul! Sold to you!!!!
The way I see it: Today was the calm before the storm. The fireworks really begin on Wednesday and Thursday when the 10 and 30 year auctions are held respectively. The auction details will be announced at 1pm on both days. Make sure you catch Rick Santelli for the announcements. I expect them to be huge market movers one way or the other.
If the auctions go well we could see a big pump. If the tails are huge or god forbid we see a failed auction, I think an equity crash is possible.
MBS Disaster
There were some fireworks in the credit markets today but it had nothing to do with treasuries. MBS(mortgage backed securities) continued to totally collapse. The move today was stunning:
Here is the longer term trend on the FNMA 30 year coupon:
My Take:
Basically what these charts tell you folks is mortgage rates are soaring. The FNMA is the 30 year coupon which is the benchmark from which mortgage rates are set. Like treasuries, the yield is inverse to the chart: The lower The FNMA drops , the higher the yield. Word on the street is rate sheets have had to be updated and increased 2-3 times a day in order to keep up with the collapsing MBS markets.
Moves like this have never been seen before! Not even back in Sept/Oct. when we were on the brink of a financial meltdown. If you look at the first chart above, we saw a -31/32 drop in the FNMA today which equates to almost a full basis point increase on mortgage rates in one day alone!
Mortgage rates by the end of the day at one outfit today were 5.875%.
Bottom Line:
This of course is BB's worse nightmare. The Fed in my view has completely lost control of the bond market. Mortgage rates are soaring despite the massive purchases of MBS's by the Fed. This trend will end up imploding the housing market and the bank's balance sheets if it continues. These moves in MBS are parabolic folks!
Remember, the Fed has promised to buy over $1 trillion dollars of MBS's versus the mere $300 billion that the Fed has allocated for buying treasuries via QE.
The bond market is basically giving Ben one giant middle finger at this point by selling off both. They are screaming: BRING IT ON BEN!
I can't wait to hear the next Fed statement scheduled for later this month. I am sure they are absolutely panicked by what is going on in the bond market. I think the boys in Chicago have had enough of Ben's bullshit.
The Fed is in a real tight spot right now. I personally don't see a way out. If the Fed decides to jump in with more buying of MBS's and treasuries, the bond market may tell Ben to go pound sand and continue to take yields higher. If this happens Ben's screwed and he knows it. If he does nothing and rates keep rising he is pretty much in the same predicament. I wouldn't want to be in his shoes!
The short end of the treasury yield curve also continued to move higher today. This flattening of the 2 year versus 10 year on the yield curve is huge negative for stocks. This puts a nice squeeze on the banker's profits because borrowing short and lending long becomes less profitable as the spreads flatten.
If the MBS action today is in any way indicative of how the bond market is feeling this week, we could be in deep trouble when the treasury auctions hit later this week.
Stay Tuned!
Sunday, June 7, 2009
Video Sunday!
Let me put a big fat DISCLAIMER up regarding the first one. Clear the kids out of the room before you watch it. Its filled with graphic language.
I thought this was pretty hilarious. Some of the J6P's that actually pay attention to what is going on out there in the economy have officially going postal. This guy is slowly building a cult following on You Tube.
If you take out the F-bombs the guy actually makes a lot of sense. I wish more Americans would wake up and get a clue!
Inflation Vs. Deflation
We discuss this topic a lot on here. I thought this was an excellent debate around both arguments.
Make sure you listen to economist Joseph LaVorgna in the middle of the video. I consider Joe to be one of the best economists out there. He makes a strong case for deflation in my view. Basically he explains that the Fed has thrown $1 trillion at a $3 trillion problem. This hardly seems inflationary.
I will continue to protect myself with inflationary hedges because I am still fearful that Bernanke will go too far in terms of flooding the market with dollars. Inflation will eventually arrive in my view, but it might be a few years away.
Anyway, enjoy the video!
I thought this was pretty hilarious. Some of the J6P's that actually pay attention to what is going on out there in the economy have officially going postal. This guy is slowly building a cult following on You Tube.
If you take out the F-bombs the guy actually makes a lot of sense. I wish more Americans would wake up and get a clue!
Inflation Vs. Deflation
We discuss this topic a lot on here. I thought this was an excellent debate around both arguments.
Make sure you listen to economist Joseph LaVorgna in the middle of the video. I consider Joe to be one of the best economists out there. He makes a strong case for deflation in my view. Basically he explains that the Fed has thrown $1 trillion at a $3 trillion problem. This hardly seems inflationary.
I will continue to protect myself with inflationary hedges because I am still fearful that Bernanke will go too far in terms of flooding the market with dollars. Inflation will eventually arrive in my view, but it might be a few years away.
Anyway, enjoy the video!
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