Saturday, June 20, 2009
Seriously, the bailout bubble is a very interesting way to look at what the government is doing. When this one pops there is nothing left to blow up.
I am afraid that Gerald is right.
Take a look. Its an interesting interview:
Friday, June 19, 2009
I am away for the weekend but I wanted to post this excellent Marc Faber interview from CNBC today. This is a nice follow up from what I was discussing in yesterday's post.
Marc does a great job describing the risk of monetary inflation and its effects. Dr. Faber is predicting 10-20% annual inflation 5-10 years from now.
Happy Father's Day to the dads out there.
Wednesday, June 17, 2009
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.
I am not even going to get into the details of the speech because there is nothing worth highlighting. Basically, we are going turn the regulation of our financial system over to the Fed.
Great idea guys: Put a giant banker(the Fed) in charge of regulating the banking/financial system. Why in the hell are we putting the fox in charge of watching the hen house? Have we learned nothing in the past 2+ years?
I am so tired of us addressing our economic problems by doing more of the same! When the market collapsed last fall as a result of our over leveraged system, how did we respond? We socialized the losses and then tried to re leverage up the consumer and the lenders in an attempt to re inflate the bubble. How did that work out? I will answer that Alex: Housing prices haven't stopped dropping since, consumer borrowing has collapsed, and unemployment has soared to 9-1/2%!
So when this dumb idea didn't work what did we try next? The Fed decided to make the "cheap money" that got us into this mess even cheaper via quantitative easing. How's that working? Ummm...Treasury yields have almost doubled since the Fed's initial QE. Do I even need to say anything more? Nothing has changed. Things have gotten worse not better.
Now for a third time, Washington is STILL trying to solve the problem by doing more of the same! It was the Fed's policies that forgot about this little word called "regulation". It was also the Fed's policies that created the housing bubble by keeping rates too low for too long.
Let's also not forget about the Fed's irresponsible spending policy in reaction to this crisis. they appear to be hell bent on spending trillions of $$$ that we don't have in order to prevent a depression.
So what did they do with the money?
Once again they addressed the problem by doing more of the same! They threw all of the money to the banks which of course are the ones that got us into this in the first place. Since when did we start rewarding unlawful behaviour with a $700 billion windfall?
God forbid we try and address the problems by helping out the people who are really suffering. I mean what has the Fed done for the victims of this crisis which are the American people? Ummm...Nothing! We got a whopping $700 billion in the form of a "stimulus" package that was filled with a bunch of pork barrel spending. None of us will ever see a dime of this money for the most part. The special interests might.
The bottom line here is the Federal Reserve's policies have been a catastrophic failure over the past 10 years.
Take a listen to Congressman Sherman and his take on the so called "historic" banking reform:
I find it so ironic that our government has no problem "nationalizing" America but refuses to nationalize the banks!
If this isn't the epitome of an oligarch society I don't know what is. Its obvious the elites of this country are still firmly in control and perhaps even strengthening their power.
How do you let the crooks go free and nationalize everything else?
I mean think about it: We have already basically nationalized our automotive industry. We will hear about our "nationalized" healthcare system in the very near future. Both will be decimated as a result.
The "nationalization" of the financial system was of course announced today but it comes with an asterisk. in my eyes this isn't a reform of the banking system. HOw can you call this reform when the government is allowing the Wall St crooks to stay in power. Even worse, they are giving the Fed who is the biggest crook of them all even more power! This is insane!
GM and Chysler's CEO's are both gone as a result of becoming governmental entities via a governmental BK. Why doesn't Obama demand the same in regards to the CEO's on Wall St?
The cauto CEO's ran their companies into the ground and rightly deserved to be fired as a result.
The Wall St's CEO's also ran their companies into the ground PLUS committed unprecedented FRAUD and were somehow spared!
Why weren't they held accountable and fired like the auto CEO's Obama? Why is there a get out of jail free card for Wall St? If you are going to overhaul the system then every CEO that helped create this mess should be terminated.
Its so painfully obvious that all of them are in bed together. I remain amazed at how apathetic this country as to what is going on here. This horsesh*t must be stopped!
Our country is becoming socialized right in front of our eyes. Today's "banking reform" took us one step closer to the USA's transformation into the new USSR. The way in which the banking reform is being served to us should be disturbing to anyone that believes in freedom and capitalism.
This was just a further consolidation of power by the oligarch's in this country IMO. If we allow this to continue, we will end up being a bunch of serfs that wait for a government check every month.
The "elites" in this country are stealing what's left of our countries wealth in the form of bailouts at our expense. We will be stuck paying off this nightmare for the rest of our lives. Meanwhile, the "elites" will sit back, relax, and live the good life.
Our founding father's must be rolling over in their graves right now.
Tuesday, June 16, 2009
Life has almost become surreal at times as I watch this economic collapse slowly spiral completely out of control. The wheels are off the tracks at this point folks. All you need to do is open the newspaper today(that is if you still have one in your city) and just read whats going on in the world.
I mean think about what we have seen in the last few days:
- We have watched two Japanese Nationals get busted smuggling $134 billion of bonds into Switzerland. Can you say bizarre?
- British Airways is asking their employees to work for free. Gee, where do I sign up for that job? I think I could do that job out of my house! (scarcasm off)
- Iran is spiraling out of control as Aljimajoke won an obviously rigged election.
BTW. Why can't our people learn how to protest like the Iranians? They take to the streets with torches when they see fraud on an unprecedented scale. Meanwhile over here in the USA, we just sit on the couch and watch American Idol as our country swirls down the drain following an unprecedented financial fraud.
- This report out of Drudge on ABC takes the cake for me:
"ABC TURNS PROGRAMMING OVER TO OBAMA; NEWS TO BE ANCHORED FROM INSIDE WHITE HOUSETue Jun 16 2009 08:45:10
ET On the night of June 24, the media and government become one, when ABC turns its programming over to President Obama and White House officials to push government run health care -- a move that has ignited an ethical firestorm!
Highlights on the agenda:
ABCNEWS anchor Charlie Gibson will deliver WORLD NEWS from the Blue Room of the White House.
The network plans a prime time special -- 'Prescription for America' -- originating from the East Room, exclude opposing voices on the debate.
The Director of Communications at the White House Office of Health Reform is Linda Douglass, who worked as a reporter for ABC News from 1998-2006.
Late Monday night, Republican National Committee Chief of Staff Ken McKay fired off a complaint to the head of ABCNEWS :"
Jeez....Am I taking qualudes and not realizing it, or am I really reading this ABC news story? What planet are we on? Since when does the media start broadcasting out of the White House? Is this a goddamn dictatorship that's now in office?
Will Obama be appointing his own version of "Baghdad Bob" that comes on air on ABC everyday and tells us about how wonderful a job the government is doing? Perhaps he could also give us a daily recap around all of the green shoots that are beginning to sprout up all throughout the economy.(sarcasm off AGAIN!)
What is going on here folks! Has the world gone mad????
I think investor's are now dazed and confused. The volume has been extremely light for weeks now. I don't believe anyone was really that confident around the economy when this bounce got started. Now that this rally has stalled in the last week or so, it appears that investor's are quickly losing confidence as we begin to roll back over. This is what happens when so many things remain so unclear.
I post this graph a lot but I think its critical to remember:
The pattern that is developing right now appears to look a lot like the pattern we saw above in The Great Depression. There will be ebbs and flows throughout this crisis as we see conflicting signs around an economic recovery. I don't think we are headed straight down from here. I expect a lot of volatility , and you are going to have to be nimble in order to catches these bounces and sell offs.
However make no mistake about it, there is no recovery in sight. As a result, the long term trend will be straight down. Its just a matter of time before we break the March lows as this brutal recession/depression continues to wreak havoc on the economy.
The biggest problem that we have in this country is that there is no catalyst in the near future that will be able to pull us out of this.
Think about it, where is the next economic catalyst going to come from? Tech? We already blew up that bubble. Wall St/Finance? HA! These companies will be drowning in debt for a decade or more. Possibly a generation. Housing? Been there done that. Manufacturing? HA! From who Government Motors? How about healthcare? Yeah right. Obamacare will wipe out any hopes of growth in this area.
Green energy is just about the only thing that I can see that is promising. However, its a decade or more away. We simply don't have the infrastructure set up to get this game going to any large extent. We may create some jobs in this area but it won't be near enough to replace what we are losing.
Without an economic catalyst there will be no recovery. Without a recovery, there will be no consumer which is what drives the economy in this country. Practically everything in the US is geared around us emptying our wallets. We make and export hardly anything anymore. We have become a nation of debt slaves that no longer has the ability to spend.
The future sadly looks very grim. An economic reset is now inevitable at this juncture. Consumption has collapsed and our industrial production has collapsed along with it(we got more bad numbers today).
The longer we deny the fact that our cost of living must be dramatically lowered to affordable standards, the more we will sit here and and simply suffer.
Our debts must be cleared, and our consumers need to deleverage themselves off of their Ponzi spending lifestyle. THERE IS NO OTHER ANSWER TO THIS PROBLEM. This will result in a lot of economic pain in the form of massive bankruptcies, but it is essential if we ever care to see an economic recovery.
At this point, a depression is unavoidable. Lets accept it before it morphs into an economic collapse.
Monday, June 15, 2009
Whats eery about today was there was no real news that triggered this sell off. Usually big corrections tend to come out of nowhere. 1987 anyone?
The question now becomes: Is this just a pullback or the beginnings of something more horrifying? Time will tell. The reflation trade got pummeled today. If you are in metals like myself, make sure you have yourself hedged with short positions.
I am not worried about the metals trade. I think Russia's announcement around having confidence in the US dollar was the big reason for the breakdown of the inflation trade today:
"June 15 (Bloomberg) -- Treasuries rose for a third day after Russian Finance Minister Alexei Kudrin said his nation has full confidence in the dollar and there are no immediate plans to switch to a new reserve currency.
Ten-year notes extended their winning streak to the longest in a month on speculation a U.S. government report will show overseas demand for the nation’s assets increased in April. Kudrin’s comments came after Japanese Finance Minister Kaoru Yosano said his government is confident about the outlook for U.S. Treasuries, helping attract investors after 10-year yields climbed to the highest level in seven months."
Hmmm....What a coincidence. Japan came out last week and said the same exact thing. Do you think perhaps they are both protecting their massive treasury holdings by talking up the US dollar. This appeared to me to be a coordinated announcement by the ROW in order to restore some confidence in our credit markets and the dollar.
It kind of reminds me of March when the big three banks all announced that things had improved in February. Ha! Yeah things sure are better now! Not!
The world can say anything that they want. Let's see if they back it up with more treasury purchases. CNBC said that FCB purchases of long bonds were down dramatically from the previous month. Everyone has been piling into the short end of the curve.
If they are so confident about the US dollar then why are they running away from our longer term debt? I smell a rat here. Sounds to me like this is nothing but a little jawboning. Keep an eye on the dollar. It made a big move higher today but I don't think this is anything that has legs.
Is the Fed Pulling Liquidity?
I found something interesting in the slosh report this week that I thought I would share with you. The slosh is money(liquidity) that the Fed throws into the banking system in order to keep the banking system liquid which then helps keep real interest rates low.
The last time we saw a crash in equities, the slosh was reduced dramatically by the Fed which resulted in a rise in real interest rates. Rising rates is how the Fed pulls liquidity from the system.
The slosh has been pretty steady over the last few months. However, this week when I took a peek, it looked as if the Fed was getting ready to pull some liquidity:
As you can see above, we have over $100 billion in debt that matures later this week. This gives the Fed a golden opportunity to pull liquidity from the system by reducing the slosh by $100+ billion.
I warned everyone last week that if we saw strong bid to cover bond auctions last week that we may very well see a shift in policy from the Fed in terms of them being more disciplined with their spending. My guess is that we made a lot of promises to the ROW in the form of reduced spending in exchange for their continued purchases of our debt.
It wouldn't surprise me in the least if they use this potential slosh reduction as an opportunity to show the ROW that they plan an making good on their promises of being more disciplined. This will not be good for equities if this is the case. All you need to do is go back to September if you want to see what happened the last time the Fed reduced the slosh. Karl Denninger did a great piece last September on the slosh and its catastrophic effects on the stock market.
The rally has looked very long in the tooth over the last few weeks. We have a BOATLOAD of treasuries to sell. Pulling liquidity from the stock market would be a very effective way in which they could scare everyone over into the credit markets which would then enable them to sell the trillions of $$$ in debt that's needed in order to finance our spending addiction.
Lets see what happens later this week. I will be keeping a close eye on the slosh. Also in other neww, building sentiment came in at lows not seen since January, and credit card delinquencies sharply rose for all of the major banks as the consumer continues to fold like a tent.
These green shoots are rapidly turning into tumbleweeds and the market certainly reflected it today.