Tuesday, December 7, 2010
The Race to the Bottom
Has Bondzilla finally arrived?
By the looks of the 10 year at the end of the day you have to wonder:
That's a parabolic move folks. At one point the 10 year had sold off by two points.
Just think about that for a second. Ben tells us on Sunday that he might consider further QE'ing and the bond market has responded by heading in the opposite direction with interest rates. This is a complete rejection of Ben's thesis.
He flapped his gums for 20 minutes on Sunday night and all he got was a one day bounce yesterday!
I think the $1 trillion tax cut/unemployment spending spree might end up being the straw that breaks the camels back in the bond market. You can only go to the well so many times before it runs dry.
As the bond market was telling Washington to go pound sand: Obama decided to step out in front of the cameras in the afternoon and put his foot in his mouth as he talked about the solvency of the United States of America. That did a lot for market confidence idiot. I swear, this guy couldn't lead ants to a picnic.
Folks, you can't make this stuff up. I thought I would never see a president as inept as Jimmy Carter. Boy was I wrong.
Stocks sold off in the afternoon as the chaos seen in DC and in the bond market started taking it's toll.
The rising dollar didn't help stocks either. You might ask yourself: Why would the dollar be rising after the announcement of last night's possible agreement on another $1 trillion USA "Ponzi" style spending spree.
Well here is your answer:
"The euro slumped to $1.3304 at around 2200 GMT from $1.3415 late Friday.
Against the Japanese currency, the dollar edged up to 82.67 yen from 82.58 yen on Friday.
Eurozone finance ministers meeting in Brussels were facing deep disagreement over what to do next to tame the debt crisis that earlier this month claimed Ireland as its latest victim and now threatens to spread.Analysts fear that Portugal could be next in line for a bailout, with Spain coming into the firing line.
"Not for the first time, the euro’s bounce is being undone by conflicting messages from eurozone politicians, with calls for an expansion of the temporary bailout facility and a creation of a single eurozone bond rejected by German Chancellor (Angela) Merkel," said Vassili Serebriakov of Wells Fargo."
Awesome! Maybe both of us can collapse at the same time!!! Everyone yell "BANKRUPT" on the count of three!!!
The Bottom Line
The rising dollar sent a bit of a message today. The currency market is saying we're screwed but Europe is screwed worse. However, the bond market threw a definite temper tantrum over what we are doing on this side of the pond.
Folks, if yields begin to pull a "Greece" it's over. I was reading that our annual deficit will equal 15% of GDP if we approve the tax cuts. Percentage wise this would put us AHEAD of Greece from an annual deficit vs. GDP.
I think the bond market has had it with our government, and the European situation doesn't look any better.
The world's central banks are juggling way too many balls at once, and it's only a matter of time until they drop one.
If rates start to unwind housing will be officially be declared dead, and the death of the banks will soon follow. Both are already on life support as it is.
Silver decoupled from gold today and unwound pretty violently. The whole silver trade is looking scary to me at this point given all the talk about JPM's massive short. I feel like there is massive speculation on both sides of this trade, and I usually don't like to be involved in situations like this because one side usually ends up getting clobbered.
I am going to rethink my silver position over the next day or so. I will stick with gold as a currency hedge.
Overall, I think it's a race to the bottom at this point. It seems like the question we should be asking ourselves is what blows up first? The US bond market or Europe's sovereign debt contagion.
Something tells me we will know soon enough. The Fed is increasingly looking impotent at this point as the numbers from a debt perspective begin to defy belief.
You could juice Bernanke up with 15 bottles of Viagra and I still don't think he could keep this debt bubble propped up.
Watch the bond market tomorrow. We have a 10 year bond auction. I wouldn't be surprised to see the Fed try and juice up this auction with a nice BTC so don't get fooled.