Treasuries Soar on European Debt Concerns

Thank god it's Friday!  Things are quiet for the most part.  I was happy to see treasuries rally today. 

Here is the 10 year:

Quick Take:

PHEW!  I am not looking forward to bond Armageddon and I would have hated to see it right before Christmas.  The Wall St Journal reported that treasuries rallied as a result of European flight to safety trades:

"The bond market extended Thursday's rally, a relief for a market that has been hammered over the past week. The benchmark 10-year note's yield, which moves inversely to its price, fell by about 16 basis points from the seven-month peak of 3.568% hit Thursday.

Many investors bought Treasury's after Moody's downgraded Ireland's sovereign credit ratings by five notches amid worries about the euro-zone debt crisis.

"Negative news from Europe spurred flight-to-safety flows into Treasurys," said Jason Rogan, director of U.S. government trading in New York at Guggenheim Partners LLC, adding that some foreign central banks and investment funds bought Treasurys with 10-year yield around 3.55%, providing attractive value.


As of 10:49 a.m. EST, the 10-year note was 8/32 higher to yield 3.405%. The 30-year bond was 22/32 higher to yield 4.498%.

The bond market is "oversold," said James Combias, head of U.S. Treasury trading at Mizuho Securities USA Inc."

The Bottom Line:

Everything else is pretty much a snoozefest today.  Metals are up a bit.  Stocks are flat.

I gotta be honest: I am looking forward to shutting it down for the holidays.  All of this impending doom is quite tiring and stressful.

FYI,  the blog will be hit and miss over the next two weeks.  I will be pretty regular next week.  This weekend and the holiday week might get a bit quiet.  Don't be fooled though:  The Housing Time Bomb will be back in full gear as we head into next year!

Let me wrap things up for today.

I have a feeling that Europe will be center stage as we head into 2011.  It will be interesting to see what bonds do in the meantime.

Christmas came early for the Fed this year.  Their gift was the European debt crisis.  It's creating huge revenue streams for treasuries as the Europeans flock to safety.  It's also taking the focus off of the US and our own debt issues and placing it on the squarely on the PIIGS.

Some advice:

Enjoy the holidays with your family because I expect 2011 to come in with a whirlwind.

We are nearing the tipping point of this whole crisis.  How it all plays out remains to be seen, but one thing is becoming very clear:   Radical change is coming and life as we know it will never be the same.

I know it's hard but try and forget about our economic insanity for now and enjoy some time with your family. 

I'll end today with a little holiday cheer!

2010: The Year of Reflation

Since it looks like the holiday trade is on I thought I would look back and see how various sectors performed in 2010:

My Take:

If you were an inflationist you did pretty darn well last year.  Commodities were clearly the play of the year.  I find it kinda funny to look at the S&P 500 performance relative to other investment options.

CNBC would love to make you believe that buying stocks was and always is the best thing to do.  As you can see above, this was clearly not the case in 2010.  Ironically, bonds gave a lot back since November when the Fed started it's brilliant QE strategy.

You can thank the Fed's reckless policies(along with lots of Chindians) for the commodity run.  The dollar has held up well as of late as a result of the European debt fiasco but it's clearly evident above that the market believes inflation is coming.

If you were a deflationist in 2010 you pretty much got slaughtered.  The classic deflation trade is to go short stocks and energy and go long the dollar and bonds.  So much for that idea in 2010.   

Personally, I was pleased with my year for the most part.  I did well with gold and silver.  My bond funds did well thanks to PIMCO.  I lost a little on some short hedges but I was glad I owned them when we dipped this summer. 

My cash didn't do anything thanks to low rates.  In fact, I probably lost money from an inflation adjusted standpoint but that's OK.  The security of knowing it's there is invaluable from my perspective at this point in the game. 

Where Do We Go From Here?

This is the million dollar question.  I will touch on this today but stay tuned for a THTB Top 10 prediction list for 2011.  I see this done a lot and i liked it so I figured I would give it a shot.

I think a lot of what happens in 2010 will come down to the Fed, the bond market, and politics. 

I think Obama put himself in a bad spot by passing the tax cuts. I say this because Washington DC is going to change drastically starting next year.

The House and the Senate will both be filled with several new tea partying Republicans who are going to want to cut spending.   As the deficit worsens we will see increasing pressure to do something to stop it.

This is going to lead to job cuts and other austerity measures beginning in 2011.  I don't expect anything drastic but it will start nonetheless. 

Obama is going to end up looking bad when the Republicans start cutting because the middle class are the ones who are going to feel the pain.

Obama will then get painted the President who gave the middle class the shaft after giving tax cuts to the rich.  This will be a political nightmare for him down the line and ironically I think the left may hate on him on this issue as much as the right does.

The Bottom Line

We have clearly reached a fork in the road when it comes to the markets and the economy.  Unemployment remains high and is getting worse.  Our deficit is on the verge of not being manageable as bond yields continue to rise. 

Stocks have priced in a strong 2011 recovery which I don't think is going to happen.  I can't see any material recovery without a nice uptick in jobs.  The only reason we had a recovery this year was because the government was willing to put it on it's credit card.  The economy would have been miserable this year without their handouts. 

The Fed would love to rinse and repeat the same thing this year which is why we got QE2.  The problem with this idea is the Fed now has the bond market to deal with.

They aren't too keen on this idea.   They are becoming increasingly worried about our deficits because they see no recovery that can pull us out of this mess.

The Fed doesn't see the recovery either.  If they did then they would have never pushed the QE2 button.   Bernanke knows this can't work but he did it anyway because there was no other option.

The after shocks are still being felt from our "printing" announcement.  Bonds have collapsed and commodities have soared ever since.   

This is going to be felt down the line by stocks as increased costs hurt margins.  Remember:  Oil remains stubbornly high and you need oil to make pretty much everything in our economy. 

I'll have more on my thoughts later.  The bottom line is I expect lower stock prices in our future as the market realizes that the great 2011 recovery was nothing but a pipedream. 


 

Take Your Austerity and Shove It!

It looks like the Greeks decided to not be upstaged by Italy today:



My Take:

Nothing like seeing angry mobs trying to light cops on fire.  How long can this last until the police say "F" this and join the other side. 

Folks, take it all in because you are going to see a replay of this over here.  I say this because the US is in the same fiscal shape as Greece.

The images above are horrifying and it's only going to get worse.  This is what happens when your debt levels can no longer be sustained, and you must slash the cost of government via austerity in an attempt to stay solvent.

The problem we have is the people in the world today are soft and have no idea what it's like to experience real HARD TIMES.  Go watch a few clips from WWII or the Great Depression if you want to see what it's like to really struggle in order to survive.

As a result, citizens like the Greeks are completely unprepared when the government stops writing checks when they run out of ways to borrow more money.

The bottom line here is reality is beginning to set in and they don't like it.  The people of Greece are now broke and jobless, and the government has no money or answers for them.  This is not an acceptable answer for it's citizens so they turn to violence and upheavel as they become enraged with the situation over time. 

Things is only going to get worse as people become more desperate.  If I was a politician over there I would be strongly considering getting the hell out of dodge before getting bloodied like the stooge at the end of the video above.

I know if I lived in Greece and had money I would getting out of there because inevitably people will start stealing from others in order to survive.  Think about it:  What other options do people have when there are no jobs and no future?

Some advice:

Before you go spend your last $2000 on a 50" HDTV I suggest you reconsider unless you have at least 6 months of cash in the bank. 

In case you missed the move in bonds, we are now seeing something similiar to what Greece saw a year ago in their own debt markets.  Take a look at the 10 year today:

Now take a look at the 10 year since the Fed decided to QE in early November:

The Bottom Line:

Are we officially Greece yet?  No, but we are well on our way if we don't dramatically change our government spending. 

Greek 10 year bonds got up to around 9% yield before all hell broke loose in their debt markets.  How did they get there?  Just like we did by spending.

Remember folks, the path to insolvency does not matter.  We got here by bailing out the rich and hiding our losses.  Greece got there by allowing their public sector to retire at the ridiculous age of 53.

The point I make here is it doesn't matter what path you take.  Once you are considered to be insolvent from a debt vs GDP perspective it's over because no one will continue to lend you money.

Does anyone really think the Chinese will keep lending us money via buying treasuries if they don't think they will get paid back?  You are delusional if you believe so.

Everyone likes to think that it's different over here.  Yeah OK.... I recall a realtor telling me the same bullshit when I looked at houses during the peak of the housing bubble.   

Like my father always says:  "It is what it is".  Insolvency is insolvency no matter what country you live in. 

Whats scary to me is I think we are toast over way before we reach the 9% yields that Greece did because we have issued so many trillions of dollars in treasury bonds that we must pay interest on. 

For example:  If we hit 6-7% yields on the 10 year then a huge chunk of our GDP would have to be used to service our $14 trillion of public debt.  Austerity would then be forced upon us because no one would lend to us without a realistic budget. 

Fortunately, the US is allowed extra time to get it's house "in order" because we have been the world's "safe haven" for several decades.

This luxury has arrogantly made us think that we can keep acting like Greece without the consequences.  How else can you explain the passage of another $900 billion spending bill on tax cuts?

The bond market is currently telling us that we are no different than anyone else.

The US politicians need to learn the from the lesson that our Realtors were taught a few short years ago:  Housing doesn't always go up if you treat it like a Ponzi scam and our reckless spending is no different.

Government spending will be forced to collapse once we reach the tipping point of sustainability just like the Greeks and the housing industry learned.

If we fail to recognize this and take action then our debt bubble will end up popping just like the housing bubble did. 

European Riots Hit Futures

"It's beginning to look a lot like Christmas!...All Around the world!"...Except Europe that is.

Rome is burning today as protesters took to the streets in protest of the Berlusconi re-election:

"Demonstrators, background, clash with police in Rome's Piazza del Popolo Square on Tuesday, Dec. 14, 2010. Premier Silvio Berlusconi won back-to-back votes of confidence in the Italian parliament Tuesday to survive one of the toughest tests of his political life. But he was left with a razor-thin majority that will make it hard for him to govern effectively. As lawmakers cast their votes, a violent core of anti-Berlusconi protesters outside clashed with police, smashing shop windows, setting cars on fire and hurling firecrackers, eggs and paint."

You won't see pics like this in the American media of course.  CNBC is too busy painting rainbows as they pump the economic recovery. 

Meanwhile things aren't much better today in Greece today either:

"Greek unions grounded flights, kept ferries docked at ports and shut down public services today to protest wage cuts as the government sticks to conditions of an international bailout.

Air-traffic controllers walked off the job, canceling all flights to and from Athens International Airport. Public transport workers, whose salaries were cut 10 percent under a bill approved early today in parliament, will work on and off between 9 a.m. and 5 p.m. to carry protesters to rallies.

“In terms of our salaries, we are going back at least 20 years,” said Stamatis Klapsis, 52, who has worked as a stationmaster at a suburban Athens bus depot for 31 years. “They are taking us back to the Middle Ages.”

Quick Take:

Santa may decide to fly right by Europe as he delivers his presents on Christmas Eve.  Could you blame him?  Who in the heck wants to land a sleigh in a place where all hell is breaking loose.

It's clear that the people are waking up and realizing their countries have sold them to slavery as they bailout the banking cartel at their expense.

I am sure our banks aren't too happy about this unrest considering we have about $350 billion in exposure to the PIIGS as reported on Zero Hedge:

Stocks are trading down a bit at the opening.  No need to fear.  I am sure the trading robots will have us in the green in no time.

Until later.

David Stockman: "The Fed is Destroying Prosperity"

Former Reagan Budget Director David Stockman hits it out of the park during this segment on Dylan Ratigan's show.  He calls the market a casino thanks to the Fed and adds that he believes we no longer have capital markets in this country.

Word is getting out folks:  Our whole so called "capitalist" system is nothing but a gigantic fraud:

Visit msnbc.com for breaking news, world news, and news about the economy

Oh Bennie Boy....

The bond market didn't like your FOMC statement:

In fact, they were pretty much disgusted by it.  You gave the bond market zero respect by not mentioning the rise in rates since you announced your QE.

You made zero adjustments in your statement despite seeing rates rise almost a full percentage point!  You decided to continue with your QE purchases despite the bond market telling you they hated the idea of it.

Keep ignoring the bond market and see what happens.

The arrogance of these jerk offs is unfathomable as Santelli just said on Bubblevision. 

Ben:  It's time to get out of your little bubble and stop extending and pretending as Rome burns.  This is not an acceptable policy for the bond market or THE AMERCAN PEOPLE!!!

Keep it up and you will pay the price.  Chicago has had enough.  HEAR THEM ROAR!!!

PPI Doubles/Best Buy Swings and misses

No inflation eh?

The BLS told us today that' a pipedream when it comes to finished goods:

Here are the goods numbers from the BLS over the past year.  As you can see, the PPI doubled to .8 in NOvemeber from .4 in October:

2010 1.3 -0.5 0.8 -0.1 -0.3 -0.4 0.1 0.5(P) 0.4(P) 0.4(P) 0.8(P)

My Take:

You can thank the Fed and it's QE currency trashing policy for this sudden rise in goods.  Rememeber:  The Fed came out with QE on November 3rd which means the inflation rate essentially doubled following their announcement from the previous month.

This works out to a 9% inflation rate annually which is brutal considering unemployment remains at 9.8% and closer to 20% when you include the people that have rolled off of UE benefits or simply given up trying to find a job.

The bond market didn't like this one bit:

Bonds HATE inflation and sold off hard on the news following a rally yesterday thanks to some large Fed QE bond purchases.

We also had Best Buy come out with horrific earnings news for their fiscal Q3(which included Black Friday sales):

"During the fiscal third quarter of 2011, Best Buy’s revenue decreased 1 percent to $11.9 billion, compared with revenue of $12.0 billion for the third fiscal quarter of 2010. The decrease reflected a 3.3 percent decline in comparable store sales, partially offset by the impact of net new stores in the past 12 months. The Domestic segment’s fiscal third quarter revenue totaled $8.7 billion, a decrease of 3 percent versus the prior-year period."

Bbbut.....I thought the economy was recovering.  Well, one of your largest retail bell weathers just told you sales suck so I don't know what tell ya.

Of course, stocks rallied on the news as the robots continue the "Pollyanna" trade in their own little dream world.

Wall St. Bonuses Soar Thanks to the US taxpayer

Please do me a favor and grab a barf bag before you watch the video below:



Here are the statistics from the tech ticker:

"Even if this quarter only matches the third, the banks' revenue will top that of any year except 2009," when the top five banks hauled in $127.8 billion. (Through the first 9 months of 2010, the five firms generated $93.7 billion in revenue, Bloomberg reports.)

Given those tallies, it's no surprise Wall Street bonuses are also expected to be robust this year. Overall pay per employee is expected to be down from the peak years, and more is coming in the form of restricted stock. But the overall bonus pool is projected to hit $144 billion this year, which would be a record, The WSJ reports.

Given the ongoing struggles in the "real" economy, it's no surprise most Americans most definitely do begrudge Wall Street's outsized compensation structure, more especially since these firms only survived 2008 thanks to tax-payer funded bailouts.

As separate Bloomberg survey shows over 70% of Americans think big bonuses should be banned this year while over 85% of those surveyed favor a 50% tax on bonuses exceeding $400,000."

My Take:

I'm sorry folks, I can't help it, I must rant about the bankers after watching this.  I know I have done this repeatedly so please forgive me.   However,  I feel the need to hammer it home again in case some of my newer readers haven't experienced one of my Wall St rants.

Time to let it rip:

OK, so let me get this straight:  Wall St gets to pay themselves record compensation based on profits from the money that was given to them by the US taxpayers via the TARP.

A few questions here:  Where is our cut Wall St.?  It's OUR money you are gambling with.  Why don't we get to share in the profits that you never would have made without us bailing you out when you were up to your neck in toxic mortgages?

folks, This makes me LIVID.  Where does Wall St get the balls to pay themselves this type of bonus as this country sits in financial ruin?

Why isn't at least half of this money getting paid back to the taxpayer?  How does the government allow this to happen?  It's just flabbergasting to see something like this when 20% of this nation is unemployed.

Folks, this is the type of stuff you see in 3rd world nations.  It's not supposed to happen in the civilized world.  Why aren't 2 million Americans marching on DC demanding blood after being flat out looted by Wall St?

Let's not forget, our major banks are INSOLVENT.  They wouldn't have changed the mark to market accounting rules if this wasn't the case.  This is why most TBTF institutions were trading in the single digits in early 2009.  The street was basically betting that these firms were TOAST.

The truth is they would have all FAILED without the bailouts and mark to market changes.

Since this is the reality of the situation:  WHY ISN'T THE GOVERNMENT AT LEAST FORCING THE BANKS TO TAKE THEIR PROFITS AND USE THEM TO ABSORB THE LOSSES THAT REMAIN ON THEIR BALANCE SHEET?

This country is about to go tits up and $150 billion would come in pretty handy right now.

You have to wonder:  Why are the feds legally allowing the bankers to line their pockets when America sits on the brink of default?

The Bottom Line

Please remember:

Remember this post when America is forced to pay the piper. 
Remember this post when your pension fund payout is cut in half.
Remember this post when the retirement age rises to 75.
Remember this post when inflation soars as our dollar turns into toilet paper.
Remember this post when your home is worth 70% less 5 years from now.
Remember this post when our 10 year bond yield rises to "Greece" levels.
Remember this post when stocks collapse.

Wall St created this problem and we were forced to clean up the mess.  They have thanked us by paying themselves $150 billion.

Warning:  Be prepared to bail them out again folks.  This bubble is going to end in tears just like the housing bubble did, and Wall St will be back to pillage the taxpayer a second time.  Like subprime, our government debt levels are unsustainable and it's just a matter of time until it all ends in tears. 

Mathematically the money cannot be paid back without extreme catastrophic cutbacks in spending and benefits.  I am not even sure we can come up with a solution where we are able to pay off our debts. 

The fat cats on Wall St obviously could care less.  If they did then they never would have never paid themselves such a disgusting amount of money.

Karma is a bitch and one day they will get theirs.  Unfortunately, we will probably go right down with them.

Never forget:  THERE IS NO FREE LUNCH.

Dollar Falls on Tax Cut Vote

The dollar fell sharply today as Congress prepares to shove through some form of tax cut legislation that will add another $900 billion in Ponzi spending to our deficit:

Quick Take:

Gold and oil were also up sharply on the dollar move.  The move in commodities was also fueled by China's decision to not raise rates over the weekend. 

Stocks were up slightly which isn't a surprise when you look at the dollar.  If/when the tax vote gets done it will be interesting to see how treasuries react.  Bonds are down once again in early trading this morning.

What I find interesting here is the fact that the dollar sold off despite the fact that the Chinese failed to hike interest rates rates.  You would have thought this would have strengthened the USD.  You would also think the dollar would rise as the European debt crisis continues to intensify.

This tells me that perhaps the debt hawks and currency traders are focusing more on out deficit and future government spending. 

I expect some fireworks on approval of the tax bill because any deal that's made to juice it up for the Democrats in order to get it through will do nothing to help our deficit.  If anything it will likely be filled with more pork that will make things worse.

The Fed is playing with fire and our dollar is it risk.  Treasuries have continued selling off as I write this post.  Keep an eye on bonds. 

10 Year Treasury Dump Continues

Well it didn't take the bond vigilante's long to get started this week:

Let's try and put this dump into perspective from a longer term basis:

My Take:

The Fed made it's QE announcement on November 3rd.  As you can see above, the bond market has been done nothing but sell treasuries since.

This is no longer a short term knee jerk reaction folks.  This is a trend, and it sends a message to Ben that he doesn't control rates in the bond market: Credit traders do! 

If this continues and the 10 year heads for 4% it's going to get real ugly in a hurry.  What the bond market is telling the Fed that their plan cannot work.  You can't finance yourself by printing money.  This is an end game not a solution and the bond market knows it. 

This situation could rapidly spiral out of control.  We all saw how fast the PIIGS got murdered.  Don't think it can't happen here.  We are pulling the same stunts so why should we expect different results?

The Telegraph had an article that was quite frightening tonight about the dire European debt crisis:

" There will be no Eurobond, no increases in the EU’s €440bn (£368bn) rescue fund, and no mass purchases of Spanish and Italian bonds by the ECB. Nothing. The system is politically and constitutionally paralysed. Spain and Portugal will be left nakedly exposed before their funding crunch in January

What the German people are being asked to do is to surrender fiscal sovereignty and pay open-ended transfers to Southern Europe, taking on a burden up to six times reunification with East Germany.


“If we pool the debts of the countries in the south-west periphery of Europe, we are blighting our children’s future: the debt levels are astronomic,” said Hans-Werner Sinn, head of Germany IFO institute.

The ECB has postponed its threat to pull away the lending props beneath the banking systems of the PIGS. Beyond that it has limited itself to tactical strikes in the small illiquid debt markets of Ireland and Portugal, buying enough bonds to ram down yields and burn a few hedge funds.


The effect has faded within days. It had little impact on Spanish and Italian bonds in any case. Spanish 10-year yields reached 5.45pc last week, far above 5pc level where compound arithmetic comes into play.

Credit Agricole said last week that it would hold back at next week’s auction of Spanish debt because it is not yet clear whether the ECB will back-stop the country. “The risk is simply too large for our appetite,” it said


“Leaders grudgingly do what is needed to prevent disaster at the last minute before it is too late, and the next minute they go back to the behaviour that brought them against the wall in the first place. The eurozone is in bad need of a psychiatrist,” he wrote at VoxEU

Did it not lock in chronic imbalances between North and South? Has it not left victim states trapped in debt deflation or slumps which have gone too far to respond an austerity cure, and from which there seems to be no escape on terms acceptable to Germany?


Should we blame the current hapless leaders, or the guilty men of Maastricht who created this doomsday machine? If the project itself is rotten, surely what the eurozone needs most is an undertaker."

The Bottom Line


Translation?  Germany is going to tell the PIIGS to piss off in order to save itself. 
Further down in the article you can see that Spain delayed a bond auction.

The fiscal situation of the western economies is now beyond absurd.  The only answer the elites have is to continue throwing money at the debt bubble in hopes they can kick the can a little further down the road because they realize the alternative is gruesome austerity that would surely end with social chaos and wars. 

The problem here is solvency, and it's going to hit the PIIGS in 2011.  Spain has about 6 months of cash left, and it appears that  Germany is ready to "walk away" as it logically decides to save itself versus going under with the rest of Southern Europe.

Can you blame them?  I would do the exact same thing.

What the stock market refuses to understand is that this crisis is systemic versus individual.

People are not feeling pain yet because the government keeps sending out handouts in the form of employment benefits and welfare.  We are seeing other forms of stimulus as well:  Many homeowners are deciding to stimulate themselves(ok, get your mind out of the gutter, you know what I mean) by deciding to stop paying the mortgage knowing that it will take 2 years or more to get evicted.

This gives many families an extra few grand to "play with" every month.   Unfortunately, most Americans are too retarded to realize that they should be socking away the money instead of spending it on vacations and flatscreen TV's.

What will end up making this financial crisis different is it will be the governments that go broke before the sheeple.  The people will then be next as the government scrambles to pay the bills.  The "free money" checks will stop getting mailed and the public sector will me massively slashed in a dramatic attempt to save the system. 

Party on America because this is going to be the last one you will see for awhile if ever.