Tuesday, February 22, 2011


This is going to leave a mark:

My Take:

I have a busy day so I thought I would note a few things while I have a bit of time.

Beware:  The Middle East is making all the headlines but there are other problems that lie underneath:

Like this one:

"NEW YORK (MarketWatch) -- The Treasury Department sold $35 billion in 2-year notes on Tuesday at a yield of 0.745%, the highest level since May 2010. Bidders offered to buy 3.03 times the amount of debt sold, compared to an average of 3.58 times at the last four monthly auctions of 2-year notes, which were all for the same amount. Indirect bidders, a group that includes foreign central banks, purchased 31.3%, compared to 32% of recent sales, on average. Direct bidders, a group that includes domestic money managers, bought another 6.8%, versus an average of 16.3%. After the auction, Treasury prices remained higher as investors sought a safe harbor amid the turmoil in Libya and the Middle East. Yields on 10-year notes, which move inversely to prices, fell 9 basis points to 3.48%."

Take Continued:

Not good folks.  If we lose the short end of the curve in the treasury market it's GAME OVER.  I was surprised to see such a poor result when we are seeing such instability in the Arab world.

I also thought the dollars relative weakness given the chaos was also very interesting and a bit disturbing:

So much for the US being the great "safe haven" that it once was!

Unbelieveable:  We are currently witnessing some of the most insane geopolitical risk in over 30 years and the dollar can't rally worth a damn.  Pretty pathetic if you ask me.

This just shows you how far this country has fallen in stature.  Bonds have caught a bid but it's not all that impressive given the heavy sell off in stocks.

The Bottom Line:

The Fed's leveraged bets on the economy via easy money policies is seriously threatened with every country that topples overseas.  Inflation is beginning to topple the dictators in the Arab world.  As Gerald Celente likes to say:  "When people lose everything they lose it!". 

This is what is happened in Egypt.  The average wage thereis $2 a day.  When food prices soared as a result of too many US dollars sloshing around the global system, millions started to wonder how they were going to feed their families.

The Egyptians "lost it" because they didn't see any other choice.  As I like to say "You gotta eat!".

AsI said yesterday:  This is a potential game changer that is going to seriously turn up the heat on the Fed and it's printing presses. 

So what happens if they are forced to change course? We will see higher rates and less leverage in our future.  You can kiss housing and the banks goodbye if this is the case.

Making matters worse today was the fact that Case/Shiller housing index was a complete disaster. 

Also, Japan's debt ratings were dropped to "negative" by Moody's.  Gee, that's a shocker....You mean having a debt vs GDP ratio of 200% is a problem?

So where do we go from here?

There are still plenty of buyers of stocks on any pullbacks so the jury is still out as to whether or not we are about to see a large correction in stocks.

One thing is for sure:  The world is getting a whole lot dicier thanks to our reckless monetary policies.  If the Middle East continues to unravel then things could unwind in a hurry here because we have once again Ponzied up our whole financial system via easy money policies of the Fed.

The market ran up on the thesis that Ben had the markets back.  This may no longer be the case.  

If the Fed's leverage is politically forced out of the system then we are about to enter the financial equivalent of a Category 5 hurricane.


getyourselfconnected said...

Wow, stocks went down! I thought the indices would close green all the way up to about 3:30. Unreal.

Jeff said...


Yup. The dip buyers were missing today for whatever reason..

Let's see if they return tomorrow.

Jeff said...


Thank you. I'll keep that one between you and I.

I appreciate the note:)