Financial topics

Investments, gold, currencies, surviving after a financial meltdown
John
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Unreported Bedlam In Treasuries Signals Massive Panic

Post by John »

The following article makes two major points: Tax collections have
fallen sharply, indicating a deeper recession than previously
estimated. And investors are buying only 4-week Treasuries, not
longer-term Treasuries. With a large Treasury sale scheduled for next
week, we may be close to a panic situation.


Unreported Bedlam In Treasuries Signals Massive Panic
December 11, 2011
By Lee Adler

Last week was a light auction week with a net of just $3 billion in
new supply settling on Thursday. That took the pressure off stock and
bond prices. The fact that neither market could mount a sustained
rally suggests that markets are weak. Stocks and bonds gyrated wildly
but in the end remained in a tight range, in spite of all the bullish
ballyhoo in the media. You would have thought that the Europeans saved
the world on Friday. I don’t think so, and within the data there’s
plenty of reason to continue to be concerned, if not scared shitless.

Withholding tax collections remain weak and the government had to
raise $9 billion (11%) more than forecast last week. Next week the
overshoot will be around $13 billion. That means that the economy is
significantly weaker than government forecasters had foreseen just 5
weeks ago when these estimates were issued. The clues were available
in the data at that time and I correctly guessed that the auctions
would begin to balloon in size.

At the same time, foreign central bank purchases of Treasures are
falling off a cliff again. But the markets aren’t paying attention or
have not noticed these negatives because they have not had to. Massive
tidal waves of panic capital flight have been overwhelming the
Treasury market in never before seen numbers. The indirect bid
tendered on the 4 week bill last week was a mind blowing $61.8
billion, or 5 to 10 times the norm! Even more startling, Primary
Dealers (PDs) bid $268 billion on that issue. That’s over a quarter
TRILLION! One third of the PDs are foreign banks. Seven of them are
European banks. Is something rotten in Denmark, Brussels, Rome, and
Paris? You bet your bippy.

Notably, the panic buying was limited to the 4 week bill. The indirect
bid was weak on the 13 and 26 week bills. This is short term cash
looking for a safe place to park, not long term investable funds. It
remains to be seen if this panic will slosh over into longer term
Treasuries. With the 10 year at a major inflection point near a yield
of 2.10, the big week of auctions ahead could provide a watershed
moment. If the 10 year moves above 2.10, the wheels could be coming
off, with untold chaos immediately ahead. On the other hand a drop
back toward the lows might buy a little more time, but not much else.

If yields do move above 2.10, the other thing to watch is whether
stocks rally with that move or begin to decouple from the lockstep
risk on/risk off perception where falling yields signal risk off and
falling stock prices, and vice versa.

http://wallstreetexaminer.com/2011/12/1 ... ive-panic/
jdcpapa
Posts: 191
Joined: Sat Aug 08, 2009 7:38 pm

Re: Unreported Bedlam In Treasuries Signals Massive Panic

Post by jdcpapa »

John wrote:The following article makes two major points: Tax collections have
fallen sharply, indicating a deeper recession than previously
estimated. And investors are buying only 4-week Treasuries, not
longer-term Treasuries. With a large Treasury sale scheduled for next
week, we may be close to a panic situation.


Unreported Bedlam In Treasuries Signals Massive Panic
December 11, 2011
By Lee Adler

Last week was a light auction week with a net of just $3 billion in
new supply settling on Thursday. That took the pressure off stock and

bond prices. The fact that neither market could mount a sustained
rally suggests that markets are weak. Stocks and bonds gyrated wildly
but in the end remained in a tight range, in spite of all the bullish
ballyhoo in the media. You would have thought that the Europeans saved
the world on Friday. I don’t think so, and within the data there’s
plenty of reason to continue to be concerned, if not scared shitless.

Withholding tax collections remain weak and the government had to
raise $9 billion (11%) more than forecast last week. Next week the
overshoot will be around $13 billion. That means that the economy is
significantly weaker than government forecasters had foreseen just 5
weeks ago when these estimates were issued. The clues were available
in the data at that time and I correctly guessed that the auctions
would begin to balloon in size.

At the same time, foreign central bank purchases of Treasures are
falling off a cliff again. But the markets aren’t paying attention or
have not noticed these negatives because they have not had to. Massive
tidal waves of panic capital flight have been overwhelming the
Treasury market in never before seen numbers. The indirect bid
tendered on the 4 week bill last week was a mind blowing $61.8
billion, or 5 to 10 times the norm! Even more startling, Primary
Dealers (PDs) bid $268 billion on that issue. That’s over a quarter
TRILLION! One third of the PDs are foreign banks. Seven of them are
European banks. Is something rotten in Denmark, Brussels, Rome, and
Paris? You bet your bippy.

Notably, the panic buying was limited to the 4 week bill. The indirect
bid was weak on the 13 and 26 week bills. This is short term cash
looking for a safe place to park, not long term investable funds. It
remains to be seen if this panic will slosh over into longer term
Treasuries. With the 10 year at a major inflection point near a yield
of 2.10, the big week of auctions ahead could provide a watershed
moment. If the 10 year moves above 2.10, the wheels could be coming
off, with untold chaos immediately ahead. On the other hand a drop
back toward the lows might buy a little more time, but not much else.

If yields do move above 2.10, the other thing to watch is whether
stocks rally with that move or begin to decouple from the lockstep
risk on/risk off perception where falling yields signal risk off and
falling stock prices, and vice versa.

http://wallstreetexaminer.com/2011/12/1 ... ive-panic/
I don't buy it. Tax revenues fail to meet expenditures presently. In fact tax revenues are significantly short. This is expected. Further short term rates have kept up with inflation for the past 50 years+ . To put fear into a treasury rate to exceed 2.1% when inflation exceeds 3% is ludicrous! Did this guy or the rest of the world wake up or what?
OLD1953
Posts: 946
Joined: Tue Aug 11, 2009 11:16 pm

Re: Financial topics

Post by OLD1953 »

It's just the markets factoring in a few things, like the US switch to natural gas from oil, and the pending collapse of the eurozone.

The big players are lining up for the final fleecing. Soros has bet billions that the zone will survive. In a time of obviously rising nationalism and anti crony capitalism it is not possible for agreements such as have been proposed to pass with any confidence, if passed, they'll fall apart shortly. Look at Italy. Italy must have a growing economy to pay any part of its debt. Italy cannot have a growing economy, because the birth rate in Italy is half replacement rate and has been for a long time. Even assuming ridiculous growth in middle class wealth, Italy will collapse. Everyone in Italy cannot be millionaires, and that would be the assumption needed to get Italy off its feet with its own resources. Italy cannot possibly have a sustained level of export to do anything but borrow more and more.

Now I'm sure some of you are nodding sagely and saying "that also applies to the USA". It does not. Apart from much friendlier immigration policies, the US also has a much higher birth rate, and consequently a much higher tax base. With no cuts whatsoever, the US budget would be balanced if our tax rate was raised to that of England. This is not possible politically AT THIS TIME, but Italy does not have such a solution in any way. For Italy to balance the books, it would literally be condemning hundreds of thousands to poverty or starvation. No government can do that and survive.

If this European treaty is approved, it will be seen as the instrument that dragged down all of Europe, rather than just the countries that were failing. The big drop won't wait much longer.
jdcpapa
Posts: 191
Joined: Sat Aug 08, 2009 7:38 pm

Re: Financial topics

Post by jdcpapa »

US population growth has been flat for the last 10 years.
John
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Location: Cambridge, MA USA
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Re: Unreported Bedlam In Treasuries Signals Massive Panic

Post by John »

Dear John,
jdcpapa wrote: > I don't buy it. Tax revenues fail to meet expenditures
> presently. In fact tax revenues are significantly short. This is
> expected. Further short term rates have kept up with inflation for
> the past 50 years+ . To put fear into a treasury rate to exceed
> 2.1% when inflation exceeds 3% is ludicrous! Did this guy or the
> rest of the world wake up or what?
I don't know if Adler's specific concerns are justified or not. But I
do know that there's a bond panic going on in Europe. When it reached
Germany a couple of weeks ago, there was enormous alarm. A lot of
that European bond money has been pouring into the U.S. for safety --
into 4-week Treasuries according to Adler, and that seems to me to be
a very significant development. If Europe's bond panic finally
reaches Washington, then it could be the trigger for something bigger.

John
Higgenbotham
Posts: 7999
Joined: Wed Sep 24, 2008 11:28 pm

Re: Unreported Bedlam In Treasuries Signals Massive Panic

Post by Higgenbotham »

John wrote:I don't know if Adler's specific concerns are justified or not.
Today everything was down except the dollar and US treasuries. The 10 year yield ended the day at 2.02%, down 0.05%. The 10 year yield peaked this year at about 3.75% (in early February). If S&P is downgrading a lot of the remaining AAA nations and Europe is thought to be entering recession, then US treasuries are once again claiming "least worst" status for the time being, which is what the market seems to have already determined.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.
jdcpapa
Posts: 191
Joined: Sat Aug 08, 2009 7:38 pm

Re: Unreported Bedlam In Treasuries Signals Massive Panic

Post by jdcpapa »

Good evening John,

This is my issue:

John wrote:December 11, 2011
By Lee Adler

..................................................within the data there’s
plenty of reason to continue to be concerned, if not scared shitless.

It remains to be seen if this panic will slosh over into longer term
Treasuries. With the 10 year at a major inflection point near a yield
of 2.10, the big week of auctions ahead could provide a watershed
moment. If the 10 year moves above 2.10, the wheels could be coming
off, with untold chaos immediately ahead.
and this is my reasoning:

Higgenbotham wrote:Today everything was down except the dollar and US treasuries. The 10 year yield ended the day at 2.02%, down 0.05%. The 10 year yield peaked this year at about 3.75% (in early February). If S&P is downgrading a lot of the remaining AAA nations and Europe is thought to be entering recession, then US treasuries are once again claiming "least worst" status for the time being, which is what the market seems to have already determined.


Thank you Higgy.
John wrote:
If Europe's bond panic finally
reaches Washington, then it could be the trigger for something bigger.

John
I agree 100%. Thank you for all you do.

Regards,

John
Last edited by jdcpapa on Tue Dec 13, 2011 8:38 am, edited 1 time in total.
vincecate
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Re: Unreported Bedlam In Treasuries Signals Massive Panic

Post by vincecate »

John wrote:And investors are buying only 4-week Treasuries, not
longer-term Treasuries. With a large Treasury sale scheduled for next
week, we may be close to a panic situation.
This is the normal setup for hyperinflation. People are not sure of the value of the paper money over the long term, so they move into short term debt. They think they are safe because when they want to they can get out fast. However, when lots of people start getting cash when their 4 week Treasuries come due, and not rolling over the debt, the only option for the government will be to print money. As the printing clearly gets out of control, less and less people will want to hold bonds. Eventually the government will be printing to cover basically all the bonds as they come due. This releases a flood of new cash and the value of the currency plummets. As the government spends about twice what it gets in taxes, it needs to print ever large amounts to keep operating once nobody buys their debt. Things snowball out of control.

If a government has little debt or it is in 30 year bonds, then there is no risk of hyperinflation.
OLD1953
Posts: 946
Joined: Tue Aug 11, 2009 11:16 pm

Re: Financial topics

Post by OLD1953 »

So you are thinking that Europe will manage to not collapse and China will manage to come through the drop in housing prices? I ask because if they do collapse, something like 2/3's of the money in the world will vanish overnight.
vincecate
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Location: Anguilla
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Re: Financial topics

Post by vincecate »

OLD1953 wrote:So you are thinking that Europe will manage to not collapse and China will manage to come through the drop in housing prices? I ask because if they do collapse, something like 2/3's of the money in the world will vanish overnight.
Lets say I use up all my money to buy your house for $1 mil, leaving me with $0. Next the value of the house drops in half to $500,000. Do you think half of your $1 mil goes away? Does my $0 change? Does someone else, not involved with this house, lose $500,000? What money vanishes?

In the 1920s and early 1930s the Fed could only have $2.50 in federal reserve notes in circulation for every $1 worth of gold they held. As people trusted them with gold in the 1920s they printed lots of money. As people took out their gold in the early 1930s, by law they had to reduce the money supply. It is not like that this time.

http://howfiatdies.blogspot.com/2010/11 ... ndard.html
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