Generational Dynamics Forum - New Site

Unless loans start picking up rapidly, and I'm particularly thinking of commercial loans, the economy is going to remain stagnant at best, and deflation will continue, masked by price gouging of necessities. The hidden (and illegal) cartels that control much of the basics are beginning to draw attention and considerable ire, thankfully. (My very free market brother was one of the angriest people you ever wanted to see when he sold off my father's final group of cattle when the old fellow could not care for them any longer. He found out first hand that the buyers had pretty much vanished, as they split the country into sections, and each section has just enough buyers to make an "auction". That was some time ago, and now this is starting to creep into the news.)

The states that got the real estate growth are the states that are getting most of the shaft. This is going to just keep on for a good while yet.

And there is a huge difference between low population growth and population shrinkage. Low growth may limit economies, but shrinkage means a failing economy for at least two decades, and that's assuming the country manages to get women interested in babies again.

Quo vadis the yellow metal?

I am finding the journey of gold bullion in the last few days really fascinating. There is no doubt an opportunity to make some money here. The question is where and how?
Richard

Calm before the storm? I expected that Thursday and Friday would show strong market response to (what seems to me to be) the realities that a LOT of hopelessly bad debt is about to be revealed, cascading from Europe, and that the MF Global scandal has shown that no-one's money is safe with a broker.

And yet, all is quiet and calm.

Fine with me. I only have a little invested in "the market," through my 403-b at work, and in the last week I moved most of the equity/stock market exposure to inflation-protected bonds. That feels safe; hope so anyway.

I also temporarily stopped voluntary contributions to my 403-b. For the next 3-4 months, I'd rather just have the cash, thanks. Retirement savings can take a back seat. Interesting how one's time horizon shrinks in a high-risk environment.

I continue to be fascinated by Lee Adler's interpretation of the
Treasuries trend. The bond panic in Europe continues, and the only
reason that the U.S. is escaping it is because Europeans are pulling
money out of bonds and bank accounts and moving them into American
Treasuries as a safe haven. As Adler points out, this can't continue
forever.

The Last Ponzi Game
December 16, 2011
By Lee Adler

A heavy Treasury auction schedule with a big settlement on Thursday
was enough to contribute to keeping stock prices (SPX) in check this
week, but not to knock down Treasuries. Demand for US Government paper
is so great it simply engulfs even heavier than expected levels of new
supply. The massive capital flight out of Europe is now confined to
the only game in town, the US Treasury market, the last great Ponzi
game still operating.

This won’t end well, but it won’t end until it ends, and the technical
signals suggest that it won’t happen in the short run. Yields appear
to be still headed lower, and that’s bad news for stocks given the
recent correlation between lower yields and lower stock prices. As
I’ve illustrated in the accompanying Fed Reports, there isn’t enough
liquidity to power both markets toward higher prices
simultaneously. It’s either one or the other. Eventually I expect a
shortage of liquidity to negatively impact both markets, but we’re not
there yet.

Withholding tax collections remain weak and the government continues
to need to raise substantially more cash than the TBAC had estimated
it would need. That means that the economy is significantly weaker
than government forecasters had foreseen just 6 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. Normally this would be problematic for the markets, but not
in the current environment.

At the same time, foreign central bank purchases of Treasures have
fallen off a cliff. Again, that would normally be extremely
problematic. But it just doesn’t matter because panicked institutions
fleeing Europe are like the Coneheads consuming mass quantities of all
available US Treasury paper. In fact, the demand is overwhelming the
massive supply. Tidal waves of panic capital flight have been flooding
into the Treasury market in never before seen amounts, both in terms
of the indirect bid and the bid by Primary Dealers, of whom 1/3 are
European banks.

The panic buying has been concentrated in the 4 week bill, but there
was also a jump in the bid for longer term paper, particularly the 10
year note (TNX) this week. The 4 week bills are where the real panic
is. This is short term cash looking for a safe place to park. At the
same time the increase in nervous buying is pushing out on the curve
enough to continue to push yields down for a while longer. It’s also
pushing the dollar higher. The dollar (DXY) faces a critical test at
82.

http://wallstreetexaminer.com/2011/12/1 ... onzi-game/

John wrote:I continue to be fascinated by Lee Adler's interpretation of the
Treasuries trend. The bond panic in Europe continues, and the only
reason that the U.S. is escaping it is because Europeans are pulling
money out of bonds and bank accounts and moving them into American
Treasuries as a safe haven. As Adler points out, this can't continue
forever.

The Last Ponzi Game
December 16, 2011
By Lee Adler

A heavy Treasury auction schedule with a big settlement on Thursday
was enough to contribute to keeping stock prices (SPX) in check this
week, but not to knock down Treasuries. Demand for US Government paper
is so great it simply engulfs even heavier than expected levels of new
supply. The massive capital flight out of Europe is now confined to
the only game in town, the US Treasury market, the last great Ponzi
game still operating.

This won’t end well, but it won’t end until it ends, and the technical
signals suggest that it won’t happen in the short run. Yields appear
to be still headed lower, and that’s bad news for stocks given the
recent correlation between lower yields and lower stock prices. As
I’ve illustrated in the accompanying Fed Reports, there isn’t enough
liquidity to power both markets toward higher prices
simultaneously. It’s either one or the other. Eventually I expect a
shortage of liquidity to negatively impact both markets, but we’re not
there yet.

Withholding tax collections remain weak and the government continues
to need to raise substantially more cash than the TBAC had estimated
it would need. That means that the economy is significantly weaker
than government forecasters had foreseen just 6 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. Normally this would be problematic for the markets, but not
in the current environment.

At the same time, foreign central bank purchases of Treasures have
fallen off a cliff. Again, that would normally be extremely
problematic. But it just doesn’t matter because panicked institutions
fleeing Europe are like the Coneheads consuming mass quantities of all
available US Treasury paper. In fact, the demand is overwhelming the
massive supply. Tidal waves of panic capital flight have been flooding
into the Treasury market in never before seen amounts, both in terms
of the indirect bid and the bid by Primary Dealers, of whom 1/3 are
European banks.

The panic buying has been concentrated in the 4 week bill, but there
was also a jump in the bid for longer term paper, particularly the 10
year note (TNX) this week. The 4 week bills are where the real panic
is. This is short term cash looking for a safe place to park. At the
same time the increase in nervous buying is pushing out on the curve
enough to continue to push yields down for a while longer. It’s also
pushing the dollar higher. The dollar (DXY) faces a critical test at
82.

http://wallstreetexaminer.com/2011/12/1 ... onzi-game/

This week he's figured out the game and I agree with every word of this. As demonstrated a few months ago there are a minimum of $25 trillion is US assets alone that can find their way into US treasuries, albeit at lower asset prices, which will carve some amount off of that $25 trillion. If the panic out of assets happens quickly enough, as mentioned to Vince a few months ago (and he disagreed but we shall see), those short term 4 week bill rates will go highly negative.

John wrote: The bond panic in Europe continues, and the only
reason that the U.S. is escaping it is because Europeans are pulling
money out of bonds and bank accounts and moving them into American
Treasuries as a safe haven. As Adler points out, this can't continue
forever.

In a single country that prints its own currency a bond panic is the opening act for hyperinflation. Debts and deficits are unsustainable and unfixable, so at some point the US, Japan, and the UK will get bond panics. Then only the central banks will be buying, with new money. The paper currencies will devalue very fast. I don't think there is any real chance to avoid hyperinflation in these countries.

The Eurozone has rules to keep the central bank from just making money and buying government debt, but they are breaking their rules. Also, several countries in Europe had hyperinflation recently enough that there is still some understanding and fear of it. So I don't think it is obvious how this one plays out, if they keep printing or not.

The US hyperinflaitons during the Revolutionary War and also Civil War are so long ago that there is no understanding or fear of hyperinflation. So they won't take the drastic decisions that would be needed to avoid it. Instead they will keep trying to kick the can down the road a little bit further with just a little bit more monetization, till the bond panic comes and there is no longer any way to prevent hyperinflation. At that point even defaulting on the debt does not work because the government is spending twice what it gets in taxes and would still have to print like crazy.

vincecate wrote:The US hyperinflations during the Revolutionary War and also Civil War are so long ago that there is no understanding or fear of hyperinflation. So they won't take the drastic decisions that would be needed to avoid it.

The US is in a world of hurt and what is going on in Europe is making it appear that the US doesn't have a problem and preventing the drastic action needed, as the system currently needs the liquidity of short term US debt. Because of the very high volume of bad debt and overinflated assets in the system, an exaggerated deflation can happen as what remains of all that junk piles into US debt. Once the bad debt and overvaluation in assets is erased, though, then we will have the opposite situation - way too much US debt. There doesn't seem to be any way to avoid that. And that's why pumping up another stock market bubble was so very dangerous. Liquidity is needed to sop up the implosion of the bubble, but after the bubble is done imploding, it is excess.

@rev
http://www.zerohedge.com/news/did-fed-q ... nk-tuesday

http://generationaldynamics.com/forum/v ... uit#p10684

I do not pretend to anticipate "Equilibrium Liquidity Management Strategy's" but will try to read more
into the legislative catharsis. They moved the most sticky issues to february.
For a reality check nothing appears to be different on the surface but latency of effect we are waiting for.

http://www.forbes.com/sites/stevedennin ... gulations/

By allowing banks to hold only 1.6 percent in capital when investing in triple-A rated securities (e.g. tranches of subprime mortgages) or lending to sovereigns (i.e. like Greece, Italy and Spain), the regulations implied an authorized leverage of 62.5 to 1.
At the same time, regulations require the banks to hold 8 percent in capital when lending to job creating small businesses and entrepreneurs, i.e. an authorized leverage of 12.5 to 1.
Systemic risk always lies hidden. Thus, as Nobel prize winner Robert Engle and others point out, “While the financial crisis started in the summer of 2007, it was not until the early autumn of 2008 that systemic risk fully emerged.

Thus only the insiders know when to reallocate capital as we monitor shorter term notes. It appears to be consensus
the so called hard decision are to be February's concern.
We noted reg q and t to secure stability to per capita reasoning. Compromise on fundamentals is implosion.

Carl brings up some lucent thoughts but our area it is total implosion on some Housing Units.
http://generationaldynamics.com/forum/v ... 500#p11043
Some months back or so we posted area deflationary numbers and it went back to nominal value to 1982. Some have not even caught a bid .
It is that bad in our area market and no "argument apply's" since it is flat out deflation. The local budgeting of municipality's inflates there balance
sheet by asserting a penalty to nonproductive assets as a incentive for title holders to produce. This has lead to millions of dollars overstated
budgeting acounting and we have warned this is pointless in this market. Back in the early 1980 you take it on the chin, man up to the public and
sell these units for a buck to reset the market to means tested souls. These kids never get it and are educated above there competency's.

Noted was the current tranfer payment: The Fed provided a whopping $81 billion in additional reserve credit between FX swaps and MBS purchases, the latter having no other purpose than to release even more liquidity to banks which have simply converted one illiquid security, into another: cash. This answers the important question of "why" the Fed did what it did. It is also unclear whether this outlier transaction was demand driven or forced by the Fed. All that will be confirmed once we get the official breakdown of MBS POMO on January 13. z/h

Ironically, we'd be worse off if Europe was doing better. We're not in good condition, either, but Europe is in far worse trouble. Considering what happened to Belgium, we may be adding a 6th eurozone country to the list soon.

Trevor wrote:Ironically, we'd be worse off if Europe was doing better. We're not in good condition, either, but Europe is in far worse trouble. Considering what happened to Belgium, we may be adding a 6th eurozone country to the list soon.

America will pick yet another president that it so rightfully deserves. We are not even close yet to effective change top to bottum.
To many removed from reality since as we are warned "each does what was right in there own eyes."
As for the list, it was never off it.
2008 Bailing out of Euro banks with US taxpayer money.
UBS, Switzerland’s Commercial Paper Funding Facility, tapping the program 11 times for $74.5 billion.
Six European banks were among the top 11 companies, a combined $274.1 billion .
Dexia tapped the US government for $53.5 billion.
Barclays Plc in London at $38.8 billion
Royal Bank of Scotland Group Plc at $38.5 billion
Paris-based Natixis at $27 billion.
The Fed listed Paris-based BNP Paribas at $41.8 billion.
Commerzbank of Germany borrowed $350 million at the Fed’s discount window.
Also what color of lipstick do you want to wear since you have no choice?
http://www.zerohedge.com/article/rare-g ... ys-scandal