US Treasury Bonds,The Godfather Of All Bubbles

http://whtt.org/us-treasury-bondsthe-godfather-of-all-bubbles/

The Most Important Number In The Entire U.S. Economy

http://theeconomiccollapseblog.com/archives/the-most-important-number-in-the-entire-u-s-economy

China Continues To Boycott Treasurys As Japan Prepares To Become Largest Foreign Holder Of US Paper

The irony is not lost on the fact that the world's most insolvent country continues to be the biggest buyer of another insolvent country's sovereign bonds.

http://www.zerohedge.com/news/2012-10-16/china-continues-boycott-treasurys-japan-prepares-become-largest-foreign-holder-us-pa

Can The Fed Ever Exit?

Can the Fed ever exit?  The short answer is no.  The ability to unwind the purchases of toxic mortgage-backed securities and US Treasury bond assets will be constrained because they would have purchased said assets at too high a price. When interest rates rise (and they will rise at some point since they can't drop much below zero), they will guarantee the negative returns of the Fed's buy high / sell low bond-purchasing monetary policies.

http://www.zerohedge.com/news/2012-10-06/can-fed-ever-exit

Huntsman Cable: China & US Trade War Heating Up

http://azizonomics.com/2011/09/15/huntsman-cable/

The United States no longer sits still; it frequently uses evil tricks to force China to buy U.S. bonds”
The Shanghai-based Shanghai Media Group (SMG) publication, China Business News: “This time the quick change of the U.S. policy (toward China) has surprised quite a few people.  The U.S. has almost used all deterring means, besides military means, against China.  China must be clear on discovering what the U.S. goals are behind its tough stances against China.  In fact, a fierce competition between the currencies of big countries has just started.  A crucial move for the U.S. is to shift its crisis to other countries – by coercing China to buy U.S. treasury bonds with foreign exchange reserves and doing everything possible to prevent China’s foreign reserve from buying gold. 

If we [China] use all of our foreign exchange reserves to buy U.S. Treasury bonds, then when someday the U.S. Federal Reserve suddenly announces that the original ten old U.S. dollars are now worth only one new U.S. dollar, and the new U.S. dollar is pegged to the gold – we will be dumbfounded.

Today when the United States is determined to beggar thy neighbor, shifting its crisis to China, the Chinese must be very clear what the key to victory is.  It is by no means to use new foreign exchange reserves to buy U.S. Treasury bonds.  The issues of Taiwan, Tibet, Xinjiang, trade and so on are all false tricks, while forcing China to buy U.S. bonds is the U.S.’s real intention.”

More Beijing embassy cables show China sees gold as central in currency war

These cables exposed by wikileaks are incredibly damning on the western world's desire to maintain the global financial status quo--that of the USDollar as a reserve currency.  It is also very revealing that the return to the gold standard is starting to materialize--albeit at much higher gold prices.

http://www.gata.org/node/10387

Treasury International Capital Data For June

Foreigners were dumping US Treasury bonds in record numbers last June (coinciding with the ending of QE 2.0, by the way).  Not only were they not buying UST's, but they were also selling their existing inventory.  Anybody want to guess what other safe haven they were buying in lieu of said Treasuries? 

http://www.treasury.gov/press-center/press-releases/Pages/tg1277.aspx

Think gold is high? Wait till dollar bonds are dumped, Davies says

http://www.gata.org/node/10237

"A paper currency system ultimately ends in insolvency," said Ben Davies, the chief executive of Hinde Capital in an interview with CNBC.com on Tuesday. "We have arrived at this point in the West. So why own worthless paper?"

Davies believes that the Federal Reserve got it wrong by attempting to pump cash into the system to avoid a liquidity crisis, as, he argues, they were not facing a liquidity crisis but a solvency crisis.

"Policymakers can't grasp the reality that allowing bondholders to default now, although horrendous for economies and employment," is a better option than defaulting later, said Davies.

"Individuals and private institutions are fleeing all fiat currencies into an asset that has no liabilities. This flight from insolvency is an exponential event," he said. "Gold is an inverse function of currency."

Fiat currencies are those a government has declared to be legal tender, without any intrinsic value or backing by reserves.

"Asset markets lost their funding when (the second round of quantitative easing) ended," said Davies. "Deleveraging has only just begun, but for now I am sure markets will bounce as QE3 arrives globally."

"If you think gold is high, wait until all and sundry exit dollar bonds," he said.

Gold soars, equities tank

My long precious metals / short equities play has worked beautifully.  The question is what will happen going forward, debt ceiling debates notwithstanding.  I have no idea what stocks will do, because if the USDollar plummets, and equity markets could meltup in nominal terms, investors could still lose in real terms, due to currency devaluation.  A sharp decline in equities could also give reason for the Fed to re-deploy QE.  Further easing could cause equities to rebound as a result.

Short-term, bond prices are rallying in a flight to quality.  Long-term, I view this as a huge mistake, as interest rates can't stay at these depressed (manipulated) levels forever--and US Treasuries are no longer "riskless" safe havens.   Of course, Japan has defied this logic for 21 years and counting, so one can never tell.  As Keynes once said:  ""Markets can remain irrational far longer than you or I can remain solvent."

Precious metals remain in a decade-long secular bull market, for reasons I've blogged about ad nauseum.  The bottom line is that a debt ceiling hike changes nothing with our structurally broken economy.  We still have a compounding debt problem, and raising the debt limit exacerbates the problem, even if it delays the end game.  The G-8 countries are overly indebted (with Germany the lone exception, however their banks have exposure to bankrupt sovereigns), and the competitive currency devaluation continues.  There will be no winners in this race to the bottom.

Be right, and sit tight.  I ignore claims of precious metals being in a bubble.  I let the weak hands exit for a "profit" and I buy the dips when precious metals correct.

See disclaimers in the side bar.

Disclosure:  long precious metals, and mining shares.  Opened a long position in TBT today, a double-short on 20+ Year US Treasury bonds.  Long DXD, a double-short on the Dow Jones Industrials Average.

Russia to Reduce U.S. Debt Holdings

Another sovereign country is avoiding US Treasury bonds, the next bubble. 

http://www.thestreet.com/story/11157521/1/russia-to-reduce-us-debt-purchases.html

Republican mainstream flirts with brief default

Yes, a US Treasury technical default--vs. an outright default, would be troubling, but it could also restore the creditworthiness of an already insolvent US government, so all this talk of panics in bond markets is hyperbolic.  See Stanley Druckenmiller's opinion  <click here> on a technical default, which could help bond investors avoid a haircut should the US outright default.


http://www.reuters.com/article/2011/06/08/us-usa-debt-skepticism-idUSTRE75700720110608

An idea once confined to the fringe of the Republican party is seeping into its mainstream -- that a brief default might be an acceptable price to pay if it forces the White House to deal with runaway spending.

An increasing number of Republicans do not believe the Obama administration's dire predictions of economic "catastrophe" if the debt limit is not increased. They argue a period of technical default can be managed without plunging markets into chaos.

http://in.reuters.com/article/2011/06/08/idINIndia-57573120110608?feedType=RSS&feedName=businessNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FINbusinessNews+%28News+%2F+IN+%2F+Business+News%29

The Republicans' theory is that bondholders would accept a brief delay in interest payments if it meant Washington finally addressed its long-term fiscal problems, putting the country in a stronger position to meet its debt obligations later on.

But interviews with government officials and investors show they consider a default such a grim -- and remote -- possibility that it was nearly impossible to imagine.

Stimulus by Fed Is Disappointing, Economists Say

Here's the bottom line:  printing $3 trillion for quantitative easing and permanent open market operations (both policies create currency out of thin air) have produced about $400 billion in economic growth.  The law of diminishing returns is at work, and why economists coin the Fed is "pushing on a string."  Those massive mortgage-backed securities and US Treasury bond purchases by the Fed have offered very low returns, and some would argue negative returns, because many of those mortgage bonds are underwater.  In an exit strategy (tightening monetary policies), the Fed would have to sell those mortgage banks back--at much lower prices.

In other words, in the aftermath of the bank bailouts, the Fed essentially purchased these bonds at par value, when they were actually worth much less.  The balance sheet risk was merely transferred from commercial banks to the Fed.  Essentially, taxpayers own these worthless securities.

The question of whether the Fed will end QE 2.0 at the end of June is becoming much more cloudy.  Tighten too early, and the economy would tank due to rising interest rates.  Continue QE, and we could have runaway inflation, which would have a huge dampening effect on the economy.  The Fed has cornered itself.

The elephant in the room that nobody wants to acknowledge is the US is insolvent, as our debts are unsustainable.  And there is still way too much leverage in financial markets due to over-the-counter derivatives which are still unaccounted for.

Even the language of mainstream Keynesian economists is flawed.  What they refer to as "stimulus" is actually just issuance of more debt.  And massive debt levels are why we're in deep trouble economically in the first place. 

http://www.nytimes.com/2011/04/24/business/economy/24fed.html?_r=1&nl=todaysheadlines&emc=tha2

PBOC governor says foreign reserves excessive

I guess that means the Chinese central bank will continue to buy gold for their reserves--in lieu of the USDollar or US Treasury bonds. 

http://www.chinadaily.com.cn/bizchina/2011-04/19/content_12355149.htm

Evidence QE 2.0 is not working

The Fed instituted QE 2.0, a plan to purchase $600 billion of US Treasury securities, in order to suppress interest rates and stimulate an economic recovery.  The bond market isn't behaving, as the vigilantes are coming to the realization that Bernanke's injection of liquidity is purely inflationary, which will dampen growth, as the USDollar is debased.  Hence, yields are rising, exacerbating our humongous debt problems.  His war on deflation will eventually create hyperinflation, in my opinion.

Click on image to enlarge.

See disclaimers in the side bar.

Disclosure:  no position in US Treasury bonds.

Moody's May Cut US Rating on Tax Package

I recall Treasury Secretary Geithner declaring US Treasuries being downgraded from a AAA credit rating being "impossible."  Well, the unthinkable is now tangible, according to Moody's.

http://www.cnbc.com/id/40641123

Global bond rout deepens on US fiscal worries

http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html

Agreement in Washington on a fresh fiscal package has set off dramatic rise in yields of US Treasuries and bonds across the world, threatening to short-circuit any benefits of stimulus. The bond rout raises concerns that the US authorities may be losing control over events.

Dallas Fed Governor on Richard Fisher on QE 2.0

By now, anybody who hasn't woken up from their American Idol-induced zombie status knows that Fed Chairman Bernanke last week announced US Treasury bond purchases of approximately $75 billion/month until the end of June, 2011--or $600 billion.

Which makes Dallas Fed Governor Fisher's proclamation that the Fed will actually purchase US Treasuries at a pace of $110 billion/month extremely curious and alarming. Did Bernanke just commit perjury before the world? In case the website is altered for an "oversight", I have included the following text. And if my blog gets taken down, well, it's not like it hasn't occurred before at "strategic times." I hear black helicopters above.


http://dallasfed.org/news/speeches/fisher/2010/fs101108.cfm

My perspective, as with those of all other members of the FOMC, was given a thoughtful and fair hearing at the table. After deliberation, the majority of the committee concluded that under current and foreseeable conditions, the better approach was to purchase $600 billion in Treasuries between now and the end of the second quarter of next year, on top of the amount projected to replace the paydown in mortgage backed-securities. The math of this new exercise is readily transparent: The Federal Reserve will buy $110 billion a month in Treasuries, an amount that, annualized, represents the projected deficit of the federal government for next year. For the next eight months, the nation’s central bank will be monetizing the federal debt.

OK, let's do the math: 8 months x $110 billion = $880 billion. Not $600 billion. The Fed isn't just lying to us anymore behind fancy phrases and shadowy statistics. THE FED IS OUTRIGHT LYING TO OUR FACES.

Twinkie economy

http://pragcap.com/deep-thoughts-from-seth-klarman

“A tipping point is invisible, as we just saw in Greece. In most situations, everything appears fine until it’s not fine, until, for example, no one shows up at a Treasury auction. In the meantime, we can be lulled into thinking all is well, that the United States will always be rated triple-A. Treasury Secretary Timothy Geithner speaks as if—at least in his public statements—he has been lulled into thinking that the United States will always be triple-A. That kind of thinking guarantees that someday the United States will no longer be triple-A. A sovereign deserves to be rated triple-A only if it has valuable assets, a good education system, a great infrastructure, and the rule of law, all of which are called into question by an eroding infrastructure, a government that changes the law or violates it whenever there is a crisis, and a legislature that shows no fiscal responsibility. There is an old saying, “How did you go bankrupt?” And the answer is, “Gradually, and then suddenly.” The impending fiscal crisis in the United States will make its appearance in the same way.”

Klarman finds the current environment particularly difficult because many of the hedges that have been working are more speculative in nature. He finds little value in most commodities (with the exception of land) because commodities offer no real cash flow and instead rely almost entirely on some future “greater fool” buying the asset from you. Klarman makes an exception with gold, however:

“Gold is unique because it has the age-old aspect of being viewed as a store of value. Nevertheless, it’s still a commodity and has no tangible value, and so I would say that gold is a speculation. But because of my fear about the potential debasing of paper money and about paper money not being a store of value, I want some exposure to gold.”

“Essentially, the problem is that government intervention interfered with the lessons investors needed to learn. Those who stared into the metaphorical abyss are right back at it, with the possible exception of college endowments, for whom the pain has been long lasting because of their spend rate. Almost everybody else is drinking the Kool Aid again, and it is very troubling. We could have another serious collapse, and people would again not be prepared for it.”

Dollar sinks and gold soars

http://latimesblogs.latimes.com/money_co/2010/09/dollar-falls-gold-record-fed-interest-rates-inflation.html

Investors and traders dumped the dollar and sent gold to yet another record high Tuesday, taking their cues from the Federal Reserve’s apparent readiness to drive interest rates down further and inflation up.

The markets’ verdict was clear: They believe Fed Chairman Ben S. Bernanke is willing to debase the dollar to avoid the risk of the economy falling into deflation.

The Fed didn’t announce any change in policy Tuesday, but financial markets read a shift in the Fed’s statement on inflation as a sign that the central bank soon could launch a huge new round of “quantitative easing” -- meaning, a massive program of Treasury bond purchases, perhaps totaling upwards of $1 trillion.

The goal would be to pull longer-term interest rates lower, pump up the supply of money in the financial system and, the Fed would hope, eventually boost inflation.

But any move to flood the system with more dollars would be expected to drive down the greenback’s value. So would lower bond yields, by encouraging investors to look to other countries’ bonds for better returns.

Gold, meanwhile, got a boost as the anti-dollar -- the alternative to paper currencies. What’s more, anyone who expects the Fed to succeed too well, unleashing sharply higher inflation in the next few years, naturally would be drawn to gold as a classic inflation hedge.
With the Fed “now explicitly committed to inflation, investing in gold and foreign currencies becomes an easy decision,” said Peter Schiff, head of Euro Pacific Capital and one of the central bank’s biggest critics.

The possibility of a new Fed program of Treasury purchases drove bond yields sharply lower. The 10-year T-note yield slid to 2.57% from 2.70% on Monday, the biggest one-day drop since June 4. The five-year T-note yield fell to a 21-month low of 1.30% from 1.41%.

But bond investors should recognize the risk here: If the Fed eventually gets consumer prices rising at a faster pace, locking in these yields could mean being stuck with securities earning less than the inflation rate.

China hints it could dump U.S. bonds

http://www.moneynews.com/Headline/China-Fires-Shot-Over/2010/09/14/id/370164

The Chinese dumping US bonds will cause yields and interest rates to soar, which will unravel any hopes of a US economic recovery. Is Congress really thinking this through in accusing the Chinese of currency manipulation and threatening to impose import tariffs? My short answer is no.