FEDERAL RESERVE statistical release

According to the Federal Reserve Bank's balance sheet, as of April 1, 2015, it has total liabilities of   $ 4,424,144,000,000 and total capital of $ 57,656,000,000.  Hence, its leverage ratio is 76.73.  It is massively over-leveraged and on the brink of insolvency should interest rates (i.e. bond yields) rise even slightly higher.

Just for grins, Lehman Brothers' leverage ratio was 30 before it collapsed.

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab1

The balance sheet that ate Switzerland

The Interest Rate Observer's Jim Grant nailed his bullish call for the Swiss Franc to appreciate back in September 19, 2014.  Long call options on the Swissie made a killing.  For the unwashed masses unable to participate in ISDA derivatives, Grant has been pounding the table on gold.


https://www.linkedin.com/pulse/balance-sheet-ate-switzerland-james-grant

we venture that the SNB will sooner or later be forced to permit the franc to appreciate and thus to enrich the holders of low-priced, three-year call options on the Swiss/euro exchange rate. It's a long shot, to be sure--the options are cheap for a reason--but we judge that the prospective reward is worth the obvious risk.

More money printing or sub-zero rates may once again set a fire under Swiss house prices, macro-prudential policies notwithstanding. It may ruin the life insurers. At some point, the Swiss National Bank would have to decide whether propping up the export sector is worth the cost. If these circumstances, a bet (and, to be clear, it is very much a bet) on the franc appreciating against the euro might pay. A three-year, at-the-money option on the franc appreciating against the euro is priced at 3.7% of notional today according to Bloomberg. To return to its high of 1.03 francs per euro on Aug. 10, 2011, the franc would appreciate by 17%.

While there is nothing especially exotic about this option, it is available only to institutional investors with an International Swaps and Derivatives Association agreement in place with a too-big-to-fail bank. For readers not so situated, there is always gold, which--in our opinion--the franc is no longer as good as.

Think those are dollars in your wallet? Think again.

http://www.sovereignman.com/finance/think-those-are-dollars-in-your-wallet-think-again-12453/

Swiss To Vote On Gold Repatriation - "Gold Is The Only Valuable Asset On The SNB's Balance Sheet"

Yeah, those Swiss bankers are a pretty radical lot.  The desire to bring their national gold reserves home--what a radical concept.


http://www.zerohedge.com/news/2013-04-21/swiss-vote-gold-repatriation-gold-only-valuable-asset-snbs-balance-sheet

An Unprecedented $660 Billion In Excess Debt Demand, And What It Means For Bond Yields

This article declares the bond market will collapse with an accompanying soaring gold price.  But between now and then, bonds should continue their rally (yields and interest rates should continue to decline as QE artificially boosts demand for bonds, therefore outstripping supply)--and gold prices may further decline, despite the Fed's and Bank of Japan's balance sheets continuing to grow to grotesque levels.

In other words, expect choppy markets if you're long precious metals, but your day will come eventually, when inflation rears its ugly head.

http://www.zerohedge.com/news/2013-04-21/unprecedented-660-billion-excess-debt-demand-and-what-it-means-bond-yields

A Retort to SocGen’s Latest Gold Report

http://www.sprottgroup.com/thoughts/articles/a-retort-to-soc-gens-latest-gold-report/

Dear Senate: Please Ask Bernanke To Explain This

http://www.zerohedge.com/news/2013-02-26/dear-senate-please-ask-bernanke-explain

Fed’s Balance Sheet To Hit A Shocking $6 Trillion

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/12/13_Feds_Balance_Sheet_To_Hit_A_Shocking_%246_Trillion.html

What Does A $4 Trillion Fed Balance Sheet Mean For Gold And Oil

http://www.zerohedge.com/news/what-does-4-trillion-fed-balance-sheet-mean-gold-and-oil

Update On The "Non-Printing" ECB's Parabolically Rising Balance Sheet

This is just massive QE in disguise by the ECB.


http://www.zerohedge.com/news/update-non-printing-ecbs-parabolically-rising-balance-sheet

QE ending?

I know some readers are long the precious metals, so I thought I would chime in with my admittedly subjective take on future Fed actions.

If QE 2.0 is not extended beyond June 30, after Fed announcements in April, look for all asset classes to decline, including possibly gold and silver (and mining companies).  However, I view a correction (dip) in the mining sector as a buying opportunity, because when the economic indicators tank as a result of the ending of QE, the Fed and monetary authorities will figure out the economy is too fragile to stand on its own, and will need further injections of liquidity to continue its "recovery."

It may take them several months of states and municipalities going bankrupt to figure out they can't stop the printing press, and will need to bail out these entities as well as sectors like commercial real estate.  Then, they will stealthily implement new rounds of stimulus, which will enable a resumption of the bull market in precious metals.

Long-term buy and holders need not do anything right now, and perhaps even buy the dip if and when it happens.

Traders may want to take some profits off the table, and wait for the buying opportunity to re-deploy the cash.  Aggressive traders may consider shorting the commodities complex, but that's not something I would personally consider, because front-running and fighting the Fed could be hazardous to your health if you mistime it.

Of course, I could be wrong:  if QE gets extended, the bull market in precious metals could continue onward and upward without pause.  Which means even if I do sell out of some positions, I won't sell everything.  Instead, I will possibly take only partial profits, and wait for the dip to occur--if it ever does.

Jim Rickards and Chris Whalen have submitted fantastic interviews and reviews on the topic of the potential cessation/continuation of QE, and how the Fed can use its enormous balance sheet to shape the bond yield curve, shifting it to shorter term securities without drastically expanding their balance sheet.  In other words, the Fed can surreptitiously continue rounds of QE in an attempt to stimulate the economy without drastically expanding their already bloated balance sheet.

See disclaimers in the side bar.

Disclosure:  long precious metals equities.

"Creative Accounting" Makes Fed Insolvency Impossible

http://www.zerohedge.com/article/accounting-gimmick-makes-fed-insolvency-impossible

"The Fed remits most of its net earnings on a weekly basis. Prior to this accounting change, any unremitted earnings due to the Treasury would accrue in the "Other capital" account, but will now be shown in a separate liability line item called "Interest on Federal Reserve notes due to the Treasury.” As a  result, any future losses the Fed may incur will now show up as a negative liability (negative interest due to Treasury) as opposed to a reduction in Fed capital, thereby making a negative capital situation technically impossible regardless of the size of the Fed’s balance sheet or how the FOMC chooses to tighten policy." And there you have it: instead of reducing the left side of the balance sheet upon the incurrence of losses, the Fed has decided to fudge the right side. And presto. No more possibility of insolvency ever again.

Fed may go bankrupt

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/11/5_Jim_Rickards_-_Fed_May_Go_Bankrupt.html

Right now the Fed’s balance sheet shows about $57 billion in total capital. Current assets are about $2.3 trillion. The current money-printing plan will take total assets above $3 trillion. At that level, it only takes a 2% decline in asset values to wipe out the Fed’s capital. Put differently, it only takes a 2% drop in the average value of assets on the Fed’s balance sheet for the Fed to go bankrupt. And this is in an environment where various markets frequently go up and down 3% in a single day.

The Fed is saying don’t worry about mark to market losses because we will hold the bonds. The Fed is saying don’t worry about inflation because we will sell the bonds. Both of those statements cannot be true at the same time. You can hold bonds and you can sell bonds but you can’t do both at once. You will want to sell when rates are going up but that’s when losses will be the greatest. So the time when you most want to sell is the time when you will most want to hold.

So, here’s the bottom line on money printing, or QE if you prefer. If nothing happens, the whole thing was a waste of time. If inflation takes off, the Fed will have to choose between holding bonds and letting inflation get worse or selling bonds and going bankrupt in the process. Since no entity goes down without a fight, the Fed will naturally hold the bonds and let inflation take off. Do not ask about the exit strategy from QE; there is no exit.

BIS warns financial system vulnerabilities

Speaking of the BIS, their report warns of another impending financial system collapse if structural debt problems aren't treated.

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/6/28_Secretive_and_Powerful_BIS_Annual_Report_Released.html

“When the transatlantic financial crisis began nearly three years ago, policymakers responded with emergency room treatment and strong medicine: large doses of direct support to the financial system, low interest rates, vastly expanded central bank balance sheets and massive fiscal stimulus. But such powerful measures have strong side effects, and their dangers are beginning to become apparent.”

“Here are the worst problems arising now from the continued use of the extraordinary programmes: Direct support is delaying vital post-crisis adjustment and runs the risk of creating zombie financial and non-financial firms. Low interest rates at the centre of the global economy are discouraging needed reductions in leverage, thereby adding to the distortions in the financial system and creating problems elsewhere.”

“The sustained bloat in their balance sheets means that central banks still dominate some segments of financial markets, thereby distorting the pricing of some important bonds and loans, discouraging necessary market-making by private individuals and institutions, and increasing moral hazard by making it clear that there is a buyer of last resort for some instruments. And the fiscal stimulus is spawning high and growing government debt that, in a number of countries, is now clearly on an unsustainable path.”

“The financial disruptions in the first half of 2010 have brought the fragility of the industrial world’s financial system into stark relief: a shock of virtually any size risks a replay of the events we saw in late 2008 and early 2009. The sovereign debt crisis in Greece is clearly jeopardising Europe’s nascent recovery from the deep recession brought on by the earlier crisis.”

“Unlike then, however, we have hardly any room for manoeuvre. Policy rates are already at zero and central bank balance sheets are bloated. Although private sector debt has started to decline, public debt has taken its place, with sovereign fiscal positions already on an unsustainable path in a number of countries. In short, macro-economic policy is in a vastly worse position than it was three years ago, with little capacity to combat a new crisis – it will be difficult to find a source of further treatment should another emergency arise. Regaining the ability to react to economic and financial crises, by putting policies onto sustainable paths, is therefore a priority for macroeconomic policy.”

GE's balance sheet

Look at General Electric's debt--$518 billion. That should scare any bean counter. They've lost their AAA credit rating, yet the government gives them cheap loans, keeping their borrowing cost at 3.3%. Even at that low borrowing rate, they have trouble covering their expenses. For reference, GM's debt was $82 billion at one point. I'm not even sure how GE Capital accounts for their bad loans and toxic assets, since the government allowed for mark-to-fantasy accounting instead of GAAP mark-to-market accounting standards.

http://www.reuters.com/finance/stocks/incomeStatement?stmtType=BAL&perType=INT&symbol=GE.N

No wonder they are selling assets like NBC Universal. Gotta keep the lights on.

Profitable bulemia

The scenario of banks downgrading each other's balance sheets due to opaque accounting of toxic assets is understandable--they are competitors after all. If misery loves company, one could argue perhaps they should be cheering each other on in their attempts to restore their balance sheets to solvency.

But there's an interesting twist in this game of mutual cannibalism: not only are they throwing stones at each other's glass houses, they are also betting on their own demise. Let me repeat: banks are profiting from bets against their own solvency.

Here's an excerpt from The Daily Reckoning:

But something magic happened in the fixed income trading group for Citi. This is pure gold if you like arcane financial statements packed with fictional earnings. If you dig into the quarterly report, you'll learn than fixed income trading revenues were boosted by a "net $2.5 billion positive CVA on derivative positions, excluding monoclines, mainly due to the widening of Citi's CDS spread.

That takes some sorting out. A CVA is a "credit value adjustment." As you can learn here, it's the credit risk premium of a derivative contract. Once you sort it out, you learn that Citi "made" $2.5 billion on a derivatives position designed to profit when the companies own credit default swaps spreads widen.

Or, in plain English, Citi profited because it made a bet that the cost of insuring itself against a default would go up. The credit default swap market is the place where you can bet on the credit worthiness of a firm, or, essentially, the chance that a firm might default on its bonds. Citi appears to have reported a $2.5 billion trading gain in the fourth quarter precisely because the market thought the company stood a good chance of failing (hence the widening CDS spread).

As far as we can tell, if you use this kind of perverted logic, the closer Citi gets to bankruptcy, the more money it would "make" on its derivatives. That shows you how bogus the quarterly number was. The company reported declining revenues in its core banking and lending activities. But thanks to fixed income and this handy $2.5 billion CVA, the company was able to report $1.5 billion in net income.

The financial bazaar has truly turned bizarre.

US Treasury bonds facing selling pressure

This is exactly what I've been pounding the table for--sovereign funds are turning their back on US debt issuance because they have been burned by the US government's irresponsible monetary policy. Former Treasury Secretary Paulson was in Beijing begging for them to keep funding our debt, and they have now reached the "screw you" stage.

Here is a question that doesn't require much deductive reasoning: with a lack of buyers, who else is going to buy our US Treasury bonds? The Chinese, the Koreans, and the Saudis have explicitly said "don't expect us to bail you out anymore". The Japanese are more polite about it: they merely said "we need to bail out our own economy", but they aren't stepping up either. The Chinese, Japanese, German, British and Saudi central banks have been the biggest buyers of our Treasury bonds in the past.

With no demand, and tons of supply about to hit the auctions, what happens then? The answer is interest rates have to rise to attract investors, assuming the US government is good for it (which is more at risk every day). In other words, the credit rating on our government doesn't even have to be downgraded to make our government's borrowing costs higher--the bond market will determine it for us. Short-term bills are directly influenced by Fed policy, but the Fed has very little say in the 30-year Treasury bond market--that market is too huge and is an aggregate arbiter of inflation expectations (a bet on bonds means investors believe inflation will be in check and interest rates will NOT rise until maturity).

That's why I've been shorting 30-year T bonds (betting US Treasury prices will decline as interest rates WILL rise). Bill Gross, the world's biggest bond investor thinks rates could go to 7%, while Julian Robertson, billionaire hedge fund manager wasn't explicit, but whispered "Paul Volcker" type interest rates--or 18%. That is a doomsday prediction, because our $11 trillion dollar debt compounding at that rate would torpedo our economy, as the US Government, considered the safest investment in the world, would have have to default on their IOU's. The bond market, much bigger than the stock markets (equities) would implode, and we WILL go back to the stone age in that event. We would just be one big Iceland, only since our economy is much bigger, the financial aftershocks would be felt for decades.

I am not betting on that scenario, but I am betting that the Fed will print dollars even faster--to avert that financial armageddon. Print more money? Create more inflation, causing interest rates to soar even more? Sounds like the vicious spiral it is. At some point, rates will be high enough to crater all asset prices--again back to where they should have been all along. That's why that former million dollar house may seem cheap at $600K, but it could get even cheaper still all the way to $300K--or worse. And that's exactly why propping them up at $600K won't work.

Should we keep building these trillion dollar deficits? We are 100% on that path to destruction, probably in the 5th inning in a 9 inning game, ending sometime within 5 years. Every step we have taken is leading us toward this perfect storm. Last year's collapse in real estate and stock markets are just a harbinger of things to come in the bond market.

THAT is why bailouts are dangerous, and going deeper into debt to solve a debt problem is a game of chicken that cannot have a happy ending. But the government, along with the blessings of monetary theorists still believe trillion dollar bailouts (government "investments" in infrastructure), will solve our financial problems. Just print more dollars and everything will be fine, according to their misguided logic. To be specific, I DO believe we should make investments in the right infrastructure projects, but the bill about to pass includes 10 years of pent up pork for congressmen to satisfy their constituents. It is not based on merit.

Interest rates have already moved up more in 1 week than it ever has from its all-time low in December, when I put in the trade. The Fed will try a last-ditch effort to suppress interest rates (and mortgage rates in the process), but manipulation never works long-term--it will only cause short-term distortions before the dam breaks. The Fed won't be able to control the long end of the curve, and our $2 trillion deficits will double and triple as interest rates soar. Investors will dump bonds (as they are starting to do) because they are losing confidence in the US Government's creditworthiness and solvency. Although it is unthinkable, investors are questioning whether the US Government can pay back their debt obligations. Look up the definition of solvency and show me how the US Government deserves it's AAA credit rating. The balance sheet is bloated with debt, and that debt level is soaring by the second. Left unfettered, our national debt will eventually and terminally choke our economy.

Forecast for 2009 and beyond

Equities will bottom this year, while housing may bottom 2010--best-case. The dollar will break down further, and when the market realizes that, gold will rise. When the market recovers with a false rally, inflation will kick in, prompting gold's rise. Gold is not like most commodities--it is a currency of real value--a hedge against inflation. There is usually a year lag before inflationary fiscal and monetary policies kick in. In other words, money supply M is in place for inflation, but inflation will remain subdued until banks start lending (increasing money velocity V). And banks can't lend right now, despite huge capital injections because they are hoarding cash to strengthen their crippled balance sheets. Not sure when that will happen (banks lending to each other, to businesses, to individuals, etc.), but it's gotta happen at some point. Either that, or the whole banking system collapses, and we go back to barter....maybe the muslims are right. Even in that worst-case scenario, gold will hold its value--what other paper currency will hold its value in an Armageddon scenario--the USDollar?

Either way, gold will rise--it's not a matter of if, it's a matter of when. This downturn will be worse than the 1973-74 deep recession, when gold increased 2325%. I don't think it will be as bad as the Great Depression of the 30's, when we had almost 25% unemployment. Even in that deflationary environment, gold went up 69%. So if we are closer to a repeat of the Great Depression, you are right, gold may languish around the $500/oz to $1000 range , up from its 1999 low of $253. But if a full-fledged recovery occurs, a 2325% spike translates to a price of $5882. Realistically, the 1980 $850 peak, deflated in today's dollar indicates a $2400 price.

But with the accelerated debasing of the dollar in concert with other currencies, inflation is already in place. The definition of inflation is an increase in money supply, not necessarily the Consumer Price Indicator, the official government statistic. An increase in CPI is a symptom of inflation, not the source. It is a combined result of an increase of money supply flowing into the economy. Prices increase when more money supply chases scarcer assets. Having said that, the CPI is notoriously underreported as money supply growth is in the double digits, while CPI remains under 4%. The reason why it is underreported is another topic, but it does not match money supply growth.

So the targets above will trend higher if we take into account money supply growth--the very definition of inflation. Gold has increased almost 4-fold since 2001--another way to interpret the data is that the USDollar has been devaluated by almost 75% during that period. If that trend continues (and it looks like it will accelerate as the Fed and Treasury continue to print dollars ad nauseum to the tune of trillions of dollars), the current deflation of asset values will eventually yield to inflation--perhaps even hyperinflation.

The result will be higher taxes to pay for these government-sanction bail outs, and the debasing of the USDollar. Despite rhetoric that the government is interested in a strong USDollar, their actions speak otherwise. It makes sense because inflation is a form of taxation without legislation (Milton Friedman). It is more politically expedient to slowly, stealthily tax the population than to let unemployment increase and recessions deepen. Congressmen and the Administration aim to get re-elected. Hence the bailouts. Inflation allows the government to slowly tax the population under the radar, while at the same time, lower their massive debt obligations with deflated dollars (a $10 trillion debt becomes smaller as inflation eats into the principal). If I owe someone $10, but if 10% inflation kicks in, that debt is only $90 in today's dollars a year from now--and declines going forward. Propping up failing businesses is politically populist, but ultimately detrimental to the overall economy--it lengthened the Great Depression, and it's kept Japan's economy in decline for 19 years. It's a form of rewarding bad businesses, while taxing its productive businesses--it's misallocation of financial resources. Would you rather have GM manage your investments, or Google? Well, the government is investing in the GM's of the world--or any other industry that is insolvent, and in the process, taxing its citizens and profitable industries.

The problem is that hyperinflation reduces the purchasing power of consumers and invisibly reduces corporate profits. Our standards of living decline. These bailouts just defer and exacerbate our huge debt problems, but politically, Keynesian economics is the government's only option. We are past the point of no return, as we sink into a death debt spiral. Our financial crisis was caused by overleveraged debts gone bad, by consumers, businesses, local and state governments. Now the federal government is compounding that billion dollar problem into a trillion dollar problem (their own, in this case). That solution has never worked. When interest rates rise (they are at all-time lows), that trillion dollar debt only accelerates, forcing the government to accelerate money supply again, further debasing our currency. US Treasury bondholders, bidding up prices in a flight to safety, will get crushed when interest rates rise. The biggest buyers of said bonds--Chinese and Japanese sovereign banks and funds, will be net sellers, no longer willing to prop up our deficits, while earning 0% for the privilege. Besides, they will need to prop up their own economies. The US Treasuries market will be the last bubble to burst, and this time there will be no backstop, as the US government itself will be insolvent. The Fed can control the short end of the curve, but the long-term bond market dwarfs any government reserves, and is more influenced by market expectations of inflation, not government central bank intervention. The Fed and Treasury can only prop up 30-year T-bonds for so long, before the dam breaks. We are at the mercy of China, Japan, and the Arabic petrodollars. All 3 entities have explicitly warned the US government that they will no longer be buyers of US Treasuries. The Saudis are already in the process of creating their own exchange, creating their own currency for trading oil, as they realize their reserves denominated in USDollars have been a losing proposition. The Chinese and Japanese are also retreating in US Bond purchases. Interest rates will have to rise to attract new demand.

To look at our future, see Iceland--the country imploded, their banks froze up, as their debt exploded in a massive unwinding of leverage. The US Treasury will lose its AAA credit rating, driving up interest rates further. Eventually, the government will default, unable to meet its debt obligations. Guns and gold--if you think I am joking, ammo prices have doubled in the last year. The gold market is pausing, yet holding up while equities re-test their November lows. But once reality hits, it will rise. Not sure what the trigger event will be--another big bank failure, WWIII (Israel is discussing bombing Iran), Pakistan/India posturing, California insolvency (all State employees will start receiving IOU's next month, as California has run out of cash). Arnie has been unsuccessful with the state legislature on resolving a budget expected to be $42 billion short, and if unable to receive a Federal bailout, state employees will be unpaid).

http://www.sco.ca.gov/eo/...2008/12/pr08069letter.pdf

The 1991 riots will be like a walk in the park when cities and counties cut back on basic services like law enforcement and fire protection. I know one city in LA county has lost 60% of their detectives already--even as crime is soaring. Rape case samples are already extended out to 10 years for DNA results. I visited a coin dealer who had exactly one $20 St. Gaudens double eagle to sell. Gold bullion buyers are demanding physical delivery instead of cash settlement, causing spot prices to carry a premium above forward futures delivery contracts--the first time this has ever happened on the Comex gold futures exchange. Sure, the downside is a 30% temporary drop in price, but the upside is 100 - 800% potential upside. Not one stock mutual fund gained in 2008. Gold was the only asset class that gained last year--up 6%--and that was a bad year for gold. It was also the 8th consecutive year of gains. The Nasdaq plunged 80% after the tech bubble. The S & P lost 40% again last year. Treasury bondholders did well in a false flight to quality, but once they figure out tying up your money for 30 years yielding 2.6% is a losing proposition, they will flee that market as well. T Bills yielding 0% will prove problematic as an inflation hedge. Stocks have retreated to 1998 levels, and are headed lower. What else is left? Meanwhile, gold has already quadrupled in this decade.

The reason why financial planners and brokers (gee, they've given good advice over the years) don't advocate gold is because clients purchasing gold don't generate fees for them. Gold ETF's generate some commissions, but overall, there is no incentive for investment and commercial banks to pimp gold. Having said that, many conservative advisors do recommend clients keep 10% of their portfolio in gold bullion, preferable over paper securities (ETF's, futures contracts, gold mining shares). Storing bullion is inconvenient, but it's part of a diversification strategy. Once more people realize this, some sideline cash will be deployed to purchase precious metals, base metals, soft commodities, and dividend-yielding equities. Companies with leading market share, moat-like pricing power, strong balance sheets (loads of cash, no debt), high profit margins, and increasing dividend payouts on cash flow, will thrive in a market where access to debt is increasingly difficult.

The latest outsourcing business to hit the US...

The US Treasury is busy printing so many US Dollars that they have outsourced it to printers in Switzerland. That's right--our government is so intent on printing trillions of dollars that they are wearing out their printing presses, and have had to resort to offshoring the printing process. Hence, the ultimate conundrum: "Helicopter" Bern Bernanke and fellow cohort Hank "Machine Gun" Paulson have repeatedly preached about a strong US Dollar. Yet, their actions for months have been completely undermining the strength of our currency.

This indiscriminate and unconscionable monetary easing dwarfs any on record--it is essentially criminal.

Meanwhile, my long gold and long yen positions are playing out as predicted, so my portfolio is profiting handsomely. But it is bittersweet, as we will experience the second act of post-1990 Japan. Japan's Nikkei stock market index stood at 39,000 in 1990. In 2008, it stands at 9,000.

The next bubble to burst are Treasury Bonds. The 30-year maturities are yielding 2.6%. Investors by the droves are basically saying, "Mr. U.S. Government, I know your currency is tanking by the day, I know you are printing dollars like there is no tomorrow, I know your solvency is at risk, I know your balance sheet is deteriorating with trillions of debt, and I know you have to chase good money after bad money (the bailout mantra), and yeah, I know you've been beaten down. But can you please hold on to my money for 30 years, and pay me 2.6%, for the privilege?"

Once investors wake up to the reality that their allegedly "safe" investments aren't so credit-worthy anymore, they will demand higher rates of return in exchange for taking on the additional risk. And when that happens, the Treasury Bond bubble will burst, just like the residential sub-prime mortgage bubble burst. The Fed eased too much, creating a real estate bubble after the tech bubble burst. They then raised rates 17 times, bursting the real estate market. Now they are easing rates to 0%, creating another bubble--this time US Treasuries.

Is anybody seeing a pattern here?

I'm out of MS for a tidy profit

Morgan Stanley shares were actually up over 80% at the end of the trading day yesterday, and were up big again today, as a certain Japanese bank thinks they're worth $25. I got the cue, hit my target, and sold for a 100% gain in less than a week. I am normally not a trader, but this one was too sweet to pass up.

I'll stick with my INTC position and scour for companies with dominant market share, plenty of cash, and a solid balance sheet. The market still has a lot of pain to endure over the next couple years, but there are bargains out there if you are looking for long-term value.

Good huntin'.