World risks fresh credit bubble, Switzerland's BIS warns

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/9733547/World-risks-fresh-credit-bubble-Switzerlands-BIS-warns.html

Pension fund reforms looming

http://abcnews.go.com/Business/Retirement/public-pension-reform-states-cut-benefits-massive-funding/story?id=10448854

One of the reasons I started this blog is because I was getting tired of being bashed by my own friends and family for being the messenger of bad news, and to be honest--I got tired of my own redundancy. The news coming out of the mainstream press today includes material I was harping about months and years ago. Mutual funds, pension funds, and even money market funds are at risk (see this blog on money market redemptions). Many blogs included actionable items, from a personal finance standpoint.

In regards to our public finances, we are teetering past the point of no return, with debt levels unsustainably high, and the threat of our financial systems collapsing at its highest point since the Great Depression. Pending financial reforms do not remove this systemic risk--they are backward-looking band-aids which do little to eliminate the toxicity of a $1 quadrillion derivatives market, in light of the fact that worldwide GDP is less than $60 trillion.

Our government and Wall Street haven't removed the iceberg(s); they're merely draining the Titanic one bucketful of water at a time--with high seas on the horizon. And the financial press is re-arranging the deck chairs in order to numb the masses into believing all is well, through manipulation of data and outright lies about unemployment and inflation numbers.

Excessive leverage from places as disparate as Iceland to Palm Springs created credit bubbles and the subsequent bursting. In many regions of the developed world, the process of de-levering is still in place, aided by zero-interest rate policies, quantitative easing, and fraudulent accounting endorsed by government authorities. The Fed's easy-money lending to banks is meant to recapitalize their broken balance sheets, but Main Street is still credit-starved--banks aren't lending. In the process, the Fed's balance sheet has ballooned, including the gigantic inventory of toxic mortgage-backed securities, with a market value of pennies on the dollar. The massive debt monetization incurred by the bailouts will dampen any semblance of a sustainable recovery.

But the USDollar carry trade marches on, where arbitrageurs (including hedge funds and banks) borrow dollars at 0% and speculate elsewhere with the unintended consequences of creating additional asset bubbles. Meanwhile, accusations of the Chinese manipulating the yuan artificially low are ridiculous, considering the Chinese central bank merely pegs the yuan to the USDollar. If we are to believe the US stance on a "strong USDollar policy", then logic would dictate the yuan would also be a "strong" currency. The yuan is sinking because the USDollar is sinking, and while we're at it, so is the Euro. It's a race to the bottom in an attempt to stimulate exports.

In the paper chase to zero, I am holding on to something tangible.

Taleb is shorting US Treasury bonds

Nassim Taleb, author of "The Black Swan", who predicted the credit bubble and financial crisis in 2007, says the US Treasury bond market is the next to burst. I couldn't agree more, and have been blogging about this for over a year. Who in their right mind would lend money to a broke US government, tying their money up for 30 years, while earning less than 5% interest for the privilege of taking on that risk?

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3E4uC5VIFeo&pos=5

While it's not convenient or prudent for retail investors short US Treasuries in the futures market, the TBT ETF is a possible trade on rising long-dated bond yields. But TBT is not an efficient proxy for shorting Treasury bonds, and tends to underperform in the long-term.

However, home borrowers should lock in a low fixed-rate mortgage to protect themselves from rising yields in the 10-year Treasury bond.

See sidebar for disclaimers.

Disclosure: no position in TBT.

Derivatives

Our government financial experts really are clueless. The over-expansion of leverage and derivatives of collateralized mortgages caused our financial crisis. Now the broke FDIC wants to collateralize bad loans from collapsed banks, package them, and sell the securities to the markets. Talk of financial reform is utterly worthless if the causes of credit bubbles are misunderstood.

http://www.cnbc.com/id/35055601