by John Galt
November 23, 2009
The headline from Bloomberg tonight says it all:
Consumer Spending, Home Sales Probably Rose as U.S. Recovery Takes Root
then we get a boatload of “experts” commenting on the move of the 1-3-6 Treasuries that I follow like a bad religion:
Sinking Short term Treasury yields aren’t a sign of panic this time
Huh? As if that story from the Los Angeles Times was not bad enough, I happened to listen to Bloomberg Radio Friday morning and Michael Pond, the interest rate strategist from Barclay’s, actually told the hosts with a straight face that the reason the 3 month yield had turned negative and the 1 month below 0.01% (at that moment) was due to “year end” events where major banks and houses who had made a fortune to invest in equities and riskier bonds over 2009 and make a profit were actually taking profits and parking money in safety.
Granted my fellow readers, old and new, that I was not and never have been an attendee at Yale, Harvard, Brown, Cornell nor did I take the West Pawtuckett School for the Deaf, Dumb and Blind’s correspondence courses on economics. But if Michael Pond is going to convince me that tens if more likely hundreds of billions of dollars in profits were locked in by the most intelligent investing houses on the planet and they are now willing to accept a loss on those investments for the next 6 months because the world is just full of flying purple unicorns pooping Skittles and McDonald’s Happy Meals, then I guess the hosts at Bloomberg and the rest of the world truly has been taken over by zombies with zero capacity to do some basic math.
With monthly CPI the “official” inflation rate at 0.3% this means that those “brilliant” investors were according to the L.A. Times article expert they quoted:
“It may look like another fear-driven panic, but this time is different: In large part the latest decline in shorter-term yields just stems from moves by banks and other financial firms to bolster their balance sheets with highly liquid assets as 2009 ends, says Tom di Galoma, head of U.S. rates trading at Guggenheim Capital Markets in New York.
“They’re dressing up the books for year-end,” he said. The more liquid you can look to your regulators, the better.”
So he said the same thing the Barclay’s clown said but never discussed one minor factor and that was inflation and negative yields. These propagandists, like so many others I heard and read about on Friday said almost the exact same thing:
Year end window dressing.
NEVER in all my years of following the bread and circus show since the 1987 crash have I ever seen any investor saying “well, I made money this year so for the next three to six months, I guess I’ll park my billions in a loser and accept some minor losses to make my boss happy and keep the government from wondering what was up with that.” Ed Hart must be spinning in his grave due to the volume of bovine scatology being spewed.
Basic math boys and girls:
If you buy a 6 month bond yielding a +0.09% but CPI is on average 0.3% you’re losing 0.21% every month until maturity assuming CPI is a constant. If you buy a 3 month, you’re losing 0.32% and a 1 month 0.3005%. Thus the reason the bond yields are so low, as low as they were when Lehman blew up, WaMu went Tango Uniform, and when the viability of Citigroup was called into question (never mind, that’s every week; bad example) the clowns are telling us that multi-billionaires are locking in the profits they made by losing money over a short to intermediate time span.
Yo, unicorn, I want the Chicken McNugget Happy Meal and toss in the Hamburglar Corvette as my toy.
The yield curve is calling them a liar and telling the truth (from FINRA’s website):
Since I don’t have my K-Mart now Sears Blue Light Special Degree in Economics handy, let’s move on to some other troubling aspects of the economic data for the week which when married with the bond markets should cause great concern for anyone following the disaster which is upon us again, er, continuing.
Housing 101
A wise man named Phil Grande of Phil’s Gang fame once said:
Housing Permits are an indication of economic strength 6 months out.
Or words to that effect.
Need proof? Here’s a picture worth 2 million plus jobs and then some in the months to come:
On the bad news side, we are below the 1959 to 1974 levels.
On the good news side, we are above the worst of the 1975-76 recession levels.
Wheee! Party time!
If you care for a dash of confirmation, here are the starts which trail and give you some idea of just how bad it is as we are at the lowest levels in history:
This means no one is really buying homes in large numbers, builders are laying more people off, construction companies are not hiring, appliance companies are cutting production back further, etc., etc., etc.
The recovery is what I said it would be on January 2, 2009: “The Obama Economic Miracle” and in reality it is a buttload of government pork shoveled out to political favorites in the corporate world to put a floor under the decline. I look for numerous revisions to Q3 GDP if these clowns are honest as every data point quoted as a “strong” indicator of a recovery in October and early November has been revised DOWN.Without housing and autos the American recovery does not recover and this opens the door for the Fed’s Zimbabwe strategy where they try to emulate Argentina all the while shrinking heads in the kitchens of Federal Reserve banks nationwide.
The Gold Warning
The three year chart for gold says it all:
It seemed like just yesterday where Dylan Ratigan went from a show with 500 viewers to a network with 431 viewers but from the time he was there until the current show with the hot chick hosting, all we’ve heard is “oh gold sucks, it’s a horrid investment and a barbaric relic that just sits there.”
Yup, it just sits there appreciating 9 years straight while the famous triple top (no way it’s going past $1000 now, right?) was called and inflation declared dead forever in this great deflation which will turn America into a Sushi eating duplication of Japan except we’re too tall for many of the rides they have at Disney in Tokyo. The reality is that deflation is not here, but inflation is just lagging under the guise of disinflation as if we were experiencing a true dollar based deflation, non-precious commodity metals like, oh, say, Doctor Copper would be tanking. Right?
If copper starts to follow instead of lead gold as it was doing, then all bets are off as to the new high price for gold in the 6 months to follow. If gold continues to advance in price and copper makes a new high at the same time, this support will cause the entire commodity complex to take another moon shot. The Gold ETF (GLD) is confirming the move nicely also but in my opinion there is a massive distrust of any paper based representation for any physical metal, thus the reason the third world and emerging market central banks are taking delivery as opposed to trusting the ‘word’ or promises of the Western banking cabal.
Thus we should pull back at some point to at least kiss the 50 day moving average but a retest to the lows of this year is highly unlikely and the deflation crowd and shorts could get smoked at year end if they wish to be the bagholders for the stupidity of our Federal Reserve and politicians. I think the floor I projected in the $1014 to $1025 range holds and with that bottom, barring the reality of my speculative fiction series coming true, we shall se a pullback towards that support area only to be reversed to new highs in one final parabolic move above the $1800 level sometime next year. I realize I thought this might happen this year, but the geopolitical, fiscal and economic circumstances were skillfully forestalled by the political class for long enough to survive the election and new President’s first year. Going into next year’s election however, instability will be the problem for all elected officials from the dog catcher to the Senator as Americans are getting somewhat sick and tired of having their retirement accounts, currency and freedoms devalued without their approval.
Until tomorrow night…..
John
