The Chumps’ Revenge? The German’s Retreat?
Another month gone by. Still no sign of recovery. Where are the fools when you need their money?
Yesterday, we were singing the praises of the chumps and patsies. Thank God for the dumb money, was the chorus.
People willing to spend what they don’t have on what they don’t need — that’s what made the old economy of ’71-‘07 spin around so fast. And now where are these chumps? They seem to have run for cover where they didn’t want to go. They don’t seem to want to buy stocks. Now, they’re buying US Treasury bonds!
But what’s this?
“Gold Rises $40 As Markets Fall Sharply — Safe Haven “Tipping Point”?
Bloomberg (on Wednesday):
Gold fell and tested support at $1,530/oz but then bounced very sharply and rose by nearly $40 from $1,532/oz to $1,570/oz. US stocks and commodities remained under heavy pressure and the benchmark S&P 500 ended down 1.43%.
Gold consolidated on yesterday’s gain in Asia and during European trading it is challenging resistance at $1,570/oz.
Gold is set to incur its 4th month of losses which has not been seen in nearly 13 years. Interestingly while gold in dollar term is off 6% in May, the sharp fall in the euro means that gold has again risen in euro terms and is up 0.3% in euro terms in the month.
Gold may have turned a corner. It was going down with stocks and other commodities. But on Wednesday, stocks fell hard…while gold bounced. Then, yesterday, gold held steady…while stocks fell again.
What’s going on? Ultimately, gold is money. It is the only money you can trust. And when you begin to have doubts about the other currencies — those made from wood and controlled by wooden heads — your enthusiasm for real money increases.
Which makes us wonder who is holding so many dollar-based US Treasury bonds? It must be the chumps. Yields fell to their lowest point ever on Wednesday. That means that a lot of people are buying them. Which is remarkable for a couple of reasons.
First, US credit quality has declined substantially over the last 5 years. Deficits have pushed up the national debt from 60% of GDP to over 100%. Both S&P and Egon Jones downgraded US debt as a result. Unlike Europe, which tries to squeeze the reckless spending out of the system, the feds are still at it…and unrepentant. They now fritter and consume about $1.30 per dollar received in tax revenues.
Second, in times of stress, the custodians of the dollar at the Fed have shown themselves ready, willing and able to throw the greenback out of the lifeboat. If it’s a choice between saving the dollar…or saving their jobs, or their campaign contributors…or their power…we know what they will do.
Third, unlike Japan, the US still runs a substantial trade deficit. The last month tallied was March, in which imports beat exports by more than $50 billion, or about $600 billion, annualized. The Japanese and others used to use a lot of that money to buy US debt and support US deficit spending. Now, they need it for their own purposes…or to buy gold. This leaves the US with neither a net flow of funds coming in from overseas…nor high domestic savings. It has no means of sustaining a long spell of deficit spending.
Fourth, last year, nearly two out of every three dollars in deficits were funded by printing press money — or a near equivalent — from the Fed.
All of those reasons should give bond buyers pause. But they can’t seem to find the pause button. They buy US bonds without hesitating. And who knows? Maybe they’re right. It has been five years since the crack up in subprime. There is still no relief in sight. No recovery. Instead, bond yields themselves signal a deep economic sleep setting in. Like a Japanese Rip Van Winkle, the US economy could slumber for 5…10…20 years. And the yield on the 10-year note could fall some more…maybe to as low as 1%. Then, the bond buyers will look like geniuses, not chumps.
People who mortgaged their homes to lock-in a 4% rate will regret not having waited for 3%.
People who bought stocks because they didn’t want to miss the big recovery boom, will regret ever leaving cash…as their stocks fall 20% to 50%.
And people who bought houses at a 30% discount from 2007 will cringe every time they look at the real estate section of the local paper. Those same houses will be down 40%…and 50%.
Yes, it will be the Revenge of the Chumps…the poor shmucks who bought US Treasury debt in the spring and summer of ’12. They’ll be right. We’ll be wrong…
…for a while.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
2.54 … Nuff Said!
Treasury Yield 30 Years (^TYX)
2.54 Down 0.13 (4.94%) 2:59PM EDT
Paul Krugman: End This Depression Now
Paul Krugman speaking at Commonwealth Club of California…
Nobel Laureate economist Paul Krugman believes that the U.S. and world economies are not getting better. He says we are still in the midst of a depression rather than a recession, and that “nations, rich in resources, talent, and knowledge, all the ingredients for prosperity and a decent standard of living for all, remain in a state of intense pain.” Yet he also believes that a quick, strong recovery is but one step away.
Bill, presently I have 50% of my portfolio in TLT (long-term treasuries) so I don’t feel like a chump at all. I didn’t buy them thinking they were good investments–I bought them as a hedge on the stocks I own.
I believe that whatever I’m inclined to do is what most are inclined to do; if my belief is true, then treasuries are hot not from trust in them, but because they are the least unsafe port in which to ride out the storm. I and probably many others will sell them all as soon stocks look cheap enough (please ring a bell when that is the case).
Bill. Maybe the chumps know something you don’t ?
Now for the record, the record low of 2.505% was set in December 2008 (for 30-year bonds).
The Fed could launch a fresh bond-buying program, which would directly underpin Treasury prices. Another option could be to extend the Operation Twist program that is scheduled to run off at the end of June, an arrangement through which the Fed has sold its holdings of shorter-dated securities and plowed the proceeds into longer-dated notes and bonds. That program, in place since October, has been one of factors holding down yields on the 30-year bond.
The Fed could also buy mortgage-back securities or even private-label bonds if all fails!
Great Article, shame Bill Bonner wasn’t running the Government, at least we would have a chance.
The Fed’s ‘Operation Twist’ was just their member banks fleeing to the safety of long term Treasuries.
Who holds the Treasuries which are collateral for the loans made from the Social Security trust fund to the Treasury?
Everybody and nobody.
“Where are the fools when you need their money?”
no trusting people with money left. game over.
“I believe that whatever I’m inclined to do is what most are inclined to do; if my belief is true, then treasuries are hot not from trust in them, but because they are the least unsafe port in which to ride out the storm.”
(perhaps I spoke too soon.)
you don’t get it. the storm is a money storm. treasuries aren’t a safe harbor, they’re part of the storm. “give us your money. we’ll spend it now. in return we’ll tax anybody we can get our hands on to pay you back later. or we’ll just print it.” gee, what could go wrong with that?
Two options open. To print more so as to delay the ultimate day. Or, to stop printing and to invite immediate death. To rein in at the edge of the precipice? Right in front is the unfathomable abyss and behind lies the deep blue sea. Human wisdom is not a one day progression. By WW2, it has already undergone millenniums of evolution. The wisdom index by then has at least parred the dow jones average. Yet the atomic device went along killing hundreds of thousand.
With the multi media revolution of the 21st century so as to confirm a big leap forward of human thinking is just equally plausible.
So, wisdom is not the only factor. History still dictates. It will translate its inexorable verdict. Maybe, forbearance, doings and undoing bear more significant than anything else.
gman, if you’re such a genius, why can’t you overlay TLT and SPY, or even GLD?
“gman, if you’re such a genius, why can’t you overlay TLT and SPY, or even GLD?”
oh hey, don’t mind me. go ahead and buy treasuries, and good luck selling them later. but, just for a back-up plan, you may want to look into getting an actual productive skill to produce something of value yourself, rather than being dependent on others to make something for you to skim off. you know, just in case.
Sounds like gman advocates being dependent on others to buy the product of his actual productive skills and output from his backyard foundry and bottling works. He skims off other people’s money all the same.
“Sounds like gman advocates being dependent on others to buy the product of his actual productive skills”
you bring up a valid point. trying to produce a product or service for sale is a risky proposition. it’s much safer and less risky to wait and see what is successful and THEN horn in on the action – excuse me, “shoulder the risk” – to get your share. yeah, you’re right.
and – what could be safer and less risky than payment through taxation? the government working FOR you! the IRS working FOR you! the power of government combined with the power of infestment! can’t beat that, it’s a match made in heaven. never mind the 10,000 retirees per day, never mind more coming onto disability than coming into the work force, never mind mexicans saying it is now easier for them to get a job and education in mexico than in california. the IRS will find someone to pay you. your tax/infestment dollars at work.
Hey, gman, I didn’t create the insane reality we live in nor did I write the rules. If bonds are rising in value, I’m in; declining, out. I don’t even care why it’s happening. It just is what it is, and only a fool would ignore it.
There isn’t a way to draw a clear and define line as to divide who is living decently or filthily or skimpingly. The common law is sinply too versatile. The rotten one could be twisted to appear decent. Equally, the fresh one could be hammered under adverse pressure to produce a stinking smell. Due to great contribution of fiat paper.
“Hey, gman, I didn’t create the insane reality we live in nor did I write the rules. If bonds are rising in value, I’m in; declining, out. I don’t even care why it’s happening. It just is what it is, and only a fool would ignore it.”
this is going to sound completely stupid. bear with me.
you ARE ignoring it. you are ignoring what it is. you are ignoring how it works. you are ignoring what it does. you are ignoring what you are doing. you are simply watching your balance, the work of others flowing into or out of your account, whether it is going up or down. this is a key component of the entire problem. this is why we are where we are. doing what you are doing makes the problem worse. you will not secure your future playing this game. you will lose it.
no body buying stocks? people are finally smart enough not to trust their savings and retirements to blatant criminal/thieves on wall street?
The fact is Americans can take control over there finances through http://www.amazon.com/How-Invest-Tax-Lien-Certificates/dp/1477587934 All they have to know is how and where and in this book it explains it all its the number one this Rich and Famous do and have been doing from the beginning of time donald trump got rich off of it.
Can anyone prove that these are real buyers? The mantra that they are serving as a “Safe Haven” is widespread, yet isn’t the truth that the market is being fortified by false buttresses of derivatives (IRSwaps) orchestrated by the TBTFs? Jim Willie calls the whole set-up a teetering Tower of Babel. But this time when it falls, it will create a giant Black Hole sucking all into it as it goes down.
The only place I know where one could invest in a gold mining company at $1800 per ounce gold and watch the company claim to its shareholders that it is losing money. The same game is played with oil stocks where at $90 to $100 per barrel oil, the companies are claiming to lose money……… And if the companies pay you a dividend that amounts to anything, they diminish your principle and pay you out of what you already invested in them…… Only on Wall Street might you witness such stunts.
When you've got a room full of 200 oil insiders scratching their heads at current high prices, something's gotta give.
For most investors, it’s weird to think of stocks as their go-to investing option.
The petropoly has bills to pay and setting the price of oil was a simple way to balance their budgets.
Investors don’t seem to care that what's propping up their investments is what will ultimately destroy them: government monetary policy.
For the next decade the energy revolution will be likely confined to the US, displaying the robustness of American entrepreneurship.
Why the Sage of Baltimore’s commentary persists through America’s changing times.
After attending Platt’s oil conference in London I want to relay two important themes you need to know.