Jeff Nielson's  Instablog

Jeff Nielson
Send Message
Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada (http://www.bullionbullscanada.com/#content). He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among... More
My company:
Bullion Bulls Canada
My blog:
  • Sheep “frightened” back into U.S. Treasuries 2 comments
    Jul 13, 2009 1:00 PM

    This morning, Bloomberg wrote, “Bond investors across the country are snapping up 10-year Treasury notes as expectations for a U.S. economic recovery this year disappear [emphasis mine].” If it sounds like Bloomberg is reading from a script, it's because they are.

     

    Here is what I wrote two months ago (see “U.S. Bond Bubble Bursts, bye-bye Equities Rally”), after it was clear that the U.S. Treasuries bubble had burst:

    Now here's the question boys and girls: what does the U.S. government do when an asset bubble bursts? Correct! They try to re-inflate the bubble.

    To figure out how the U.S. government plans to (attempt to) re-inflate this bubble all we have to do is look back to last fall – and see how they created this bubble, in the first place. The answer is clear: they started a panic.

     

    This is also why Ben Bernanke has temporarily disappeared, and ceased his inane drivel about “green shoots”. As I recently stated in “Bernanke's reappointment: rewarding failure”, “Helicopter” Ben's modus operandi has been clear for quite some time.

     

    Every six months Bernanke predicts a “U.S. economic recovery”, with his most recent “prediction” being that the U.S. economy would “recover” in the “second half of this year” (i.e. starting two weeks ago). Thus, “Helicopter” Ben is forced to lie low for a few weeks – all the time it takes for the amnesiac-sheep to forget his most-recent prediction.

     

    Then, a few weeks from now, Bernanke will re-emerge (like some kind of “economic ground-hog”) and make a new prediction: that the U.S. will begin an “economic recovery” in the first half of next year. All the while, Bernanke will not mention his previous inaccurate “prediction” (nor the other four which came before it). Strangely, the U.S. propaganda-machine also suffers from “Bernanke amnesia” - and they will also completely (and conveniently) “forget” all of Bernanke's previous, failed-predictions when they disseminate his latest propaganda.

     

    However, I digress.

     

    Getting back to the U.S. bond-bubble, I will refer to my favorite FX-market analyst, Chuck Butler and his column from Friday on The Daily Pfennig, titled “Frightened investors Move Back into U.S. Treasuries”. This particular installment was written by Chuck's stand-in, but they have worked together so long that the only difference between this commentary and one written by Mr. Butler, himself, is the absence of any allusions to rock 'n roll songs from a couple of decades back.

     

    The Daily Pfennig has also become a staunch critic of manipulated U.S. markets and fraudulent “statistics”. This was a major policy-change for this publication, as like most FX-traders, Mr. Butler is by nature a quite conservative guy. Until the last year, he had always steered The Daily Pfennig clear of any discussion of market-manipulation.

     

    In Friday's edition, The Pfennig took aim at the latest, phony U.S. jobs number: a big “improvement” in the weekly lay-offs – which was due 100% to a seasonal adjustment, as opposed to any actual improvement in the U.S. labour market. Throw in some lousy, retail sales numbers, along with expectations for another batch of dismal quarterly-reports from U.S. corporations, et voila! The lemmings begin stampeding back to U.S. Treasuries.

     

    What is important to note is the phony, U.S. equities rally was built upon the fraudulent accounting of the U.S. financial crime syndicate (see “FASB strong-armed into mark-to-fantasy accounting”) which allowed most of Wall Street to report phantom “profits”, Bernanke's latest lie about a “U.S. economic recovery”, along with massive “pumping” of markets by the U.S. propaganda-machine.

     

    In contrast, as I stated in my own previous commentary, to frighten people back into U.S. Treasuries, “all they [the propagandists] have to do is tell the truth about the U.S. economy.” Naturally, Bloomberg chose to “spin” events somewhat differently, titling their own article this morning, “Treasuries Record Demand Damps Concern that Supply to Grow”.

     

    The reality, as Bloomberg noted in its own opening sentence, is that investors are not “bullish” on U.S. Treasuries (with prices still far above historic norms), but rather they are simply realizing that the U.S. equities “rally” was nothing more than more Wall Street hype.

     

    However, as I have noted in many previous commentaries, Wall Street's game of rotating bubbles does not solve any problems, it merely postpones one disaster – while accelerating another. As I wrote in “U.S. Pension Crisis: the $3 TRILLION question”, with the phantom-rally in U.S. equities now dissipating, this means that while the Treasury Department may have an easier time flogging its worthless bonds for a few months (or perhaps just weeks), the grossly-underfunded U.S. pension system lurches closer to a huge crisis.

     

    All that the 40% rally in U.S. markets did (following a much larger collapse last year) was to postpone a full-fledged crisis in this area, which must ultimately result in a multi-trillion bail-out of the U.S. pension system (especially since trillions of dollars have been stolen by the U.S. government from the Social Security “trust fund”).

     

    Who will have to bail-out the U.S. pension system? The Treasury Department, of course. And how will they come up with the trillions necessary to make the pension system “whole” again? By dumping trillions of dollars MORE in U.S. Treasuries onto an already over-saturated market.

     

    Meanwhile, while easing U.S. interest rates may make credit cheaper (for the tiny percentage of Americans who have not been cut-off), the “wealth effect” of declining U.S. equity prices, and the “fear effect” of a continuing collapse in U.S. employment mean that Americans (for once) don't want to borrow more. On top of this, rapidly declining wages and job losses mean much less disposable income for Americans to spend – to prop-up U.S. retailers.

     

    The response of U.S. retailers is also clear (see “The Death of the U.S. Consumer Economy”). U.S. retailers have already resigned themselves to a generational shift in U.S. spending habits – meaning decades of reduced spending by Americans (which is how long it will take them to partially rebuild their savings). This is causing retailers to close stores and shift to more on-line retailing.

     

    In turn, this means millions more lay-offs by U.S. retailers, alone (and likely tens of millions). Those lay-offs further deplete U.S. consumer-dollars – far more than the tiny amount of “stimulus” from the Obama regime. Given the lack of any good options for the Obama regime, my guess is that the “rally” in U.S. Treasuries will last just long enough for the Treasury Department to stuff a few, hundred billion dollars of Treasuries down the gullets of brain-dead sheep – who (as usual) fail to realize they are just being used as bubble-fodder.

     

    By this fall, as teetering pension-funds threaten to collapse, the U.S. propaganda-machine will shift back into “economic recovery” mode – armed with the latest, fraudulent “prediction” from “Helicopter” Ben (and likely a phony, GDP number which claims the U.S. economy “grew” in the 3rd quarter).

     

    You can call this a “prediction”, or simply another “script” which has already been written.

Back To Jeff Nielson's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (2)
Track new comments
  • nova
    , contributor
    Comments (566) | Send Message
     
    There is another variable: some bond become illiquid with no market at all.

     

    The case and a point, I have some CA muni-bond (old AAA and now A-rated). They are still paying 7% interest. There are still quotes for them. Bur two weeks ago, I asked the Fidelity brokerage to give me a "real quote" so I could consider selling these muni-bonds. Well, two weeks later, I have not gotten a single real quote.

     

    It appears that we are not heading foe a depression. No, we are heading to a revolution and a civil war.
    13 Jul 2009, 03:29 PM Reply Like
  • 437339
    , contributor
    Comments (129) | Send Message
     
    Great article Jeff

     

    Hell , the Gubmint is not even calling this a " depression " as to not scare the sheeple ! The fact remains that drops in true GDP , Shipping , + stark increases in unemployment are in fact MUCH worse than 1929-1930 .!

     

    Americans are just too stupid + lazy to turn off the TV and actually think . It's a shame that those of us that were responsible + DID think actually have to be pulled down with the rest of them . FACISM anyone ?
    1 Aug 2009, 04:41 PM Reply Like
Full index of posts »
Latest Followers

StockTalks

  • Fixed-income investments are totally insane in the current environment, and we can't hold all our wealth in gold and silver bullion.
    May 5, 2009
More »

Latest Comments


Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.