Global Macro Investor's Must Read Market Update

Tyler Durden's picture

Raoul Pal has released his monthly update on markets which, as always, is one of the best summary reports on everything that is happening in the markets, in the world, and in the business cycle. As the Global Macro Investor observes, there is indeed "a lot going on." Not surprisingly, the key issue that Pal continues to focus on is the global debt-to-GDP ratio which is, and will likely always be, in excess of 300% until either we see global defaults or inflate our way out of it. His summary on the issue of unsustainable sovereign issuance: "Something has to give or bankruptcy will ensue as the markets dictate both the private sector's and the public sector's ability to borrow. The first part of this equation came to pass in 2008 as bank lending to the private sector shut down. No amount of regulation, political shenanigans or QE has fixed this in any way. Bank have got no money so they are not going to lend. End of story." Of course, the wildcard is the Fed, which can and will continue monetizing future debt issuance, and pumping money in blind hopes of a pick up in borrowing and inflation expectations, until the US finally wins the race to the bottom in the FX race (and once again, for the cheap seats, the so very inappropriately named hyperinflation is not a phenomenon of high inflation - it is the loss of faith in the currency). Yet the Fed refuses to acknowledge this, just as it refuses to acknowledge that the US needs deflation, something which the banking criminal syndicate will never allow: "The dirty truth is that no one wants to take the pain and allow for debt deflation. The debt pile is still growing although at its slowest pace on record. The debt deflation that everyone so wants to avoid is the thing the US needs the most." Pal's conclusion: "All this means is that the economy becomes ever more reliant on low interest rates for it to function. One day the markets will not allow the Fed to run this policy and rates will rise and the system will be brought to its knees. The outcome will happen regardless of whether they try to inflate their way out of debt and rates rise, or they increase the debt burden and sovereign risk is priced in via rate rises. With a continuation of the current economic policies, the end result of a default is inevitable. It's not rocket science." For the traders out there GMI has the following simple recommendatio: "Buy the DXY."

All this and much, much more in the full report.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
fragrantdingleberry's picture

It's all over. Get out while you can.

66Sexy's picture

Time to get bullish. DOW correction, no rate hike. BTFD.

Looks like QE3 has a higher probability of happening than it did yesterday.. 

Bad news is good news for stocks because it means more magic money.

MarketTruth's picture

No need for "magic money" as...

"Given the very high level of reserve balances currently in the banking system, the Federal Reserve has ample time to consider the best long-run framework for policy implementation. The Federal Reserve believes it is possible that, ultimately, its operating framework will allow the elimination of minimum reserve requirements, which impose costs and distortions on the banking system" -- Federal Reserve February 10, 2010

Of course this means total fraud, yet the system is already 95% fraud as it is today so may as well take it to 100%.

asdasmos's picture

Anyone have a download link?

covert's picture

the same will happen to other countries also.


Sudden Debt's picture

looks like the Bank longs will get smoked just before option expiration once again.

This is just priceless as nobody saw that one comming...once again...

TideFighter's picture

Dow to Gold Ratio 1 to 1?

Nah, I'm looking for QE XXV = Saw XXV

same shit.

The Navigator's picture

Is this why Bill Gross's PIMCO is now 100% out of Bonds?

truont's picture

Gross got out of US Bonds because he believes that no matter how much QE Benron does, interest rates will either be flat or go up.

In other words, the great 30-yr US Bond bull market has ended.

Time to pay the piper, USGovt...

Boston's picture

Gross also thought the great bond bull market July 2007.

In the short-term (say next 6 months), Risk-Off will very likely cause US Treasuries to rise in price.  Today is just one data point, but it's backs up this assertion. 

Shorting Treasuries will be a great trade--some day.  But in the next 6 months, you could get smoked if you're short.


Caviar Emptor's picture

Today is the equities version of Pimco's UST selloff. Without clarity on QE3 it's adios, you're on your own. 

slewie the pi-rat's picture

the third queen is baked into the brownies like lebanese blond, amigo.  12K DOW is the new baseline, BiCHeZ.  trust me.  this dip has been capitoiletted and it's freaking raining frogs, too, ok? 

i'll show you the DXY---i got the tiny right here in my poke.  also, a few PM'z in my other poke. 

now, i'm off on one of my cheap schwinn's to see if arb opportune is playing @ wal mart. 

freedom isn't free, but right now, it's hangin pretty low.  grab yer own, and steady, friends, steady.  BEing "on yer own" has its advantages, too, eh?

closely-held corp of 1

army of 1

shitheads uber alles!

...may hafta look at my cards, soon, too...

nah!  just kidding!  this flop is so raggy, my crads don't matter!  how much is in there?  i'll raise the pot, while (wink, wink) advising everyone at the table to get tf out, now, and avoid the rush...

buzzsaw99's picture

Billy is out of T-bonds because everything carries a gubmint guarantee these days.

TideFighter's picture

Billy is out of UST because he has a "red" phone.

Diplodicus Rex's picture

Can someone please help the uninitiated amateurs here:

"The debt pile is still growing although at its slowest pace on record."

I thought The Bernank was creating debt faster than you could spell it. What am I missing here?

DonutBoy's picture

It's total debt, government & private.  As the Bernank is providing the cash to grow public debt at a 1.5T a year clip, private debt is falling as things get written off.

Diplodicus Rex's picture

Thanks DB. I see that now from the graph at the bottom of page 5. Although I knew the destruction was taking place I had no idea of the magnintude until I saw that graph.


Similarly the graph of babyboomers on page 7 is awsome. There's a world of pain in that graph alone.

mikla's picture

"The debt pile is still growing although at its slowest pace on record."


I thought The Bernank was creating debt faster than you could spell it. What am I missing here?

The Fed monetization is done through an opaque mechanism that actually makes it look like the US Treasury is "profiting" from that monetization.

Literally, they are cooking the books.

So, you are correct -- the taxpayer is increasingly in-debt, at an exponential rate (we are in the middle of the exponential blowout).  However, on paper, the "reported" total of public-and-private debt being serviced hangs at a slow-rate-of-growth.

Because it excludes the "true" taxpayer liabilities.

Recall that the $100 Trillion in SS/Medicare are similarly "off-the-books" -- not even computed in our current "We're screwed" US debt computation for officially reported numbers.

Diplodicus Rex's picture

Thanks mikla.

So if I understand you correctly the chart at the bottom of page 5 is a lie because it doesn't include those off-balance sheet shenanigans. However, Raoul concludes from the graph published that we are in a deflationary process and ridicules the 'inflationistas'. If what you are saying is correct, and I'm not here to doubt it, surely that would suggest we are in an inflationary process which is the opposite of Rauol's conclusion. Help me out here to understand this.


Every day is a school day.

mikla's picture

So if I understand you correctly the chart at the bottom of page 5 is a lie because it doesn't include those off-balance sheet shenanigans.

That is correct.

However, Raoul concludes from the graph published that we are in a deflationary process and ridicules the 'inflationistas'. If what you are saying is correct, and I'm not here to doubt it, surely that would suggest we are in an inflationary process which is the opposite of Rauol's conclusion.

Short answer:  It's both (inflation and deflation).  Long answer:  It's complicated, with lots of moving parts.

The Fed is monetizing to accommodate the Federal Government's cash-flow problem.  They are literally printing the cash-flow.  This means they are printing to cover (old) Treasury bonds that roll over, printing to cover current program spending, and literally printing to send out Social Security and Medicare checks.  They are printing the cash-flow.

Yes, this printing triggers creation of new US Bonds, upon which the taxpayer must service interest payments.  The reality that the taxpayer has no such capacity for this increased liability is being "hidden", by design.

Further, the $100 Trillion in outstanding off-books liabilities aren't even included in the above discussion.  Those also are being hidden.  However, that $100 Trillion is incrementally being "forced back" into reporting as it demands cash-flow (e.g., to cut SS/Medicare checks, payout on F&F liabilities, etc., which are immediate cash-flow needs).

Donutboy was right, the Government is increasing its leverage while private companies and individuals are decreasing their leverage.  It "sort-of" balances out to a slow increase in public-and-private leverage (or slight decrease, depending on your math).

True, some debt write-downs (defaults) are occurring, corresponding with taxpayer largess to banks.  However, those write-downs are incredibly small compared to the outstanding debt (the outstanding debt is not really shrinking -- it's getting bigger -- by a lot).

Literally, what you see now on these numbers is merely fraudulent accounting-and-reporting.  The numbers only "get better" because we LOWER the accounting standards (e.g., remove all loan loss reserves, remove all mark-to-market, permit infinite leverage against zero assets).

When accounting standards return, you will see hyper-deflation.  When debt cannot be serviced, and default is forced, you will see hyper-deflation.  The "hyper" is because the numbers are Cosmically Impossible.

At present, you are seeing very real inflation.  If the "last death throes" manifest in printing (flip a coin -- could go either way), then you will see hyper-inflation.  QE3, QE4+, etc., imply hyper-inflation.  A "halt" to QE3, plus Congressional gridlock (and/or Congressional restraint upon the Fed) would take you straight to hyper-deflation.

So, both are right:  Inflation, PLUS deflation.  You will soon see Hyper-Deflation, and possibly Hyper-Inflation.  You will see the market move between the two in minutes.  One will kill you, but there's a fair shot that you are killed by both.

Oh regional Indian's picture

Oil and Fiat with PM's as the control valve.

Those are all that matter.

Oil Burning. And how. And this is just act 1 in the ME.

There, is indeed a lot going on, and strangely, it's happening on two lines that meet at the center of the conflagaration.


falak pema's picture


Your Sauron ring prediction has hit Japan...what a tsunami!

Sudden Debt's picture

About 2 months ago, I maxed out my visa on a silver purchase.

As expected Visa called me 2 days later with the question if I wanted to raise my limit.

My answer: Yes, sure!

The person on the other side: Really?

Me: How do you mean?

The person on the other side: Well, I didn't expect you to say yes...


I didn't raise it after all but it does make you think he :)

donde1's picture

Buy the DXY? Does that mean he is bullish the Dollar?

CPL's picture


It's more of a strategic retreat point unless the Chinese dump bonds like no tommorrow.  If that happened, well, let's just say there is no coming back for anyone.  Ponzi scheme require the majority of the people vested to be the bag holders.

truont's picture

In the context of "buy the DXY", GMI was saying that the DXY just bounced off its lower channel on the trend chart.  It's a short-term call.  I don't doubt that DXY will bounce higher in the short-term.  However, the long-term fate of the DXY is down...

baby_BLYTHE's picture

I share Marc Faber's disgust for Jackals, Hedge Fund Hyenas, Central Bankers and Politicians

Marc Faber CNBC March 7th

Part 1:

Part 2:

Marc Faber CNN March 9th

Tail Dogging The Wag's picture


Thank you for sharing these videos.

Only the ignorant and blind will still believe in fiat money when the music stops playing, and then they'll find themselves without a chair in the musical chairs game. With an empty stomach, an empty fuel tank, swindled out of their dreams and hopes, and with inept answers or no answer from inept and profligate governments, the mobs from Western nations will riot and people will say: "Gee, I thought these things only happened in empoverished third world nations." Well, they might turn out to be right.

Atomizer's picture

Good-bye Euro, its been nice knowing ya.


ABCStore's picture

Bank have got no money so they are not going to lend. End of story.

Banks do not lend money AT ALL, EVER. When will people erase that illusion from their minds?


TruthInSunshine's picture

If a dollar is debt, then banks did loan out a lot of dollars.

But they're certainly not loaning dollars of debt now because they need all the debt dollars they have been cushioned and plowed with by The Bernank (via spread mechanics) to prepare for the great slaughter. Some will survive, such as the TBTFs, but many won't.

There is no doubt that there is still a dearth of the 3% of money that actually exists in physical form, even if it's debt because it's based on fractional reserve methodology, in the real world.

Those expecting some incredible deluge of cheap and easy money to pour forth have zero clue about what banks and the overwhelming majority of corporations are doing right now - at the moment CNBC is speaking of fantastic corporate earnings.

Banks and corporations are getting rid of debt or replacing high interest debt with very low interest debt, slashing dividends, cutting fat, and doing anything else to shore up the riverbanks, as they can.

The tide of cheap money I keep hearing about isn't coming. It's going to be a tsunami the other way. We live in reality, and the actual events taking place around us right now don't suggest there's a deluge of money about to be unleashed, and charts of digital fiat are totally useless given the charts illustrating debt obligations.

If you doubt what I'm saying, go apply for a loan to finance just about anything, consumer or commercial intended. Flaming hoops and rectal exams will await you, and even then, good luck.

john_connor's picture


Is it possible to get a pdf version?

citta vritti's picture

Just noticed Scribd not enabled for this. My bad.

trav7777's picture

This commentator was far more interesting when he was in drag singing "supermodel."

TruthInSunshine's picture

In private debt markets, deflation is a massive plus for creditors who lent in fiat.

In private debt markets, deflation is a massive problem for debtors who borrowed in fiat.

In sovereign debt markets, a 'come to the brink moment' - could give huge financial leverage to debtors in fiat.

In sovereign debt markets, an actual default would be terrible, but wouldn't necessarily mean the foreign creditors of sovereigns would be paid nothing; it would more likely mean that foreign creditors of sovereigns take 'haircuts.'

Intense inflation or hyperinflation as repayment strategy would produce massive social and economic instability that would threaten all incumbents, and have many disastrous consequences for large and multinational businesses.

If you think what we've seen is chaotic in Egypt or Libya, mainly based on rising food prices, let those same percentages play out in the United States, and those saying Americans will never do 'anything' will see how wrong that they are. If we ever even brushed those levels of inflation on necessities, the place would go ablaze.

Those believing that the U.S. can even be remotely compared to Weimar Republic Germany or Argentina are delusional, to put it mildly.

If you really think that the US is going to be the weakest, rather than the best of breed, in an upcoming time of serious economic sickness, you're not catching what's already begun to happen in China.

chrisd's picture

Truth in Sunshine and Truth all the time. Bet on the dollar because it will be the flight to safety that everyone will want when China and Europe have greater dislocations.

TruthInSunshine's picture

I think the reality that the whole world is gravely ill (has to do with efficiency in production and deleveraging - being able to build cars with cheap labor at 12.5 hours per unit vs the 93 hours of 50 years ago and having something on the order of 100x the labor pool hurts employment, oddly enough), and that everything is relative now and always, is something that some fail to recognize at times.

I also think there will never be a 'default' of any major sovereign's debt. It will be a glossy and victorious 'restructuring.'

Those who claim hard stop defaults on sovereign debt by any major nation are in the works are also failing to appreciate that this is not a take all or nothing game; a 'restructuring' or 'modified' repayment plan where interest is reduced or eliminated and even a good chunk of principal wiped out is more likely than not - does anyone here think that a creditor nation agreeing to this would even ever have to tell its constituents back home that it did so?

slewie the pi-rat's picture

if it weren't for sunshine~~~/;<)   }no truth!{

the world has always been gravely ill, according to some, so heal thyself and stop hallucinating (wishing for?) riots and fires in America.  your post #1036635 is awesum, but for that.  the PTB are losing the handle;  too much sunshine on the internet?  the people of the USA are rather unique in some respects, too, compared to "ordinary citizens" elsewhere, if you follow...

don't be in a hurry to make a mistake.  we may be sitting at a table with a marked deck, dealers who can make the Q of hearts or the club 4 come outta their snozzes, sharks, squids, and crooks with "secret" signals, but, we have a seat, we have our cards, we have our chips, and we have our senses about us.  

seated around us are degenerate swine who are so used to winning by chicanery that they have lost the ability to play fuking poker... 

and nobody's lookin to head home, quite yet, constituencies or no...

YouTube - Arlo Guthrie - Coming Into Los Angeles - Woodstock 1969

MachoMan's picture

Yes.  They will have to tell constituents because interest revenues will be less and, therefore, cause a decrease in appropriations/budget...  Or are you exclusively referring to China?

John Wilmot's picture

The dollar will always be reserve currency

The dollar will always be reserve currency

The dollar will always be reserve currency


Or, if you prefer


It can't happen here

It can't happen here

It can't happen here


<rolls eyes>

rosiescenario's picture

"In private debt markets, deflation is a massive plus for creditors..."


Having a bit of trouble with that statement....lets see, the collateral for the loan (such as a house) goes down in $$$ value, the borrower walks away, and the lender gets to eat it.


...and therefore deflation is good for the lender???? You are making a very big assumption that the debts are repaid in appreciating currency....the reality is different as is evident all around us today in the housing market.

TruthInSunshine's picture

Lenders will either be bailed out by the government, in whole or part, or they will change the laws, and turn people into lifelong debt slaves - or more likely, both will happen.

Look to student loan debt as the new model; it follows for life and even thereafter.

Non-recourse is going to be something relegated to the ashbin of economic history book footnotes, for the most part.


Bad Asset's picture

the debtors daily expenses go down, leaving them more money to pay their under-water mortgage.

zaknick's picture

Bla bla bla

the us will remain top dog

really? How so? The structural issue of having consumption driven GDP and a dead middle class gets fixed how?

mynhair's picture

Is that TRE bouncing on it's 200 dma?

Jason T's picture

Did it.. buying UUP, SH and some AOB today.