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Switch to the "Deflationary Bust"
Once again, the Program Robots have switched, now trading for the "Deflationary Bust", as portfolio strategists are bewildered and confused. At best, they are just trying to stay with the Wildebeest Herd and avoid getting run over by an apocalyptic collapse or Weimar/Zimbabwe hyperinflation.
Of special note today was the outright collapse of the JPM Derivatives Colossus, as no doubt, traders are now wondering if the Fed is going to step in an unscramble the scrambled CDO/CDO/Squared/Cubed mess triggered by the imminent collapse of CIT.
All eyes are on Bernanke/Geithner, LLP, as Bernanke was once again embarrassed and humiliated by today's market action.
Wonder what kind of "mop-up" he has in store for next week??
Is he headed to Zero Bound???
| 3-Month | 0.000 | 12/31/2009 | 0.09 / .09 |
-0.016 / -.016 | 15:14 |
| 6-Month | 0.000 | 04/01/2010 | 0.14 / .15 |
-0.023 / -.023 | 15:14 |
| 12-Month | 0.000 | 09/23/2010 | 0.34 / .35 |
-0.034 / -.035 | 15:17 |
| 2-Year | 1.000 | 09/30/2011 | 100-08 / .87 |
0-04+ / -.071 | 15:23 |
| 3-Year | 1.375 | 09/15/2012 | 100-02+ / 1.35 |
0-07 / -.076 | 15:16 |
| 5-Year | 2.375 | 09/30/2014 | 100-25+ / 2.20 |
0-16+ / -.109 | 15:21 |
| 7-Year | 3.000 | 09/30/2016 | 101-04+ / 2.82 |
0-24 / -.119 | 15:22 |
| 10-Year | 3.625 | 08/15/2019 | 103-18+ / 3.20 |
0-29 / -.106 | 15:22 |
| 30-Year | 4.500 | 08/15/2039 | 109-08½ / 3.97 |
1-16+ / -.083 | 15:23 |
»
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Please use the wildebeest pic, it's too funny.
BTW, I thought Ben traded in the helicopter for the Kamikaze Zero.
And you forgot to mention all the dollar-denominated CDS contracts that will have to be settled because of this.
Huge margin calls in OTC markets (derivatives, prime brokerage) are always bearish for equities/commodities and bullish for USD. That was the main mechanism for Oct 2008 bear crash after Lehman.
Whether the CIT collapse is orchestrated, like Lehman, or not, it will be used for trading and political purposes that profit those with access to central bank liquidity.
It will also be used to frighten Congress into abandoning the Audit the Fed bill or accepting some Fed/Treasury-written compromise.
Those betting on an orchestrated collapse upcoming are figuring that most of the work will be done via margin calls. You give an excellent summary.
nice call Andy...mr bond has always been smarter.
at times like these, i always remember what James Carville said
I used to think if there was reincarnation, I wanted to come back as the president or the pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everybody.
Andy...85730 has the exact quote from Carville.
Thanks 85730.
LOL
I wish Starbucks asked me if they should make their own single cup brewer and sell their burned second sorting coffee at their retail locations. Might as well use their strength, instead the morons come out with instant coffee in tea bags. Ever heard of Nescafe, morons? Since Green Mountain and Dietrich are trading at three digit multiples, you might think about where the money is flowing, eh?
Pffft! Starbucks!!!
Over-priced and bad tasting, IMHO!
Go for the coffee at the donut shop or at 7-11 better value and price!
Pffft! Starbucks!!!
Over-priced and bad tasting, IMHO!
Go for the coffee at the donut shop or at 7-11 better value and price!
Yes, I have met people like you.
Yes, I have met people like you.
Daytraders are manipulating the Puma ads.
http://slatev.com/player.html?id=42860985001
well those girls must have been naked today. smart ad.
I am trading my Bloomie terminal for one of those Bloomer terminals. I pray they have a redhead setting.
I remember seeing the Towering Inferno in the theater when I was just a kid. That was a big time movie back then.
this was a FANTASTIC day!
I maxed out my credit cards, took a payday loan against my unemployment check, and bought down my 55.90 AIG cost basis big time.
I'm gonna make me some serious coin and then get some of them women that robo has pictures of.
What, no blow?
Some of the old #7 lith run filters in the vodka works much better.
LOL. He must be an amatuer.
I think you're right Andy. Got rid of the gold last week. Did OK with it though. Could be like the last plunge, commodities went for the ride.
Andy,
I checked the 70's too and the intermediate top in the PM's in december 74 corresponded with a bottom in stocks.
Today we have a - so far - failed breakout in gold and a likely top in stocks. That does not look like the '74 scenario.
I checked the moves in '73 and '74 and they looked more confusing then today with bearish double tops and lower lows before the high on 12/27/74. My explanation for the move in gold 50% down in '75/76 is that stocks moved up during that time. With the top in stocks in, gold went up again.
we are due for a deflationary scare
yes
Due? The trend is your friend. Surf it.
Andy,
I disagree with your call again.
The way I read the PM market, not GLD and SLV, but the spot prices it looks like somebody with really deep pockets is buying, letting the market go down a bit and buy again and repeats the process. The buyer does not act in a predictable way, e.g. buying everyday at noon, far from it; that buyer acts seemingly randomly.
Shorting assumes that this buyer is out of money, good luck with that. Often the buying happens during HK and London trading hours and likely involves real metal. Somebody wants to exchange green paper for as much metal as possible without driving up the price too much. Russia and China both have means and motive to do so. I do definitely not know who buys right now, but only lately I have observed multiple times gold moving up 10$ instantly during active trading times.
BTW, my last change in investment was last fall and I was a bit too impatient. ;-)
Andy, from a US/GB perspective you are right, but if the buyer is Russian he has a different view on time, about a Chinese buyer's possible timeline I have no idea.
If I look at $SILVER on stockcharts.com it seems to be in an uptrend, even if it is now correcting.
I agree with your evaluation, but I suspect a large downward move in equities is coming, and if it does I think it will drag down the precious metals with it (which I think is Andy's scenario). I hope you are right about the determined physical buyer(s), there does seem to be a hand under the gold price. If this hand sees determined selling, will it wait and resume exchanging at lower dollar prices?
I'm going to have contrarian both of you and agree with both of you. Gold and silver won't go down much while bonds go through the roof and steadily pump on gold and silver like it's the only whore in town.
If we have a large deflationary sag with gold holding strong, I'll be watching closely for backwardation.
What do you mean watching? You mean going. Oh look the market is in ANOTHER day of backwardation. Then 3 months later. Oh look the market is in another day of backwardation. Backwardation will just be a panic indicator.
I agree backwardation in the monetary metals is a panic indicator. It would sure make for interesting commentary if stocks tanked, Treasuries zoomed, gold futures sagged but gold spot held steady or climbed. I don't think something like that would develop right away. There are additional "tools" that would be brought to bear under such circumstances, like specific cap gains taxes on gold, etc.
Interesting thought, though, just occurred to me: the US can discourage its own subjects from holding (hoarding) gold, but China is now actively encouraging its people to hold gold (and silver). Would the U.S. really want to discourage us from holding gold, seeing that the alternative is for it to leave the country? If the entire world is in the process of panicking and buying gold (if gold is ever universally recognized as capital), would the US declare it to be a strategic metal and ban its export? We're already implementing semi-stealthy capital controls.
Edit: The hand under the gold market isn't stupid enough to "show its hand" by causing a backwardation. Gunther is correct at #85898 just below.
You must think like an internationalist. No loyalties to specific countries. Power is the ultimate object, but money is its fluid means. And think as a farmer, one field must go fallow to be rich for harvest another year.
The USA has exhausted the fertility of its confines. China is nascent but ready for tilling and sowing.
Economics is all about differentiation. High and low. Rich and poor. Capital and debt. Extreme differences make for the most profit taking. America has been too high, too long. Debt has hollowed it out, enslaved its masses, and destroyed much of its future. It cannot efficiently concentrate capital anymore, the debt service is too much.
Asia has traded its resources, labour, and time in order to accumulate the excess capital of the West. It is now almost on stand-alone status. Precious metals bought on the open market will (on top of the resource buildup, factories, commodity stockpile) give it the legitimacy necessary to start anew the financial hegemony.
Great Britain and USA have handed over the baton by corruption, indolence, excessive debt, and mismanagement.
The hungry will eat their lunch.
Back to shirtsleeves and toil for them.
You got it. Milk while the sun shines. Maybe not mismangement though, more like herd management.
Wealth is always being created; where it's siphoned off to is another good story.
40muleteam borax
On the last contango. The hand under the gold market is cut off. England sold nerly all it's gold kind of like when the ships went to the new world and they dismantled them very quickly cutting off a path back home. England will do the same thing for NWO. No matter how much resistance it will try to force the divorced bullying IMF on the whole world. Figuring it will get the gold back after everything comes under control.
Indeed. You make a good mix Andy
Andy,
few weeks down is easily possible within an uptrend.
Thanks for the clarification.
SWRichmond,
I am not a psychic, but if I had the billions necessary in my pocket I would wait a bit with buying if I see a determined or panicky seller.
I'm with the Gold bulls on this... There is sufficiently reliable evidence around now to make a very strong case for the 'Beijing Put'. The Chinese are happy to snap up any gold that comes onto the market. No great surprise there. Seem to have learnt the painful lesson that U.S paper, in the hands of the Fed mafia, is utter trash... I'm confident/hopeful that China's deep pockets will on this occasion protect Gold from the severe downturn the market is about to dish out.
Panda Put, not Beijing Put....cutier name.....BTW Robot great articles, you have a fan...
Ok, you've sold me on that one... long live the 'Panda Put'
Good read Gunther. Sorta like the 30YR over the past 90 days.
Andy,
The correct spelling is ya'll.
This post deserves some major back and forth because it determines what happens over th elong term investment horizon.
the question I want to ask readers is with an ever decreasing currency can you have deflation? I do not think so, hence I am in the inflation camp despite deflationary conditions. Will we have a currency crissis or not, and how does this effect the whole debate. recently the dollar has not been gaining as stocks fell, so ...... what does this inmply. deflation until currency crisis then massive iflation?
I do not know, but this is a major complex issue.
deflation until currency crisis then massive iflation?
This is exactly what I expect, but I'm no specialist.
I am with you on that, the flight from the dollar will come when someone (China? Russia?) has enough PM stockpiled.
Then they stop accepting payment in dollars, and it is all over.
I think the end game is when China floats the yuan. By then the dollar should be weka enough that most people stop accepting US debt and then the dollar heads for the abyss.
When the yuan floats (long long shot, if you ask me), the reserve manager game will be over, and selling pressure on USD will alleviate like you have no idea.
Floating EMFX is extremely bullish versus the other majors, in my opinion.
IMF is out pushing China to do it:
Let currency rise, IMF tells Chinahttp://www.theglobeandmail.com/report-on-business/crash-and-recovery/let...
But the doublespeak (in the same breath) is always quite funny:
http://blogs.wsj.com/economics/2009/10/01/qa-imf-chief-economist-sees-st...
Blanchard: I don’t see a high probability or even decent probability of a (dollar) crash happening. If we think that exports in the U.S. has to go up, they have to go down somewhere else. This has to be achieved by a mix of structural policy changes and exchange rate adjustments. In practice, that means an appreciation of Asian currencies and a depreciation of the dollar relative to those currencies.
You should have be a screen writer...
http://www.youtube.com/watch?v=ju1qdHhdQQk
With 26 trillion in backstops and bailouts and mult-trillions in newly borrowed funds, the USA BETTER get inflation and big time. It would be the equivalent of giving up the Seventh Fleet and every nuclear device in the country if we got sustained decade long or more deflation.
The USA is the greatest debtor in the history of mankind. Yet it supposedly hold hegemony via financial, political, military, and technological supremacy.
To allow deflation to take hold would kill the growth prospects of the nation, the globe and assure serious conflict.
It MUST,MUST,MUST be inflation...or death.
"the question I want to ask readers is with an ever decreasing currency can you have deflation?"
Imagine owning a printer that only prints $1 dollar bills at 10/minute. Now imagine you're trying to print your way out of a 10 Quadrillion debt. That's how you can have deflation while you're printing at max warp speed. You simply cannot print fast enough to fill the black debt hole you'er in.
Yes, a weakening currency can still experience deflation, and the historical proof for that is Great Britain between WWI and WWII (and after). The pound sterling weakened progressively from having been the dominant global reserve currency to a lame second tier status over this period.
During much of the early period there was deflation, and then post-WWII there were inflationary/deflationary boom-bust cycles.
My vote is for deflation in the USA (and UK and EU). I spent a lot of time thinking about it, then finally wrote this as almost the last word on my blog before suspending it last December:
Accepted a day job worth the sacrifice. Most of this year I have been much too busy to blog, and hopefully will again be too busy quite soon.
If good people don't go into government, or into positions of influence in financial infrastructure, then good results aren't to be expected.
There are actually many good people in government, even in the Fed and SEC, and I would encourage those of you whose eyes are open here to apply for such jobs as come open so that you reform the system from the inside.
I have been a central banker, and a securities markets regulator, and I have made mistakes, but I also did some good. There followed a period when I did other things, many quite good. But I have taken a job again so that I can influence the way forward to mitigate such damage as I can during these trying times.
I regret that this means I don't fit the stereotype of a ZH "day trader", but then I think I keep very good company here.
Its great to be able to read your thoughts again LB. Your blog was an inspiration to me.
Many thanks for your kind word.
I like to think that I'll be blogging again someday, and back to the easy, happy life.
Very encouraging to hear what you say. It seems, though, that the ones who rise are the ones who want power above all else. I hope you can make some difference.
Anybody see signs of that Chinese put under the Gold price action this a.m.? All while the S&P is falling hard...
JPM will be fine. According to the OCC's Q2 report, they've got $1.66 trillion in assets and $79.9 trillion in derivatives. Oops
Uh, where are the pictures of females?
Andy...Daneric had a nice chart on VIX today and I thought of you...got close to 29, eh?
http://2.bp.blogspot.com/_TwUS3GyHKsQ/SsUbc7AT4tI/AAAAAAAACBw/SlhnP1-ILQU/s1600-h/vix.png
40.6 on JPM was to be breache before any downturn is legit (an afte that the 38.8 zone is major support). Hate to say it but it looks like the path of least resistance is up ATM.
Classic times and classic work RT. Glad to be catching it all real time with you and our associates..
robo..would like to see a bit more of an expanded gallery on your avatar. kind of a bear treat for living through the past couple of months.
"Deflationary Bust"...I thought you would show A cups today.
Andy, 3.25% break on the 10YR was a very big deal, don't you think. I'm more and more confident that we are going to take down the lows.
I also keep an eye on the polar opposite - JNK. That is going to break down big time, and also take the lows, although not sure if now is already the right timing to play this.
With all the suckers crowding the short end of Treasury curve with excess USD, and the FED monetizing essentially all the long end--there must be inflation AND SOON!
Deflation will destroy the collecting capacity of the Treasury to accumulate taxes to pay interest, deflation will multiply the nominal fixed return, deflation will add additional weakness in an eggshell fragility.
MUST HAVE INFLATION, AND SOON!
Inflation is good for industy. Inflation is good for debtors. Inflation is good for bond issuers. Inflation is good for foreigners who are denominating in USD.
Deflation encourages hoarding, saving, deepens depressions, kills exports.
If America is to be a leader in the next century, it must have a weak dollar and strong inflation.
You are shitting me right?
Deflation? With Gold still over $1000 (just checked).
That don't sound to deflationary to me. (in gold terms, YES, in dollar terms, NO)
If we get to $500-600/oz gold again (read never) then we will have deflation. (Good Luck with that!
As i keep on saying:
VIX IS GIVING BULLISH SIGNALS.
[I warned of an impending stockmarket crash back in *early 2007*]
http://www.zerohedge.com/forum/market-outlook-0
Beijing put effective today, at least so far.. a smallish pull-back for Gold and those deep deep Chinese pockets came up trumps again....whilst all else was tumbling, Gold held up and for lengthy periods was the only blue on the screen..
Cant see any 'busts' Robo...!
Have you read Naomi Klein's "Shock Doctrine"? Pay close attention.