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Theme of the Day: Massive Deficits, Debt Overhang and Rising Bond Yields
The theme of the day is the horrible U.S. fiscal outlook, massive debt overhang, and rising bond yields.
Alan Greenspan told Bloomberg:
The
recent rise in Treasury yields represents a “canary in the mine” that
may signal further gains in interest rates.
Higher yields
reflect investor concerns over “this huge overhang of federal debt
which we have never seen before,” Greenspan said in an interview today
on Bloomberg Television.
“I’m very much concerned about
the fiscal situation,” said Greenspan, 84, who headed the central bank
from 1987 to 2006. An increase in long-term interest rates “will make
the housing recovery very difficult to implement and put a dampening on
capital investment as well.”
The Wall Street Journal provides some perspective:
The
move up in [yield] coincides with the impending end of the Federal
Reserve’s program to support the mortgage market. The Fed has bought
$1.25 trillion of mortgage-backed securities, bolstering their prices
and thus holding down their yields.
In
just the past two days, the rate on 30-year Fannie Mae mortgage
securities has risen to 4.5% from 4.3%. Once fees by lenders are tacked
on, this means mortgage rates above 5%. Thomas Lawler, a housing
economist, says some bigger lenders have already raised rates. Some
were quoting 30-year mortgages at 5.125% Thursday morning, up from
4.875% earlier in the week, he said in a note to clients.
Concerns
about the U.S. budget deficit are beginning to hurt the Treasury
market, said Steve Rodosky, head of Treasury and derivatives trading at
bond giant Pacific Investment Management Co. He said he is increasingly
worried about the U.S. fiscal outlook.
Business Week notes:
Pacific
Investment Management Co.’s Gross, manager of the world’s biggest bond
fund, said yesterday in an interview with Tom Keene on Bloomberg Radio
that “bonds have seen their best days.” Pimco, which announced in
December that it would offer stock funds, is advising investors to buy
the debt of countries such as Germany and Canada that have low deficits
and higher- yielding corporate securities.
Here's a chart showing 10-year treasury yields over the last month, courtesy of Joe Weisenthal:
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actually what's interesting is how many institutions and people have bought the "Depression 2" clap trap. What to do now that they've been wrong all along? Sorry but I don't see big winners in some "thievery" sense but i sure see a few whose names were never known even during all of the 20th century (John Paulson comes to mind.) Indeed while i like the comparison to the collapse of the Soviet Union--was it the commisars who ultimately succeeded? not at all. the billionaires from Russia came from outside the system and not from inside at all. That goes a long way towards explaining why America's "financial capital" is everywhere BUT Washington. The "system" is designed to create monied interests outside and amazingly more often than not opposed to "the central government." 200 years of not having a central government will do that. so off the "sheeple" of Washington DC run--to their DOOM because they are running off to an imploded Wall Street. Amazingly not even the head of the central bank get's it. Indeed, he appears to be one of the great "destroyers"! We've always had cynics in the USA. But right along side for the past 50 years we've had something even more truthful--comics. Of course "the cynics" don't "get it" because the truth is far too simple for them.
Remember, the bond market is smarter than the stock market....
Unless you have the printing press, LOL.
One "massive" black op cyber attack and the balance sheets will all be wiped clean. Nobody owes anybody anything. soon check?
I think this higer yield spike is the result of obamacare expected ??? $trn more spending, I am not good at $trn deficit maths but since most of the world is in deficit spending mode, Who has the money to buy this exploding debt IOUs? I guess the fed may need to blow a TBTF bank up to crash the markets to get some funds into US debt to keep yields down, This will work but the damage this will do requires more spending, I am concerned and watching closely and in early April I am closing some profits to safety.
Argentina, Iceland model:
Load the nation or its banks up with debt via your cronies and proxies. Force them into default. Get them to sell you the national assets and pay rent. Repeat.
This is the British Imperial Model run by the BOE. It's the same scam that all banksters have been running for centuries. Only now, it's like you're liable to the smith for a note and he never had the money in the first place.
It's not because of fractional lending that the banker clan is hated, it's because of that plus running defaults and ending up owning all the collateral. What a COMPLETE scam. Lend money you don't have and end up with real property.
Great point, and there is no end in sight. We also have the Govt IRA/401k program to look forward to...Very tempting to cash out of all that crap, or just wait so they can tell me when to spend it, at what increment, and tax the crap out of it. Sorry boys, you're done.
Got rid of my IRA in 2008, paid my taxes & penalties.
I sleep better with my gold & guns.
FWIW, to me it's obvious Enron wasn't a one time deal. You got europe fessing up too off balance sheet crap in Italy going back to 97, and Greece 01-02, plus Lehman is basically Enron all over again, you can see at least imho that is the contagion, it's everywhere, meaning you're sound and whole as long as you have two sets of books, which is now condoned by the gubment cause that's how they run things themselves, it's called follow the leader.
IMHO, europe will lead us all down, the contagion that lights the final fire, Trichet ain't stupid, basically if you can't trust each other guys, who will you trust, and who will trust you. They blew it.
Sure seems to me a lot of warning signs are popping up on the 'All is Well, Buy More Stocks' highway, but Im sure the Pumpers Without a Clue at the FED have decided the best course of action is 'floor it' Thelma and Louise style ending.
When You're 84
Alan Greenspan is now a very old man. He's had more than his share of days in the sun and should now simply exit the public stage. Andrea Mitchell desperately needs to tell her husband that it's high time to retire.
Clown.
http://3.bp.blogspot.com/_H2DePAZe2gA/S60l8HATYTI/AAAAAAAAMRQ/v7zJgwqg1W...
Cannot wait to hear about the next bank problem, whatever they're crying about will be quickly taken care of by the govt.....pathetic
The bereaucracy will expand to serve the needs of the expanding bereaucracy...
Perfect Storm Checklist:
China bubble being exposed ,Check
Jobless continually up,Check
Wall St running out of BS to prop it up: Check
Housing defaults non stop: check
Foreign economies teetering, check
Reality still obfuscated by greed, check
Did I leave anything out?
If Wall Street looks forward ,to what? To the day that they have lost all their poor investors money just so they can play out this blatant Ponzi in a suit while the Titanic sinks?
The Madoffs of the world are united :check
Did I leave anything out?
Corruption at the highest levels out from behind the curtain in a last mad orgy of fighting over the corpse, check.
DJIA, S&P500 and NASDAQ lose 40% from current levels? - not check yet...
Strider,
"Did I leave anything out?"
What about Treasonous Fraud, check.
People downloading guillotine plans and setting them up on Wall Street.
Almost check.
Now Alan Greenspan is concerned about the fiscal situation?
Where was his concern when he was pumping the money out?
As long as peoples buy Coach handbags and shoes we'll be okay.
Deficits don't matter
- Dick Cheney
Dick Cheney doesn't matter
- Barry O
Nothing matters
- Sartre
Men don't matter, but screwing Sartre is OK
- Simone deBeauvoir
LOL!
Great comments Carl and SWR!
The only question I have at this point is which act of speed will break the sound barrier first? The hands of Bernanke and Geithner playing their shell game, or the hands of the clock?
http://www.usdebtclock.org/
Well, so much for the end of QE.