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The Last Ponzi Game
The Last Ponzi Game
Courtesy Lee Adler of the Wall Street Examiner
This is an extended excerpt from the WSE’s Professional Edition.
A heavy Treasury auction schedule with a big settlement on Thursday was enough to contribute to keeping stock prices (SPX) in check this week, but not to knock down Treasuries. Demand for US Government paper is so great it simply engulfs even heavier than expected levels of new supply. The massive capital flight out of Europe is now confined to the only game in town, the US Treasury market, the last great Ponzi game still operating.
This won’t end well, but it won’t end until it ends, and the technical signals suggest that won't be in the short run. Yields appear to be still headed lower, and that’s bad news for stocks given the recent correlation between lower yields and lower stock prices. As I’ve illustrated in the accompanying Fed Reports, there isn’t enough liquidity to power both markets toward higher prices simultaneously. It’s either one or the other. Eventually I expect a shortage of liquidity to negatively impact both markets, but we’re not there yet.
Withholding tax collections remain weak, and the government continues to need to raise substantially more cash than the TBAC had estimated it would need. That means that the economy is significantly weaker than government forecasters had foreseen just 6 weeks ago when these estimates were issued. The clues were available in the data at that time and I correctly guessed that the auctions would begin to balloon in size. Normally this would be problematic for the markets, but not in the current environment.
At the same time, foreign central bank purchases of Treasures have fallen off a cliff. Again, that would normally be extremely problematic. But it just doesn’t matter because panicked institutions fleeing Europe are like the Coneheads consuming mass quantities of all available US Treasury paper. In fact, the demand is overwhelming the massive supply. Tidal waves of panic capital flight have been flooding into the Treasury market in never before seen amounts, both in terms of the indirect bid and the bid by Primary Dealers, of whom 1/3 are European banks.
The panic buying has been concentrated in the 4 week bill, but there was also a jump in the bid for longer term paper, particularly the 10 year note (TNX) this week. The 4 week bills are where the real panic is. This is short term cash looking for a safe place to park. At the same time, the increase in nervous buying is pushing out on the curve enough to continue to push yields down for a while longer. It’s also pushing the dollar higher. The dollar (DXY) faces a critical test at 82.
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Pic credit: Sox First
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God how I wish that 'street' 'progressives' would understand the money game. ilene post some good stuff. Methink's that the solution to our hegelian dialectic trap may be for 'progressives' at the street level to learn real economics rather than keynesian magical thinking, regime economics. Conservatives could then stop trying to force their definition of morality onto everyone else and what do we have?
Libertarians.
And a much better world.
The progressive love their shiny marxist muslim.
I finally figured out the problem with almost all mainstream economic analyses nowadays --- no Conehead references.
Sometime in 2015, "You want a marign account!!? Bwahahahahahhhaha."
as little Suzie asked the Headmistress: "Mrs. Smythe, how do you make it last that long?" - Ned
We're not getting to 2015 - the Iran War oil spike, mid- to late-2012, will burn up the dollar and all dollar denominated paper. No doubt there are some idiots in DC who think they can zap Iran before it can close the Hormuz Straits; same types who thought they could do Castro with 200 clowns and a B-26.
When the Bond Bubble meets The Pin, it will be disastrous.
Naw..It'll be like lancing a boil. Lot's of puss, blood, and momentary pain....as in
Mass demostrations, food riots, and general mayhem....but those who are properly prepared by owning gold, silver and plenty of ammo will do fine.
Bring on that PIN!!!
All I could picture while reading this was the roll spinning, faster and faster, as the Conehead swallowed the toilet tissue. The trap is sprung. When the ratings agencies downgrade the U. S. , it won't matter. The Bait-And-Switch will have done it's job, and the hustlers will be sitting on a beach, with an umbrella drink.
http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/
'Eventually I expect a shortage of liquidity to negatively impact both markets, but we’re not there yet.'
Shortage of liquidity?? I suppose that depends on whom you are talking about. Maybe me? If you are talking about units of fiat, I do believe there is more than enough, it's just that the powers want to lock it up in garbage bags such as gov IOU's to keep themselves on top and the hungry grubbing for it.
Isn't it great? After the pile on in US debt is over...where will they run? Ah yes, the last asset class worth something. Front run these bitches. Buy gold and silver now.
Isn't it amazing?
It's like people transported to the story of the three little pigs and knowing how the story goes and leasing an in-law apartment in the house of straw, then after that gets blown down going over to the house of sticks instead of straight to the one made of bricks.
What in the world is qualitatively different between EU debt and U.S. debt? Neither will ever be paid back.
Apparently some people are just not mentally nimble enough to ever question the ponzi paradigm.
At least currently, the US will be paid back in devalued dollars. The EU debt is more at risk at default while the politicians there try to make a ficticious economy grow the old fashioned way - reduced govt spending. Won't happen.
There used to be a riverboat gambler by the name of Canada Jim. Jim was a degenerate gambler and a cheat. Once, he was so starved for something to do, he entered a game of chance with strangers. A friend, knowing the game was crooked, warned him so. Whereupon Jim exclaimed this famous phrase: "I know its rigged, but its the only game in town".
"Canada Bill" Jones, not Canada Jim:
http://en.wikipedia.org/wiki/Canada_Bill_Jones
I'll have my Canada dry please. And leave Wild Bill to Jim.
That CS'er Canada Jim was a pikey/gypsy/gippo/traverler/romany piece of sh*t.
treasury paper is a place of refuge? good grief.......
Another reason they want metals to whipsaw - it helps insure demand for 'safe' treasuries.
KOO KOO for QE QE Puffs
+100
« You really believe that QE to infinity is not coming? »
- Jim Sinclair, Mineset, 17 December 2011
Sure seems unanimous around here, but you are all wrong.
No, QE(x) is not coming! There won't be inflation, there will be EPIC FUCKING DEFLATION!
Only in your dreams, you clueless, clueless idiot.
You obviously know NOTHING about financial and monetary history, and the inevitable currency debasement pursued by ALL governments stuck in steadily rising overspending and debt. Go ahead, do some reading on the subject --- it's so easy to understand, even a caveman can do it --- but not, apparently, those infected by Keynesian delusions.
I guess I goofed up when I bought TBT expecting "rational markets". Some day rates will have to go up.......right?
People who don't believe that have a psychological problem.
QE X will come when it is necessary. At the moment, the Fed is stoking inflation, the equity markets are in la-la land all along with moeny pouring into Treasuries. QE X will achieve nothing positive but run away inflation then. When the markets all crash and the dreaded deflation appears, the printers will fire up. Until then, don't expect any more Bennie bux on a mass scale.