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S&P Downgrade Only Stokes Panic into Treasury Paper
And how did Treasury paper do following Standard & Poor’s bombshell downgrade of U.S. debt? Why, T-Bonds, Bills and Notes came through unscathed, thank you. Actually, they did much better than that, rallying so sharply yesterday that one might have inferred the U.S. was the last citadel against the panic, confusion and fear that rein elsewhere in the world. Which is more or less true, relatively speaking. We hesitate to describe yesterday’s tidal surge in Treasurys as counterintuitive, however, since, officially, U.S. debt is still rated AA+. That’s a tad optimistic, if not to say delusional, given the fact that U.S. borrowing is eventually headed north of $20 trillion. How could debt not be about to go parabolic now that Congress has discovered that the debt ceiling can be raised without exacting a fiscal price, or even a political one? Even so, and as the mortgage boom/bust demonstrated, institutional investors base their allocations not on fundamentals or even reality, but on the official say-so of the ratings agencies. And although we all understand that the AA+ rating is conferred with a wink and a nod, it’s Wall Street nature to pretend to take it seriously.
Keep in mind as well that neither Moody’s nor Fitch’s has gone along with the downgrade, at least not yet. This will suffice to allow those who have been mindlessly pouring cash into the Treasury of a nation edging toward bankruptcy to credibly claim down the road that, at the time, the U.S. was still officially the safest place on earth to park one’s cash. They’ll be correct about that, too, since U.S. Treasury paper has become the only sanctioned safe haven for the very biggest money. George Soros undoubtedly recognized this when he decided to shut down Quantum. These days, it’s hard enough to preserve one’s own capital, let alone make it grow. It takes genius just to eke out a “safe” 4% return, so why should a hedge fund manager who has nothing to prove and more wealth than he could ever spend obligate himself to a bunch of uber-wealthy investors who were spoiled by the anomalously high returns that obtained prior to the Great Financial Crash of 2008-09?
A Crowded Safe Haven
Over the years, we have asserted here many times that, during the deflationary bust that lay ahead, even financial wizards would find it challenging to hold onto a small fraction of their peak net worth. Although we lacked the imagination to envision bullion and Treasury paper as the last assets left standing, we always suspected that even the very smartest of the smart money would somehow get trapped. That is now clearly a possibility if you grant that the U.S. could default on its obligations. And yes, we know that, technically speaking, because Uncle Sam can gin up as much digital cash as it takes to pay the interest and principal on America’s debt, a true default cannot occur. But hyperinflation would have the same effect, wiping out those who now cling, via Treasury paper, to the branches of a tree sprouting from the sand of a small island that will soon be submerged. The rentiers (and pension funds, and hedgies, and many others) may be dry at the moment, but the tide of debt seem all but certain to inundate them. Under the circumstances, although Gold is officially execrated rather than sanctioned, we see no reason to worry about the health of its long-term uptrend. That said, we have turned cautious on gold for the near term because the December Comex contract yesterday came within $4 of the $1728 Hidden Pivot rally target we’d been using as a minimum upside objective. If that resistance is easily brushed aside within the next day or two, however, it would be telegraphing the next big push – to $2000, and presumably beyond.
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Jim Sinclair's $1764 Angel has just been passed and confirmed. Hold tight! Hold Tight ! Hhhoooollllllddddd tight! Exponential here we come!
This is gonna be beautiful! As an "unintended consequence" of the congressional hearings, first Fitch and then finally Moody's will both begrudgingly DOWNGRADE the US as a result of the detailed information revealed by S&P. Then the markets will COLLAPSE in a final crescendo because the fucking morons on Capitol Hill! Wheeeee! This investing stuff is easy! Hats off to Mogambo!
THE S&P 500 MONTHLY CHART THAT FORECAST THE CRASH:
http://bit.ly/x618
Moody's must follow suit. S&P is now right given the immediate collapse of the US economy. I mean "this is all it took?" i can't wait for the muni defaults! DOUBLE D BABY!
This Underdog puppy is kind of a bad ass. Who knew?
Flight to quantity.
It still looks like a panic over reaction to me, most likely by fund managers who are bound by policy and terms to only a few options when taking evasive action. I sold a few U.S. Treasuries today, for no better reasons than a) the price seemed relatively high and b) I just can’t get comfortable with guaranteed negative real returns. I’m not sure what I’m going to do with the cash. I’ll probably just sit on it for a while and hope that something of real value like a barrel of oil or some farm land shows up on eBay’s half.com.
This gold rally has a long way to run.
If that was the deal this weekend to do that, then the western world is truly down to it's last 2 bullets.
CENTRAL BANKS HAVE ALL AGREED OVER THE WEEKEND TO BUY ANY AND ALL TREASURIES HITTING THE MARKET CAUSE THE FIRST WHIFF OF BOND PANIC SELLING AND THE FINANCIAL SYSTEM IS GOING DOWN...AND ALL THOSE USELESS TREASONOUS FUCKERS WILL HAVE TO GET A REAL JOB, JOIN THE RANKS OF THE UNEMPLOYED, OR GET HUNG!
.... GeT THE ROPE
Precisely, this is the only option that the central bankers have left. Keep interest rates low indefinitely, by ANY means necessary. That is the scary bit, because when the currency wars final end and good and services stop crossing boarders, well, you know what comes next.
I have a theory. You know all the stock that the Primary Dealers have been buying over the past year with their POMO money? I think the Bernank told them a couple of weeks ago to unload it cause they are about to get stuck having to buy a mountain of new Treasury paper and and roll overs here very shortly. Of course all of that selling at just the wrong time has set off a hedge fung explosion of forced selling. It also ran everybody into Treasuries at just the RIGHT time.
Another theory. Somebody just won a $10B bet on the downgrade happening. Maybe there are a lot of other bets that depend on the USA credit rating, and the losing side of those bets are selling off to cover their loses.
+1755, no wait +1756, no wait +1757...
You are right.
The timing is no coincidence.
QE2 and POMO purchases ended "officially" June 30th, 2011
Then came the "July of Great Confusion" which ended in a PD meeting on Wall Street.
There it was explained to the Dealers to unwind slowly so they would have ammo to buy the paper.
Word spread quickly. The sell off that ensued could not be contained.
There will be no QE3, mark my words. The US has just raised enough liquidity to live another decade.
Kitco $1761.60 ASK
How about this for an a/b, you have a group of people that are ignorant, trusting and think of metal as jewelry and are willing to believe the piece of paper they get from their idiotbroker. then you have people that aren't.
which group is buying bonds? right! same ones that would buy from Madoff again.
Humpty has been whacked, the eggs are in the pan, the heat is on, and this is your brain on credit.
No reason I suppose, nor any reason for any fool to pay 2 and 20 for any manager’s services either. I think even novice investors can figure out all by themselves how to buy gold and T-Bills and stuff any leftover cash in a mattress. One of the best things to come out of this never ending finaincial crisis is a constant reminder to investors, big or small, just how much they have grossly overpaid for for exotic investment advice and services in the past.
The reason for this is ver simple: If the Dollar Reserve Currency is only AA+, that makes therest of the world something less. Regardless of what the various ratings of other countries are, the US is still the ultimate safe haven, and if the world is actually that screwed, then treasuries are you second best bet, gold being the best.
Andrew Mellon. "Liquidate stocks. Liquidate labor. Liquidate farmers. Liquidate real estate. High prices will drop and so will high living. People will work harder and live a more moral life." I must say it's rather succint. No doubt where you stand with this guy. I'm trying to imagine a democrat saying this....hmmmm, hmmmmm, hmmmmm. NOPE! Don't think so. He had an interesting view towards banks as well: "weed out the weak ones." Hmmmm. that's an intersting concept. Interestingly "he was a banker himself." he was a "painfully shy man" as well. I must say cutting Social Security benefits as both parties seem to want to do is the height of insnity.
Good to see you around these parts Rick!
Yeah, he forgot that climax buying ends bull markets. That is what treasuries are doing.
A 30 year bull market will have a good blow off top.
Shouldn't the US military figure prominently in the US credit rating?
US military has garanteed collectability, now the US senate seeks to
determine rating credibility.
First time first line bitchez!