As Bonds Are Proven Right Once Again, Is 400 The Next Stop For The S&P?

Tyler Durden's picture

Once again it seems Japan has a lot to teach the Europeans and Americans of the unstoppable reality that bond markets again and again are "correct in the 'end'". As risky- and 'non'-risky-assets become more scarce (thanks to a central bank bid to monetize or collateralize any and all of it), so equity (and risk) markets become more and more distorted - temporarily suspending normal market relationships - until something triggers the reversion to reality. We discussed regime changes in detail regarding gold and bonds over the past 40 years in the past, but the US and European 'survival' tactics appear to be accelerated (and larger) versions of Japan's balance-sheet-recession-fighting game-plan. Their analog, therefore, provides defensible insight into the bond market's anticipation and equity market's inevitable confirmation that it's not different this time. The question we ask is this: "when TOPIX was at 1800, and JGBs implied it 'should' be 1000 (in 1999 and 2007) - how many people said it was 'different' then?"


Japan's 10Y JGB yield vs TOPIX - hope cometh slow and fadeth fast...


US 10Y vs S&P 500 - we have seen one 'hope' era fade back to bond's reality; will it occur again?


and will the German DAX (relative to Bunds here) also revert back to reality?


We assume the answer is 'but, but, but, it's different this time'...


Charts: Bloomberg

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bob_dabolina's picture

A bond is worthless without trust, trust being a commodity losing ever more value.


Cotton Traders May Have Reneged on 20% of Contracts, WSJ Says:

Cotton traders may have reneged on or rewritten 20 percent of contracts since 2010, worth as much as $12 billion, the Wall Street Journal said, citing Terry Townsend, executive director of the International Cotton Advisory Committee.

In this day and age no one gives a shit about property rights, repaying a mortgage or student loan, or respecting contract law of any kind. It's no wonder society is denegrating to it's lowest common denominator.

Change We Can Believe In.

FL_Conservative's picture

I got "change we can believe in".  Buy PM's.

CrashisOptimistic's picture

They just don't have any value in the world coming.  

Oil scarcity defines the world coming.  That means food transport can't be more than a few miles.  Gold just won't be interesting to people who live farther than that from food.

I know the gold folks here are focused, but they just haven't thought it through to the post Peak world.

AlphaDawg's picture

Technical Analysis, blah blah

thepixelpusher's picture

There is no peak oil. Russia pumps the most oil out of the ground now thanks to deep well drilling. BP tried it in the Gulf and the pressure got away from them. They are trying it again in Alaska. There will be no shortage of oil, except that maybe it will be artificially held back until the oil companies get the price they want. Gold is and always will be precious in tough times followed by food and energy.

CrashisOptimistic's picture

You might want to study up some on Russian drilling.

Their presently producing wells have an output rate declining about 9%/yr.  That's what happens to wells that have been outputting 50 years.  They do a death spiral.  

Russia drills 6,000, repeat, 6,000 wells every year to try to cut that 9% number back.

There is a word for that drilling.  That word is "frantic".

If oil was abundant, there would be no need for Russia to do deals with Exxon to drill in the Arctic.  They could just sit back and let the presently flowing wells continue to flow at present rates forever.  The fact that they don't do that says those wells are in fact in decline.  Every one of those new 6000 each year starts to decline after just a year or three.  Those 6000 each year then start to sum all those declines and new discoveries simply can't overwhelm that summed decline.

This is what "frantic" does.

thepixelpusher's picture

The easy to get to oil is declining, but deep well drilling will more than make up for it in the long run. Oil is not scarce and the ability to get to the deeper oil is developing. The Russians are consulting with Exxon principally because they've done deep well drilling longer than anyone and know how to handle the excessive pressures that can be expected at those depths. That cooperation is a good thing. Deep well oil is not scarce and we've not even begun to tap that. Don't react to the propaganda, the facts say otherwise.

LawsofPhysics's picture

Sure, it will "make up" for some of the lost oil production.  But is will be exponentially more expensive.  There are numerous reasons why delivering that oil is considerable more expensive.

now tell me, what are wages looking like again?


thepixelpusher's picture

The tehnology being used on these new deep wells is incredible. The payoff and the amount of delivery far exceeds the costs. That said, I still think the oil companies will still have high costs in the near term before these technologies become more common. We are in a new era in oil production with the deep wells, but I agree for now the costs will still be much higher to our pocketbooks. 

thepixelpusher's picture

Doug says the "easy to get to oil" is declining. On that I agree. He's not talking about getting to the deep well oil, which is abundant but harder to refine and get to at this point. Technology and procedures will lead us to getting to more of the deep well oil. Oil is not scarce, just our abilities to get to it easily. Obviously we've picked most of the low hanging fruit and now we'll work just a bit harder to get the resources.


Quoted from your link:

"Peak Oil doesn't mean we run out of oil – only that the cost of production, which now often runs about $40 per conventional barrel and up to $80 per unconventional barrel, all-in, is never going back down to where it was. "

Doug Casey

FMR Bankster's picture

Casy has it right. No such thing as peak oil, only peak oil at a certain price level. We're way past peak oil at $50 a barrel but not at $150. And we'll never run out, the price will simply rise to a point where it's uneconomic to use it anymore.Then we slowly (probably over several decades) move to other energy sources.

Freddie's picture

BP tried it in the Gulf and the pressure got away from them. They are trying it again in Alaska.

Stuxnet for the islamic to shut down drilling in the Gulf for his Saudi backers.

FL_Conservative's picture

And how are you going to pay for your oil?   Uh....Uh....Uh....   Yeah, I thought so.

CrashisOptimistic's picture

Pay for it?

Why would you pay for something you cannot have?

OpenThePodBayDoorHAL's picture

Yes but...yes but...if the prices of both (equity and FI) are manipulated and fixed by central planning, then which is more reliably "right", or at least "right" on the ZH timeframe? With ZIRP/NIRP, bonds could be "right" for a long time to come. But equities, for the moment anyway, are bid by the Chairsatan.

Going higher in the capital structure has been the traditional response...except if you're a GM or Greek bondholder that is.

Christ I think I'm concluding that I should dig up my front lawn and plant potatoes...

LawsofPhysics's picture

Don't dig up anything.  trash can potatoes are much easier.  Take an old trash can, put about eight inches of soil in the bottom with a spud, water and add soil as the spud grows.  withing six months you will have a trash can full of potatoes.

MiltonFriedmansNightmare's picture

Potatoes? Go with soybeans. The Chinese are in dire need.

RockyRacoon's picture

Trash can taters -- great idea.  With some caveats, hints, and suggestions:

akak's picture

We should have guessed that your ears would perk up as soon as the talk turned to food in garbage cans, you trash night curbside hooligan you!

RockyRacoon's picture

Sho 'nuff!  Best of both worlds!

Arnold Ziffel's picture
UPDATE 3-Chinese buyers default on coal, iron ore shipments-trade


May 21, 2012|Reuters
[BTW, this was also reported here on ZH.]
LawsofPhysics's picture

Shit gets real when real goods and services stop crossing borders.  Same as it ever was.

Quinvarius's picture

There is a lot more there than the WSJ would put out.

Some of these grower hedges and contracts were probably written by now dead or BK people thanks to Monsanto. 

Bananamerican's picture



 The Vidarbha Janandolan Samiti farmers advocacy group has approached the local state Govt. of Maharashtra to arrange a high level probe of all complaints received from farmers of west Vidarbha where more than 10,000 cotton farmers have committed suicide since June 2005 after the introduction of the killer Bt cotton seeds in this region.    Monsanto officials beaten up by Cotton farmers as Bt.cotton seed failed


"When news of a Monsanto senior official's arrival from Mumbai reached the nearby village of Munjala, cotton farmers of the village Karanji, about 140 K.m. from Nagpur located the Monsanto official and took him to their field where a complete failure of ‘Paras Sudarshan’ Bt cotton seed was shown to him.

When the Monsanto representative failed to admit the lapse, he was severely beaten up by the farmers.

It was reported that even a local agriculture officer did not come to his rescue."


es verdad?





sessinpo's picture

I agree with you except for the last line as I don't see the tie. I would agree that Obama reinforced the lost in trust and rule of law through various acts such as the GM bankruptcy bailout. But I can't say that wouldnt' have happened if Obama wasn't President. That would be making the same FALSE argument that democrats use saying they saved  X number of jobs with the GM bailout. But you can't prove that, you can't prove a negative. Who is to say that if GM had gone through a normal bankruptcy, some other company wouldn't have bought the assets and hired many of those workers and dispensed with the pensions that could still take the company down. And I am totally against Obama. Never voted for him, never will.

ar01's picture

Holy shit. 

1) S&P 500 will never hit 400. We'd be crtl+p'ing it back up. Whatever it takes -- too much money is tied to S&P500 performance. 

2) How much worse than 2008 would this be? Who on the street would even survive that much of a fall?

LoneStarHog's picture

It certainly is possible, and much lower.  If the U.S. Peso collapses there will be a panic to pull all remaining so-called money from the markets and put it into hard assets.  It won't matter if Bernanke is Ctrl+Peeing himself to multiple orgasms.

ar01's picture

...thanks for the imagery! I still think Tyler's "Federally-Issued Toilet Paper" is both the most derogetory and clever way to describe the "US Peso".

ozziindaus's picture

I dont' get it. So you're saying assets collapse and people start pouring more good money after bad? How did that work out during the recent housing crash? I think your argument is based on the bad assumption that the FR will destroy itself in the process. 

The Great depression was a good time to have cash and a great time to buy assets WHEN THEY BOTTOMED.....but it took about 20 years and a WW to recover. I see the same scenario unfolding. 

My target is a '94 512TR for <$40k. If that's not the bottom, at least i'll be a happy cruiser. 

LoneStarHog's picture

Where did I say that "assets collapse"? I said the collapse of the U.S. Peso, which will mean any paper so-called asset, which are not hard assets.  No matter what happens to the U.S. Peso a hard asset will always have value, just not denominated in U.S. Pesos.

During The Great Depression the U.S. Dollar was backed by gold, and people knew and understood this; even though it was no longer convertible as of April 1933.  People understood gold and understood that their money was backed by gold.

ozziindaus's picture

Don't you think there will be a correlation between the equity markets and hard assets (assuming you mean houses, gold, silver, toilets etc). Given enough time, there always is. 

Between 2006-20011;

40% housing crash

50% S&P dump

50% Silver smack

25% Gold crush

So what remained resilient? USD, US bonds. What has recovered since? Equities and a light sprinkling of Ag and Au. Do you think you will be better off repeating the same mistakes? 

PS Gold backing means nothing. $'s can still be devalued and the so called treasury gold (really FR gold) is never in the publics possession. 

LoneStarHog's picture

Why do you assume that there will be "equity markets", or formal markets of any kind? Why are you attempting to use historical data that would possibly have no relevance to such a unique situation as a total collapse of the Reserve Currency? The U.S. Dollar did not collapse in The Great Depression. Why do you reference the "crush" of gold, which was paper gold?  If the U.S. Peso collapses, all the paper gold, derivatives gold, etc. will have no value.  Physical gold would finally be freed from all the paper fraud. Silver the same.  The point being that one must stop thinking PAPER.

ozziindaus's picture

I think you're making the biggest assumption here and that is the USD will collapse. I totally disagree with you there but that's OK. 

Convertibility of physical assets is still important in regard to valuation. Your one ounce of gold and silver is still that but how do you evaluate its value? Unless you plan on holding them forever and risk another beating (only my opinion), then they will need to be converted (liquidated) some day otherwise they will always remain weights and masses. 

LoneStarHog's picture

It is what you either don't understand or refuse to acknowledge:  Gold & silver are money

ozziindaus's picture

In what world? Trust me i understand the concept of money but more importantly, I understand the real market. Again, one day you will need to convert it and I don't see any time in the near future where "the market" will accept gold and silver as an equitable means of exchange. It's only my opinion. 

Don't get me wrong, I'm not a proponent of big government or the FR but I've come to the realization that it's too big to fight....for now. I think I also understand and accept it's objective and that is self preservation and protection of it's member banks. A USD collapse will wipe it out and I see no evidence that it's on its way to do so. IMO, the FR will destroy everything in its way to preserve it's largest asset, FRN's. 

Tinky's picture

China and India are already using gold to buy oil from Iran, and you don't see it as being thought of as a means of exchange "any time in the near future"?

ozziindaus's picture

Iraq, Libya, Syria, Iran......all had the same idea. Will US go to war with India and China?, maybe or better still, collapse their economies from inside out. As much as I hate the status quo, I think it will still be here for a long time to come. 

LoneStarHog's picture

There is an old saying of which I know you are cognizant:  Timing is everything.

The Federal Reserve was established in 1913 with a one-hundred year charter.  It expires next year and unless it is renewed the Federal Reserve goes into history's dustbin.

All polling of the American people indicates that they want the Federal Reserved abolished, even though the vast majority can not intelligently explain it nor its so-called monetary system. There is no way that Congress can renew its charter. So, is it not interesting that we find ourselves in this monetary crisis with the U.S. Peso hated around the world and residing on the abyss?  Is it also not interesting that for all practical purposes the Federal Reserve is bankrupt, its balance sheet a friggin' disaster?

The point being is that this was all contrived/planned long ago.  The owners of the private corporation known as the Federal Reserve are well-positioned for its demise.

Timing is everything and the end of 2012 has been their target for one-hundred years.

Watch for a total collapse in October with a "postponement" (i.e. cancellation) of Elections 2012.

Just my opinion...

Backspin's picture

"All polling of the American people indicates that they want the Federal Reserved abolished...There is no way that Congress can renew its charter."

What, do you think Congress actually does the will of the people?  Nice thought, but....

LoneStarHog's picture

It was stated in the context of a U.S. Peso collapse.

cxl9's picture

Much silliness in one post. First of all, there is no expiration date for the Federal Reserve "charter". Go read 12 U.S.C. § 341 for yourself. Even if it did have an expiration, Congress would surely renew it. The Federal Reserve isn't going anywhere in 2013 or anytime soon. Second, I would guess that you haven't done very much international travelling, because the U.S. dollar is not "hated around the world". In fact, it's gladly accepted in many countries alongside the national currency (for example, in the country where I am living). It's also used as the national currency of some other countries such as Panama and Ecuador, as well as the unofficial currency in others. Significantly, it was the U.S. dollar that the Zimbabwe economy turned to using when their native currency collapsed in a hyperinflation. Yes, the dollar's purchasing power is being steadily eroded, and sooner or later it may collapse and become worthless. But to say it is "hated" around the world now is simply false. You can exchange a fistful of dollars for goods and services in more places on Earth than any other currency. I am no fan of the Federal Reserve, nor of the U.S. government, and I do hold physical PM, but truth is truth whether you like it not.

LoneStarHog's picture

1) There is much discourse by many authors, not forums/chatrooms, as to whether or not there is a 100-year expiration. Some claim that there have been so many amendments that it is not all that clear.

2) Under the circumstances of a collapse, to which I alluded, Congress would probably not go against the wishes of an extremely upset public with real potential for violence

3) I don't care if you can purchase something from a merchant in a foreign country, and it has been well-documented with reports that many foreign businesses are refusing dollars.  I am referencing the hatred at the geopolitical level (e.g. Russia, China, where decisions are made. America has abused its duty as holder of The Reserve Currency, and from that comes the hatred in wanting to replace it.

In the case of Zimbabwe, while the government turned to the U.S. Dollar, it was well documented that many refused to use it and demanded physical gold for transactions.

Try looking beyond YOURSELF!

Winston Churchill's picture

The US dollar was not the worlds  reserve currency in the depression.

The pound sterling still was,even after going off the gold standard

in 1925.Uptil WWII is still was,with a captive Empire to keep it so.

The dollar became the de facto reserve currency in 1939 and it was

formalised at Bretton Woods.

The debts of wars,WW! to start,and WWII finally killed it.Plus the demographic

shifts caused by losing an entire generation on Flanders fields.

Sound familar, or is it just rhyming.


Western's picture

government shill alert.

why would gold and silver get smacked this time around?

ozziindaus's picture

you calling me a shill? just relax with that bully tactic and read what i'm saying.....and if you think gold and silver are not manipulated, then maybe you should speak to jesse.

Western's picture

Wow I couldn't ask for a more tangental, scarecrow response. Never said Ag/Au weren't manipulated, but thank you for proving my point that you are desperately trying to hide yourself as a "pro PM poster".


yeah I am calling you a gov't shill because you're peddling a dangerous piece of info -> hold US bux.