Not All Prayers Are Answered Affirmatively

Tyler Durden's picture

From Mark Grant, author of Out Of The Box

Not All Prayers Are Answered Affirmatively

“As long as there are tests; there will be prayer in schools.”


                          -The Wizard

Because I pay attention to these things; I have the sense that there has been a lot of praying recently. Prayers for QE3, prayers for Quantitative Easing mortgage bond buying, “Please SIR;” and for words to the effect in each and every FOMC minutes that “Money will be printed forever and ever Amen.”

“Now I know I'm not normally a praying man, but if you're up there, please save me, Superman!”


                          -Homer Simpson

Now I hate to do this to you and I feel like the bad boy with the pin about to prick someone’s bubble but these prayers have gone unanswered as you know and are not likely to be answered any day soon unless Europe goes up in pixie dust which, while certainly possible, will be far more serious for the markets and will more than offset the Fed dragging out their printing presses and plugging them in once again.

The Ten Year Treasury Auction

Yesterday’s ten year auction was slightly on this side of strange or perhaps weird and requires some explanation. Somebody, somewhere needed good collateral and in size and was willing to pay almost anything to get it. The average yield of 1.459% was a record for the auction as well as the spread to the “when issued” yield which was also a record. In case you are wondering about the demand it was 3.61 which was the second highest on record with only the April 2010 auction beating it at 3.72. Interestingly enough the Primary Dealers only took down 14% of the auction which was a record low in recent years while the “Direct” bids scooped up a record of 45.4% of the bonds as they submitted $16.9 billion in bids. Further only 51.7% of this Dutch auction came at the high yield while the low yield that got bonds was 1.36%. I think it is a high probability that a lot of the demand was European money which is why everything was askew. With the ECB paying ZERO for short money and the short bonds of Germany, France and the Netherlands in negative territory there is now a vast increase in demand for Treasuries which, while not paying much, at least pay something and you may expect the demand to continue. I am on the record calling for a 1.25% ten year and we may go through that now. The European Central Bank’s move to zero short rates was done in the hopes of encouraging lending but that is not the likely result. The move by the ECB will push money into Treasuries and other “riskless” assets as Grant’s Rules 1-10, “Preservation of Capital,” continue to operate where keeping one’s money continues to be more important than the return on one’s money so that the downward pressure on Treasury yields continues.

Finding Yield in these Markets

Quite some time ago and repeated for a number of times since; I have said that I would stay in Treasuries and buy certain corporate bonds for yield and pare back or remove myself from the equity markets. The bond concept has worked fine while equities lingered but, when questioned about this, I stated in my commentary and in the media that I thought the bond markets were leading the way and equities would catch up which they certainly seem to be doing. Europe is in a recession and the infection is spreading both to America and to Asia and corporate earnings are just now reflecting the results.

Recently I worked with a client to build a new bond portfolio and I stuck to my guns and waded into the financial credits to find yield. Here I have been quite specific about what should be bought; American banks, British banks and various other Dollar financial names when they can be found. Depending upon your risk appetite you can get yields that are more than 6.00% and in some cases 8.00% and still sleep at night. Many of the Hybrids/Trups have been tendered for and the ones remaining present good value in my opinion as cheaper funding is obviously available these days and the use of these securities for capital is no longer allowed. I favor credits like Bank of America, Citi, JPM, Barclays, RBS, Lloyds et al. In my mind the banks of America and Britain are miles away from the European banks where I see such a large amount of risk that I cannot suggest them to anyone.

As a matter of the data to date the U.S. banking sector has outperformed every other sector in bonds this year according to the Bank of America/Merrill Lynch Index. The return for dollar denominated banks has been 8.1% versus 5.4% for non-financials. Bank debt has actually been declining this year for the first time since 1991 while new capital has been raised to comply with the Basel III regulations. In fact, corporate bank bonds have returned almost twice as much as equities this year while remaining much higher up in the capital structure which may prove to be quite useful as the situation in Europe continues to deteriorate. The American and British banks have more liquidity and less leverage than at any time in a number of years and for those of you that continue to be light in this sector I think you should re-look at your asset allocation models.

The play continues to be out of Europe, out of Euro denominated bonds, out of European sovereigns, out of European banks and into Treasuries and American and British banks as the compression will continue in my view.

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GeneMarchbanks's picture

The play continues to be out of Europe, out of Euro denominated bonds, out of European sovereigns, out of European banks and into Treasuries and American and British banks as the compression will continue in my view.

Keep telling yourself that. Nothing wrong with a little self-deception.

HurricaneSeason's picture

Yeah, adding a trillion or two to the debt ceiling shouldn't be a problem, unless congress quits and goes home. What are the odds on that? 2 to 1, I'd guess.

TruthInSunshine's picture

Our Fractional Reserve Prayer


Our Fed Head, who art in Eccles
Hollowed be thy Name.
Thy CTRL+P come.
Thy will be done now,
As it was post-Waterloo.
Give us this day our daily fiat.
And forgive us our snarkasm,
As we forgive Liebor-ous Banksters that trespass against us.
And lead us not into inflation,
But deliver us from debasement.
For thine false GDP growth is the thiefdom,

The MMT, and creation of debt,

For ever and ever.


death_to_fed_tyranny's picture

Please God. May you smite the Satanic moneychangers quickly and painfully as to bring this earth into your realm of peace and harmony. GOD BLESS!

Cathartes Aura's picture

if you want "this earth" to head for the god's realm of "peace and harmony"

I believe it has to die before that can happen - isn't that how the story goes?

"earth" has never been peace-full nor harmonius, in all its life.

HurricaneSeason's picture

I'll bet money on that. The tea party wont get hosed again. They'll want hundreds of billions of actual annual cuts this time or they'll only raise the ceiling hundreds of billions(Especially if Obama gets re-elected).

Ivanovich's picture

Or, you could enlighten us to your view of what we should expect.  You know, rather than just leaving sarcasm :)

The Final Countdown's picture

Expect lots of summits, lots of 'big steps forward' and lots of can kicking out of Europe. In the mean time the US will hit the debt ceiling, Obama will be re-elected, and the US economy will continue moving down. What this all means I don't know, but I'm pretty sure the 'get out of Europe' trend will reverse before the end of the year.

GeneMarchbanks's picture

If you can't spot the blatant dis-info in sentences like:

The American and British banks have more liquidity and less leverage than at any time in a number of years and for those of you that continue to be light in this sector I think you should re-look at your asset allocation models.

then I can't help you. But maybe Grant can, after all his message is always the same, no matter the money flows.

johny2's picture

Selling treasuries and british and american banks is like selling seats on the rising deck of the fast sinking ship. Great business, until the moment deck joins the rest of the ship underwater.

johny2's picture

TRANSLATED: Everyone remain calm, we can print our fiat currency faster.

zhandax's picture

I thought he had nicely staked out the case that the run down Exter's Pyramid had started when I get blindsided by a veiled ABA ad.

TaxSlave's picture

Anyone who thinks slavery-bonds based on the premise that I will pay them later are "good collateral" is definitely going to get part of what they have coming to them.  The part they are definitely going to get is that they will lose every fucking dime they loaned to the drunken human farmers who presume to pledge my future toil as their 'security'.  The rest of what they have coming to them, they can probably escape as long as they stay out of range.

I love the 'rising deck' visual, johny2.

johny2's picture

to be honest, I am not sure of what is going on in this world. and that is after years and years of research. but one thing I am pretty sure of, is that giving out reserves in exchange for IOU-s is a bad idea.  

Thisson's picture

Agreed.  Anyone investing in these debts is picking up nickels in front of the steamroller.  What's the US debt now, like $150k per person?   And the average income?  There's no will to pay it, and even if there was a will to pay it, there's no capacity to pay it.  What's more, this default cannot be far away given the rate that our expenses are increasing compared to our income, and how large those expenses already are.

Bank of America?  Please.  That bank is DOOMED to failure.  Look at its capital ratios.  Now consider how many 2nd mortgages they must own that are literally worth nothing because they are on homes with underwater first mortgages.  While all of this is still marked to unicorn on the balance sheet, it's not cash-flowing and that means that the day when unpaid creditors drag BOA into bankruptcy court is coming...

SheepDog-One's picture

Everyone quick RUN to 'safety' of US Treasuries!! 

Yea sure, you'd have to be insane.

Melin's picture

please 'splain what you find in error.  My gold-loving financial advisor has been saying the same thing for about 6 months. 

emersonreturn's picture

i'm beyond thick, i freely admit, but why if someone needed collateral so badly and were willing to pay anthing--why not simply buy gold?  (covertly or openly)   to play it out so openly, sp badly makes no sense, can someone explain, please...?

smiler03's picture

Because gold can go down as well as up (except in the ZH world of course).

emersonreturn's picture



thank you, yes...better than gambling on the end it may be interesting to see which play would have proven the sager.  thank you, again.

SheepDog-One's picture

Please sirs, we waifs be but skin and bones out here! Cant we poor ol stawk investors have some more porridge? Maybe with a bit of sausage, please?

EL INDIO's picture

Be diversified and you will sleep well.

50% gold/50% USD



or any weighting that feels comfortable to you.

JackT's picture

100% gold feels a bit more comfortable. 

EL INDIO's picture

You might need some cash to for your daily expenses or in case of an emergency or to add to your Gold if/when prices go lower.

Don’t you?

GubbermintWorker's picture

And I think 45% gold, 45% silver and 10% Cash, US Dollars sounds good.

GubbermintWorker's picture

And I think 45% gold, 45% silver and 10% Cash, US Dollars sounds good.

battlestargalactica's picture

5-10 acres of raw land farther than half a tank of gas from major metropolitan areas with a good shallow water table is also worth considering.


Sudden Debt's picture

and the euro is dropping like there's no bottom on the ECB cut to zero...

1.21 and going...


Jim in MN's picture

Aye-aye, cap'n.  DIVE!  DIVE!


The ICE dollar index DXY +0.33% , which measures the greenback against a basket of six currencies, rose to 83.72, its highest level in nearly two years and up from 83.54 in late North American trading Wednesday.

Sudden Debt's picture

1 out of 2 young greeks (18-30) is unemployed....

more austerity needed?


Moneyswirth's picture

That's the perfect brew for a violent revolution.  If the Greeks weren't so damn lazy. 


Thisson's picture

Cut them some slack - it's very hot there!  You try protesting in this heat!

LoneStarHog's picture

Well, at least they still use conventional mathematics.  In the USSA that would be, "2 out of 1 young Greeks"...

aleph0's picture



Industy produktion data for the DF'PIGS for May 2012

Bases : Yr 2000 & 1995 

D'eutschland was not G'reece based on 2000
D'eutschland was not I'taly based on 1995

SheepDog-One's picture

I was scanning the article and caught 'Lynch Index'....knew it had to be too good to be true.


Martin Silenus's picture

"If the Bible has taught us nothing else, and it hasn't, it's that girls should stick to girls sports, such as hot oil wrestling and foxy boxing and such and such."

Bastiat009's picture

Will gold be worth more than my home if the Fed stops pumping?

Will stocks keep outperforming PMs?

Will treasuries be seen as safer than PMs for much longer?

TheCanadianAustrian's picture

Probably not, not in the long run, and nobody knows.

Peter K's picture

Couldn't have said it better myself. :)

Jim in MN's picture

If you want to make God laugh, tell him about your plans.


--Woody Allen

WmMcK's picture

“I believe there is something out there watching us. Unfortunately, it's the government.” - W. Allen

agent default's picture

They will print, they are printing right now in fact.  How do they keep interest rates so low without the FED being in the market?  It is just that unless they come out and say it in the open, nobody seems to realize they have been printing, which tell you a lot about the collective intelligence of that thing we call the market.

I think the reason they are doing it in such a stealthy manner is because QE turned out to be so politically charged the last time they did it.  They certainly don't want that on an election year, so they will just wait for things to deteriorate a bit further and then they hope that everybody will be begging for the FED to ease further.  After the elections that is.

Aside from the politics though, how does the US intend to pay for its existing debts and unfunded liabilities? We cannot grow (in real terms) our way out of this.  We certainly cannot go on extending and pretending for much longer. And we sure as hell cannot restore our manufacturing base to the levels required to sustain this debt.  At least not within the next five or ten years.  This is what I think will happen.  Either they will QE after the election, in one way or another, or just say fuck it and devalue outright. 

TaxSlave's picture

It's only about a Quadrillion in disappeared 'value' (which was fake to begin with) they have to paper over without anyone noticing.  As long as it's kept quiet, the herd won't stampede.  Right?

Thisson's picture

They dont intend to pay.  They intend to default - whether outright or by printing remains to be seen.

agent default's picture

Out right default will trash the Dollar just like printing will, but overnight. 

Dead Canary's picture

Praise be to the Bernank. May he ease for a thousand years.

"Ease be with you my son"

Jim in MN's picture

The Thousand Year Inkreich.  That sounds about right...(checks watch)...that would make the bunker suicide about 2015.  Give or take.