TedBits Weekly Wrap byTy Andros
There is no shortage of interesting items to choose from. The world is unraveling fast and the absurdities just keep piling up. Here are a few from the last week…
- The Wizards of LIBERTY Street
- Big Buyers in a fool’s paradise
- Is the TOP in for European Banks?
- Spanish Banks, Lying with numbers.
- David Letterman’s top 10 reasons to vote democrat
- Huckabee and the truth about the US border crisis
- The REAL cost Illegal Immigration
- Militarization of the UNITED STATES
- Honest Abe and three Benedict Arnolds
The Wizards of LIBERTY Street
Most everybody has seen the Wizard of Oz, but most don’t understand that it is a story about the removal of Gold from behind the dollar and the Federal Reserve at that time. The wizard was supposed to be the Federal Reserve chairman of that time, pulling levers on the economy and managing it from the seat of his pants. Well, nothing has changed. Fed chair, Yellen, commenting on recent legislation urging the Fed to create some rule like the Taylor rule (mathematical rule to guide interest rate decisions based upon GDP growth and inflation) to guide future interest rate decisions.
“It would be a grave mistake for the Fed to commit to conduct monetary policy according to a mathematical rule,” – Janet Yellen
Keep in mind the fed has been flying by the seat of its pants since the Global financial crisis erupted. Policies previously UNSEEN in history (other than Zimbabwe, the Weimar republic, Argentina and previous hyperinflations) such as UNLIMITED money printing and zero bound interest rates for almost 6 years are illustrations of financial and monetary system on life support. Money at no cost to the banks and government but priced expensively for the public, and savers who earn nothing on their accumulated life savings.
The very idea that unaccountable mandarins of money need to play with no rules or guidelines should have been halted decades ago. Now, it is TOO LATE to DO SO. Normalization of rates will bring down more things than any of us can imagine as the world is awash in financial assets which yield little or nothing. Malinvestments in the classic Austrian definition.
Big Buyers in a fools paradise
The mortgage markets are dead meat to investors unless the issues are “government guaranteed” and it would appear much of the US treasury market is unattractive to the private sector as well. Taking a look at treasury issuance since January, the vast majority of them have been hoovered up by central banks, most notably the Federal Reserve, Bank of China and Japan.
Looking closely at the purchases reveals the fed is the dominant buyer. It has monetized over 50% of US debt since 2009. Is it for quantitative easing purposes as they say or FUNDING of the DEFICIT? To me, it is the latter, regardless of the story they say. In real terms, inflation is probably 9 to 10%.
At 2% on a ten year treasury, you are guaranteed to lose half of the purchasing power if held to maturity and CAPITAL risk is enormous as any backup in rates (higher) will rob investors of virtually all the coupons. But big buyers can be seen globally as a quick glance at global yields REVEALS:
A SHOCKING picture of NOTHINGNESS when it comes to returns and the United States paying the HIGHEST yields of all. They are all IOU’s denominated in IOU’s. The markets are saying that the US creditworthiness is the WEAKEST of them all. No doubt those spreads will be arbed out so lower rates would appear to be on the horizon. France, a mathematically insolvent sovereign is paying the lowest rate since Napoleon walked the earth. Japan yields reflect the government controlled market it is. Is all of this a picture of unfolding deflation? In contrast to their levels of indebtedness, you would think, “who are these fools?” Deficits which except for Germany and Switzerland is SPIRALING HIGHER.
This does not include unfunded liabilities such as pensions and healthcare. It is obvious they are pricing in the money printing to come for the USA versus the others. This is also a breathtaking display of willful blindness of the buyers of the insolvency of many of the sovereigns as well. Officially, this is deemed RISK FREE; in REALITY it will never BE REPAID. The question becomes what happens when they WAKE UP and FLEE?
Is the TOP in for European Banks?
Last week Portugal’s second largest Bank Espirito Santo parent company missed a bond payment and markets reacted accordingly by tanking. Regular readers to this missive know that none of the banking problems in the European banking systems has even been remotely addressed. The next exercise in HOT AIR and PR is currently underway as the European Banking Authority and the ECB work together to boost CONFIDENCE with the AQR (asset quality review). I can confidently tell you in advance that ALL IS WELL. Maybe one or two banks will fail to provide the veneer of robust exams but the result was written before the test if past episodes are prologue.
Europe’s problems have not been addressed: Quoting Allianz SE’s chief Investment officer Max Zimmerer (Europe’s largest insurer managing assets of over $757 BILLION dollars) and owner of PIMCO:
“The fundamental problems are not solved and everybody knows it”… “The euro crisis in not over”… “Countries are still building their debt piles and that’s storing up trouble for the future”. “There is only one country where the debt level last year was lower than 2012 and this is a signal the debt crisis can’t be over, only a recognition of the debt crisis has changed”… If the debt levels are not going down in the end we will have a problem, that is for sure.”
Thank you Max for a very candid assessment of what lies ahead and Max is NOBODYS FOOL. Both the banks and Sovereigns are in worse shape than ever. The only thing that has recovered is the perception of the health of the nations and banks and for that we can thank the main stream media and morally and fiscally bankrupt politicians throughout the continent. Add to this the $30 Trillion dollars ($30 million million also known as a lot of ROTTING paper/cabbage) created out of thin air since 2008 desperately seeking a home anywhere a yield can be found (regardless of the risk). Although the markets MAY NOT BE FOOLED:
That’s a BIG head and shoulders TOP and fully active in technical terms projecting a 15%+ decline from here. We shall soon see if it is reflective of the CREDIT and SOLVENCY crisis returning which is baked in the cake. The only question is WHEN WILL PEOPLE WAKE UP? Is the next wave of insolvency beginning NOW?
Spanish Banks, Lying with numbers.