Contrast that scenario which I agree will happen to the
American let Paper Imperium.....
with the latest <Greensputin Gimmick> to delay the inevitable redressing of the extreme imbalances that are growing at an increasing pace in the global economy.
Here are a few of my table pounding posts for what I've considered for some time would be the obvious final card to be played by our Field Marshmellow Greenspan, the PPT which comprise Americas <command and control> economic team on the field. (we'll leave coverage of the rest of the coaching staff & franchise owners another time<G>)
Lets start with this little love letter from late July:
Message 19153455
<<HEY GREENPUMP!
Bond market making you eat crow on that congressional testimony, ole boy!
You want to do you job of keeping all those incumbents in office next year? Then you better change your tune about FED willingness to buy longer dated paper and get ready to start doing it. Your political butt buddies are hanging a bazillion tons more than all the CBs on the planet can buy. GET IT?!
Respectfully submitted<G>
Your pal,
Isopatch>>
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Then on August 5th, the long rant:o)
Message 19181655
<<Important: Why has Iso been pounding the table about bonds
in a series of posts for about 2 weeks?
AND...
Why focus on this qrtly Tsy funding in particular?
Disclaimer:
Iso is a long time professional trader/investor. BUT, he doesn't get paid to write on the web. And he's not interested in managing anybody else's money OR selling an advisory service or newsletter. My trading pays the bills around here, period.
So, this will be shorter than it should be and incomplete in the sense that I'm not going to repeat all the stuff you can and most likely have read (over and over:o)) on commercial web sites. It is a longer post than usual to hit what I think has been, is, and will be, moving the markets.
Fair nuff?<g>
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We all know that the US economy OD'd on debt in the Bubble years on a scale never before witnessed. When the US gov was running (or claiming to be runnning) a surplus, it was possible for the FED to accomodate the private economy and the markets with monetary ease.
Back then, there was only one insatiable monster that needed to be fed increasing amounts of funny money credit to keep bounding onward and upward to the promised land of ever greater prosperity. The minor recession inherited by the new Bush admin. was nothing compared to what came next.
The alarm bell that this was going to change everything in a big way, in the years to follow, was 9/11.
Very few saw the macro significance of what was going to develop in the future and has NOW come to a head. Or that this process would become increasingly deflationary. So...this post looks a bit more interesting now than it did when it was posted a few weeks after 9/11:
Message 16418826
<<IMO a deflationary war scenario has changed everything.
Vast over extension of credit during the Clinton/Rubin/Greenpump bubble created an unstable house of cards economy built on too much debt. We know the contraction to correct of those distortions and misallocation of capital was already taking us into a cyclical recession.
But the colossal hammer blow of 9/11 changed everything. Let's take a look inside FDR's classic insight, "The only thing we have to fear is....fear itself."
What was looking like a somewhat more severe than average post WWII global recession has suffered a huge injection of fear and the impact IMO will be economically devastating. Fear is the catalyst that's accelerating a normal recession ala 1981-1 or 1973-74 into a classic deflation, more akin to the 1930s.
Up until 9/11 I was willing to give the benefit of the doubt to inflation. But that has all changed now.
Fear of flying. Fear of job loss. The list goes on and on.
Fear, as FDR clearly understood, immobilizes people and the economy along with it. This the catalyst that has transformed a stiff but normal cyclical recession into a K-wave bringing our debt ridden house of cards economy crashing down as travelers stop flying, consumers stop buying and industry after industry shows a quantum leap in layoffs.
Sure there WILL be a bounce back and some good market rallies during the next year. But IMO we are in a LT global slow growth environment as huge amounts of capital that would otherwise go into productive economic growth must instead be deployed to protect what we have and more importantly our lives.
Responding to this terror is going to be a huge LT drain as we funnel 100s of billions of $ into domestic security measures for our cities, airlines, power plants, reservoirs, pipelines, refineries, storage tank farms, yada yada.....
In other words, the cost of protecting our physical plant, infrastructure and population centers will be the economic growth that's characterized the post WWII period. Hence my conclusion that we face, at best, years of slow global growth.
Gold is the strongest beneficiary of the kind of deflation that IMO has now taken control.
Greenpumpster is aggressively debasing the dollar and other major CBs will follow in a desperate attempt to fight these deflationary conditions. So what we get is a repeat of the competitive devaluations that characterized the 1930s with gold increasing relative to all major currencies.
Other than the sm part of portfolio in energy to hedge against the eventuality of a ME supply cut off, am
staying away from all other commodities till the market is finished discounting this new deflationary environment that's been thrust upon us. It's not even close to doing that yet, IMHO.
Elvis Rules<g>
Isopatch>>
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The secular deflation has been slowly building since that post. And IMO it's about to take a quantum leap further RIGHT NOW. A lot more fear will soon replace the greed only recently pushed about every measure of bullish enthusiasm to amazing extremes.
Well... here we are today.
After witnessing Greenscams congressional testimony where he essentially said SCREW YOU to the debt markets we now are watching THE activating trigger for the next major <event> in the secular deflationary debt implosion that will run for years into the future:
This key week of Treasury auctions.
They will brutally demonstrate that the emperor is wearing no clothes. This weeks auctions will likely be the biggest financing fiasco the government has seen in many years.
AND,
Unless errant Al reverses his stance and the FED enters the debt markets with massive support operations in longer dated Tsy paper (per numerous previous official FED statements that the FED WOULD do so if necessary to protect the markets)??
We ARE likely to see the biggest meltdown in all the markets since 1987 IMHO. In fact, after todays failed auction, it could already be too late to stop a meltdown.
The mountain of Tsy paper hitting the market this week, with even more due in future quarterly fundings simply cannot be absorbed by the private markets without interest rates much much higher. That will put the economy into a severe recession (depression), crushing the stock market, in the process.
As long as Greenscam keeps this FED locked in it's OBSOLETE little world of doing nothing more than injecting liquidity into the banking system via the Fed Funds market, the brutal truth will soon be apparent to every market participant that the FED is de facto impotent no matter how much viagra the Chairman keeps feeding into his face!
Hey Al !!
You better listen up!!
Feeding one monster was one thing. But NO WAY can you accomodate the credit hungry private economy AND a ravenous US Gov that's now running an enormous annual deficit if all you're going to do is fool around with the Fed Funds markets.
Remember the <Guns and Butter> trap, Al? Johnson tried it with the Great Society and the Vietnam War at the same time. Even assuming we win all these wars, you sure as hell ain't gonna have both guns and butter this time.
You got bout a snowball's chance in hell of doing when you factor in todays debt levels that are vastly beyond what has ever been seen before.
Tell you one thing Al. If I had made up my mind to crush GW in next years election, like his father in 1992? I'd be doing exactly what your doing right now. Refuse to monetize any debt paper outside of the very ST stuff the NY Fed desk has always delt with.
Isopatch>>
That was August 5th. Just one month after that was written, about 10 day ago, we began to see declines in longer rates that IMO are most likely cause IN PART by exactly the mechanism I was pounding the table about in the above posts since late July.
Be careful out there folks, Dr Frankenspan is trying to graft yet another claw arm onto the monster he's created.
Isopatch |
