Tag Archives: Bond Markets

G7 Meet to Stop Yen’s Dramatic Rise and the BLS Calls BS on its Broad CPI Measure – A Mint Classic

Over the past year, the Bank of Japan has tried numerous times to Kamikaze its currency and has failed miserably.  As of the writing of this classic Mint, the USDJPY exchange stood at about 80:1.  Check today to see how the Bank of Japan has fared.
 
As for the other theme, if anyone still believes in the BLS’ headline inflation number, they probably work at the Federal Reserve and watch I-Pad prices for signs of inflation!

Enjoy!
 
3/18/2011 Portland, Oregon – Pop in your mints…
 
The G7 Central Bankers have called an emergency meeting to “do something” about the “skyrocketing Japanese Yen.”  This meeting is simply their latest attempt to combat reality.  The reality of the situation in Japan is that they are dealing with a catastrophe.  When one is dealing with a catastrophe, the next prudent step, after all of the immediate crises have been contained, is to take stock of the situation.  By taking stock, we mean that one takes note of what was lost and, more importantly, what one will need in order to restore things to an acceptable level of comfort.Comforts cost money.  In Japan, to replace these comforts the average person needs Yen.  They will either get this Yen by making a claim with their insurance company or selling assets to raise cash.  With damages of nearly $15 Trillion Yen (roughly 3% of Japan’s GDP) and counting you can imagine how the demand for Yen is, well, about to skyrocket.

 
The Japanese people are still dealing with the catastrophe.  Speculators in the currency markets are, as always, one step ahead of what must happen and are sapping liquidity, in terms of Yen, at a rapid pace.  This activity, taken at face value, will presumably wreak havoc for Japanese Government Bond prices, the prices of stocks traded on the Nikkei, and the US Dollar.
 
These three markets will crash if nature is allowed to take its course.  You see, in the tipsy turvy world of currencies, to buy a yen more often than not means that a US dollar, a JGB, or a stock listed on the Nikkei is sold on the other side of the trade.
 
The most sought after currency in the world, at least until the G7 meet tomorrow
 
The accelerated selling of dollars, as Jim Rogers points out, could cause the endgame scenario for the US currency to swiftly come upon the world.  Mr. Rogers goes so far as to call this a “Moment of Truth for the dollar.”
You can see the brief interview by clicking here.
 
Of course, as Mr. Rogers points out, it may be time to buy the dollar, if for some reason it is to survive as a top tier currency.  We have lived just long enough to know that anything is possible.
 
The G7 meeting today is VERY IMPORTANT.  It should not be, if only the world had not left the embrace of sound money 40 years ago, but unfortunately, it is.  For the G7 will essentially decide whether to keep the Dollar on life support or to pull the plug.
 
What will they do?
 
Meanwhile, the Bureau of Labor Statistics (BLS), the legion of bureaucrats who are charged with cranking out data in order to support FED policy, appears to be starting its own form of political protest against the loose dollar policies followed by the Federal Reserve.  After faithfully cranking out the core CPI, a key statistic here at The Mint, for years and watching it slowly become distorted into the puppet statistic that it now is, they came out with a data point in 2002 called the “Chained Consumer Price Index” which takes into account a rolling average of food and fuel costs, which the core CPI now blatantly ignores.
 
This index hit a record high in February, confirming what most average Americans already know:  It has never been more expensive to live in the Land of the Free.
 
Will we be Brave enough to return to sound money?  You, fellow taxpayer, can take a step in that direction with just a few simple keystrokes.  APMEX, our affiliate, is running a contest.  They are giving away one 1 oz gold eagle coin each month.  All you have to do to enter is register by clicking this link and filling in the blanks.  You can register to win once per month.  If you so desire, click here and Register at APMEX.com Today!
 
By definition, the black hole of debt will always grow at a more rapid pace than the worthless currency that is printed in an attempt to fill it.  If the black hole collapses (i.e. widespread default occurs), hyperinflation will occur quickly.  If currency becomes scarce, people will find another medium of exchange, likely gold and/or silver.
 
Either way, the world will be out of this mess before long, so hold on to your hats, it is bound to be a wild ride to the other side!
 
Stay Fresh!
 
 
 
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Key Indicators for Friday, March 18th, 2011
 

US Debt Ceiling Vote to Ignite Armageddon in Bond Markets? Key Indicators all Point to Inflation – A Mint Classic

Today we are taking a break en route to Bolivia.  Breathing in La Paz is hard enough, let alone attempting to dissect what is occurring in the World economy.  As such, we offer a look at things which we wrote about 14 short months ago which came to pass just 8 short months ago.  A much ignored number which is peculiar to America, the debt ceiling.
 
Today, the number is mostly ceremonial but it is important to remember that the US is likely to breach the $16.2 trillion symbolic limit in the near future.  Will we have  repeat of the events we described?  Enjoy!
 
1/18/2011 Portland, Oregon – Pop in your mints…
 
For some months now we have been wrestling with the notion that there will be a major collapse in the Bond Markets.  We have speculated as to the causes and possible effects in these chronicles, comparing the coming events to the battle of Armageddon, famously prophesied by John in the book of Revelation, Chapter 16.  Bondholders have been lured into a valley, and our guess is that they are about to get slaughtered.
 
When and how will this occur?  This is the subject of our speculation today.  Be forewarned, fellow Gambler, that we do not have any sort of inside information.  Rather, we rely on our own wild imagination and questionable powers of deduction.  Actual events may differ dramatically from what we imagine, and we pray that they will!
 
Our current speculation has its origin in digesting the reality of the upcoming Congressional vote as to whether or not to raise the debt ceiling.  In the past, this would barely have been news.  The government almost always, without fail, spends more money than it takes in. This is one of the few things that you can count on a democratically elected government to do.  To cover the deficit, the government must issue debt.  Since there is almost always a deficit and there is almost always interest to be paid on existing debt, the amount of debt owed by the government must always increase.  This is the basis of our current insane monetary system.
 
 But wait!  Along comes a group of Congressmen and women that either don’t understand the game or are unwilling to play along any longer.  They appear, at least from their rhetoric, to be set to vote AGAINST raising the debt ceiling (the total amount of debt that the US Government can officially borrow).  In theory, this would mean that Government expenditures would have to be immediately reduced by $1 Trillion, the projected deficit for current fiscal year, and further reduced to give them the ability to roll over the roughly $3 Trillion dollars worth of US Treasury debt that is set to mature in 2011, even assuming that it can be rolled over at 0% interest.  Both of these are plausible but highly unlikely scenarios.
 
 
As an aside, you can watch all of the dizzying US Debt statistics here.  We advise you to take some Dramamine beforehand.
 
However, a “NO” vote on raising the debt ceiling would make these highly unlikely scenarios not only likely but absolutely necessary.  A “NO” vote would likely trigger a sell-off not only in the US Treasury Debt Markets but also in every fixed income and equity market on the planet.  This sell-off would lead to an unprecedented amount of cash chasing around a finite number of real goods.  
 
In short, the end result of a “NO” vote would be a paralyzed Government and hyperinflation.
 
On the other hand, a “YES” vote is no picnic either.  Many of these Congressmen and women were around the last time they had to vote on a measure with such broad reaching financial implications.  Does the TARP Fiasco of 2008 ring a bell?
 
On the bright side, a “NO” vote would bring an abrupt end to the insanity of the present world monetary system.  A system that is based on debt, not real money, which causes the productive forces of mankind to cannibalize themselves.  After the initial shock, a “NO” vote would be a great thing for mankind.  Do today’s politicians have the backbone to do this?  Only time will tell, but here at The Mint, we believe that at this point a “NO” vote or a stall tactic (which is practically the same thing) may in fact be likely to occur this spring.  We are not alone in this boat, as back in November former Treasury Secretary Robert Rubin alluded to this vote as a possible “trigger for a “rout in the Treasury Market.”
 
While all signs in the Bond Markets point to an implosion, either this spring or at some unspecified date in the future, all of our Key Indicators here at The Mint are continuing to point to Inflation.  It is for this very reason that we observe them daily, to ensure that our hypothesis is correct.  These are the “cards” the we hold as gamblers.  Each one merits in depth study as to its economic significance but we will spare our fellow gamblers this depth for now and jump directly to the practical application. 
 
At the end of every Mint, we present the Key Indicators.  We encourage you to compare them with the Key Indicators from previous Mints.  If the Key Indicators are generally higher (with three exceptions) than they have been in the past, we expect inflation, maybe a lot of it.  If they are lower, we would expect deflation.  The magnitude of the inflation or deflation depends upon the magnitude of the changes in the numbers.
The three exceptions, of course, are the “FED Target Rate”, the “MINT Perceived Target Rate”, and the “Inflation Rate (CPI).”  In the case of these three indicators, if the number is lower than it has been in the past, we can expect inflation.  If they are higher, we would expect deflation.   
 
You may also click on each data point below for a link to its source to better perform trend analysis.
The timing of what is to come is a mystery.  Based on recent data, inflation is walking up the drive but still a ways from the door.  If we had to guess, we would expect inflation in full force by January 2012.  If Congress pulls the trigger with a “NO” vote this spring, it could arrive quite a bit sooner.
 
As Kenny Rogers wisely said, “Know when to walk away and know when to run!”
 
Stay Fresh!
 
 
 
 
P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!
 
Key Indicators for Tuesday, January 18th, 2011
 
MINT Perceived Target Rate*:  4.5%
Unemployment Rate:  9.4%
Inflation Rate (CPI):  0.5%
Dow Jones Industrial Average:  11,787
M1 Monetary Base:  $1,954,500,000,000
M2 Monetary Base:  $8,881,000,000,000 (this numbers stands roughly $2 trillion higher today, about the same amount that the debt ceiling was ceremoniously increased back in August.  Coincidence?  we think not!)

Mega Maid! Collapsing Bond Market to Suck Air Out of Stocks!

Another Mint Classic which unfortunately (or fortunately if you are short the major indices) is current again.  Enjoy:
12/1/2010 Portland, Oregon – Pop in your mints…
Writing is such sweet sorrow.  Sweet because there is no lack of things to write about.  Sorrow because the financial authorities have made such a mess of things that there is no lack of things to write about, grand errors to expose again and again until we get it.  The economy has been on adrenaline for almost 100 years and increasingly dangerous doses for the past 40.  The crash will be grand and we must understand what is going on.  If nothing else so that future generations can learn from the mistakes.
Back from the big picture to the problems of the moment.  When will it end?  We know more or less how, so we must look daily for the time to approach.  Is it on the horizon?  Your guess is as good as ours so we will consider what we know.  Just when you thought it was clear sailing ahead for stocks and bonds, another wrench is thrown into the works.  We have been focusing here at The Mint on the upcoming fireworks in the Bond Markets.  Not that we know exactly how or when the market will collapse, we only know that its collapse, in some way, shape, or form, is imminent.  Two of a myriad of reasons came into focus for us today which we will now attempt to pass along. Continue reading Mega Maid! Collapsing Bond Market to Suck Air Out of Stocks!

A US Default? Into the Great Unknown

6/29/2011 Portland, Oregon – Pop in your mints…

Much has happened in the financial markets in this past week, and much will happen in the coming weeks.  But perhaps what is most notable is what has not happened.

Namely, the US Congress has not raised its self imposed credit card limit.  For an entity that is already $14.3 Trillion in debt ($4 Trillion of which reportedly comes due in the next 12 months) with no realistic plan to pay for it, this is suicide.  What are they thinking?

The two parties are in agreement one count, they need to save $2 Trillion dollars over 10 years.  Why this sum has been identified as the cure for what ails the country’s finances is anybody’s guess.  Unfortunately, but not surprisingly, there is no agreement as to how to get there.

Where will they find $2 Trillion? Tax the rich, screams Obama, repeating the eternal populist sentiment.  Stop spending, say the Republicans, using the circumstances to make a push for “limited government.”

Editors Note:  There is no hope for limited government with the current two party system in place, therefore the Republican’s stance is entirely a façade.

The President has taken the extraordinary step of asking Congress not to recess over the Fourth of July, as is their custom, calling their lack of agreement akin to his daughters not completing their homework.  While the President makes a quaint metaphor, we believe that Obama’s daughter’s homework is probably more challenging than Congress’s task of balancing the budget.

Obama Admonishes the GOP to stay and do its "homework

Balancing a budget is simple.  It just takes courage.  It seems that courage is in short supply in Washington DC these days.

Without internal fortitude to press the Americans along, a little external pressure is beginning to be applied.  First, the Treasury’s latest 7 year bond auction did not go as well as planned as investors demanded 2.43% to hold US paper for a sabbath cycle.  Without the FED at the table, it is hard to imagine how it could have gone well.  Bond Market participants are beginning to wring their hands.

Then comes word that the IMF is beginning to apply pressure, eloquently reminding the Americans of what they should do and why they should do it.  It is worth noting that the IMF appears to be the last to know about such things so we will excuse their apparent surprise at the lack of inaction (they are most likely not informed MINT readers like yourself):

“…the federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,”

Yeah, tell us something we don’t know.  And then, true to their holier than thou, infallible status, they give the Americans advice on how to do it:

“We see early political agreement on a comprehensive medium-term consolidation plan based on realistic macroeconomic assumptions as a cornerstone of a credible and cyclically appropriate fiscal adjustment strategy,”

Great!  Thanks for the incomprehensible and totally impractical advice.  This type of drivel simply solidifies our opinion that the IMF is a worthless institution and could be categorically ignored if it were not so insistent upon meddling in financial matters on a global basis.

Meanwhile, we are getting to see first hand what happens to a country that gives up control over its currency and then listens to the IMF for advice and is forced to take a loan from them. Greece, is giving the world a glimpse at how popular austerity is with the masses.

The scene that was carried out in the Middle East in the Spring is set to take place in Europe and England over the summer months.

How long until it crosses the Atlantic?

Another event that may occur as interested parties begin to reduce exposure to US Treasury debt is a liquidity crunch that will start in early July.  Apart from the debt ceiling uncertainty, the Dodd-Frank financial reform rules are set to begin to do their damage to the financial system on July 15th.

If they do not forestall these rules as many banks are begging them to do, the US and global economy will take their first tender steps into the great unknown, a world without political or real capital to act a a backstop for failures.

It will be dangerous and exciting.  And, just like a fireworks show, will be best enjoyed from a safe distance.  Keep your money close at hand, meaning out of banks and preferably in precious metals or anything tangible, and enjoy the show!

Stay Fresh!

P.S.  If you enjoy or at least tolerate THE MINT, please share us with your friends and family!

Key Indicators for Wednesday, June 29, 2011

Copper Price per Lb: $4.20
Oil Price per Barrel:  $94.93 A FAILURE TO INFLATE, WILL TREND LOWER

*See the MINT Perceived target Rate Chart.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

Inflation set to Bloom, Bernanke Resorts to Desperate Pleas to Raise the Debt Ceiling

6/14/2011 Portland, Oregon – Pop in your mints…

The Rose Festival has dominated the city’s waterfront park for the past two weeks.  Carnival rides have been up since Memorial Day weekend and an assortment of ships from the US and Canadian Navy (affectionately known as the “Canavy”) arrived late last week.  After no fewer than four parades, the annual Dragon Boat Races rounded out the festivities.

The Festival usually marks the beginning of summer, which is defined as the absence of rain for four delightful months, here in Portland.  While the rain seems to have done its part, the weather remains colder than one would expect.

This year was the first year that anyone can remember the roses not being in full bloom during most of the festival.  An uncharacteristically cold spring has caused many of the plants to hold back here from showing off their blooms.  When they do finally bloom, it tends to happen quickly and spectacularly.

For some reason the plight of the roses has us worrying about inflation.  We have been certain that inflation is on the horizon for some time now, and while there has been an uncomfortable rise in food and gasoline prices, it is hardly the degree of inflation that we had been anticipating.

Are we early or just plain wrong about inflation?  The question is troubling.  What is certain is that many of the things that we have speculated would happen are coming to pass.  Most significantly, the US Government appears to be approaching a moment of truth regarding its dire finances.  The simple question of whether or not to raise the debt ceiling has opened a Pandora’s box of questions about the nation’s spending priorities.

Now the 2012 election cycle is beginning and US lawmakers have rushed out the door to the campaign trail and have left Pandora’s box wide open on the Capitol floor with its questions racing about the room:

Should we cut entitlements?

Enact more economic stimulus?

Will the Government really go bankrupt on August 2nd?

Is the activity on Twitter accounts really open to the public?

With the national political circus about to go into full swing, any hope of a serious discussion about a realistic budget or debt ceiling is gone.  What we are now left with are desperate pleas for action from none other than Ben Bernanke, the ace lobbyist for the nation’s largest banks.

Today’s plea was made by Bernanke at the Committee for a Responsible Federal Budget’s appropriately titled annual conference: “The Debt Ceiling, Fiscal Plans, and Market Jitters, Where Do We Go From Here?

Mr. Bernanke, in his classic, diplomatic style, told the Republican leadership in attendance that he appreciated what they were trying to do in trying to get the nation to live within its means, but that their use of the debt ceiling as a hostage was not an appropriate tool for the job.  Instead, he advocates deficit reduction goals which trigger automatic cuts if they are not met.

Leading Lobbyist for the Banking Sector

The United States is one of the few countries with a congressionally mandated debt ceiling.  Contrary to Mr. Bernanke’s belief (which we must say defies logic), the debt ceiling is the perfect tool to use if a lawmaker wants to put an end to out of control spending but doesn’t have the time to gain consensus for a reasonable budget plan.  It is the ultimate way to “trigger automatic cuts.”

Perceptive readers will note that what Mr. Bernanke’s proposes is the same fiscal spending control model that has worked spectacularly in Europe. Just ask the Greeks!

Still, the question remains, where is the inflation?  Our simple analysis led us to believe that under current circumstances the FED would print money to give both to its member banks and to the US Treasury until things either got better or the dollar was completely worthless in exchange for goods.  Our money is on the latter passing before the former.

It now appears that the US government has temporarily thrown a wrench in those plans.

But this should come as no surprise.  As Henry Hazlitt so eloquently explains in his book Economics in One Lesson, government intervention in the economy always fails to achieve its desired ends and almost uncannily brings about results contrary to those that the government intended.

Would it not make sense, then, that the current efforts to produce price inflation turn out to be dramatic failures as well?

Then, long after the government has abandoned its inflationary policies, a tidal wave of cash will appear quickly and spectacularly, not unlike the rose blooms in Portland this year.

This inflation will occur when the US Government, whether on its own or under compulsion from the bond markets, turns its clumsy machinations towards austerity.  In other words, when it least wants or expects it.

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least can stomach The Mint, please share us with your friends, family, and colleagues!

Key Indicators for Tuesday, June 14, 2011

Gold Price Per Ounce:  $1,524 MINT Perceived Target Rate*:  2.25%
M2 Monetary Base:  $9,005,800,000,000 STARTING TO DRY UP?  NOT!

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.