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Tag Archives: Treasury bonds

  • Blog
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    Is This Downturn A Repeat of 2008?

    Crashes differ, so be cautious about your assumptions
    by charleshughsmith

    Monday, January 7, 2019, 9:50 AM

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    Are we in a repeat of the global financial meltdown and recession of 2008-09? The sharp drop in equities is certainly reminiscent of 2008. Indeed, the December decline is the worst in a decade. Or are we entering a different kind of recession, the equivalent of uncharted waters?

    And if we are entering a recession, what can central banks and governments do to ease the financial pain and damage? We can’t be sure of much, but we can be relatively confident central banks and states will respond to the cries to “do something.”  This poses two questions: what actions can central banks/states take, and will those policies work or will they backfire and make the recession worse?

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  • Blog
    Peak Prosperity

    Quantitative Easing – Crash Course Chapter 10

    What exactly is this process that the world is betting on?
    by Adam Taggart

    Saturday, August 23, 2014, 1:34 AM

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    At the exponential pace at which the Fed is increasing the money supply, and knowing the huge challenges the Fed – and most other world central banks  – face in trying to stop or even slow down their money printing, the potential for a disruptive global inflationary period is very real.

    So what exactly is quantitative easing

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  • Blog
    Peak Prosperity

    Money Creation: The Fed – Crash Course Chapter 8

    Creating money out of thin air since 1913...
    by Adam Taggart

    Saturday, August 9, 2014, 12:49 AM

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    Chapter 8 of the Crash Course is now publicly available and ready for watching below.

    As a follow-on to the two previous chapters — one explaining the nature of fiat money, the other showing how money is loaned into existence through our fractional reserve banking system — this week's video details the Fed's near-magical ability to create money out of thin air (literally!).

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  • Insider

    Off the Cuff: Treasurys On The Rise

    Global capital is beginning to seek safe harbor
    by Adam Taggart

    Thursday, May 15, 2014, 5:34 PM

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    In this week's Off the Cuff podcast, Chris and Brian discuss:

    • Treasurys On The Rise
      • Global capital is beginning to seek safe harbor
    • Mispricing Risk
      • The biggest failing of today's markets
    • The Ticking Sovereign Debt Timebomb
      • It's a questions of "when" not "if"
    • The Supremacy of Risk Management
      • Should be the #1 focus of the prudent investor
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  • Blog
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    Have We Reached Peak Wall Street?

    An argument its dominance is in decline
    by charleshughsmith

    Monday, March 31, 2014, 11:14 PM

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    Though the mainstream financial media and the blogosphere differ radically on their forecasts—the MFM sees near-zero systemic risk while the alternative media sees a critical confluence of it—they agree on one thing: the Federal Reserve and the “too big to fail” (TBTF) Wall Street banks have their hands on the political and financial tiller of the nation, and nothing will dislodge their dominance.

    But what id Wall Street’s power has peaked and is about to be challenged by forces that it has never faced before? Put another way,what if the power of Wall Street has reached a systemic extreme where a decline or reversal is inevitable?

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  • Insider
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    The Consequences of American Autarky

    A contrarian view that may be the U.S.'s best future bet
    by charleshughsmith

    Wednesday, January 15, 2014, 8:13 PM

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    Executive Summary

    • Will profit-chasing bring corporate capital back to the U.S.?
    • China's dwindling T-bill leverage
    • The decline of dependence on Mid-East oil
    • Autarky may be the best investment for the U.S. (and similar nations)

    If you have not yet read Part I: What If Nations Were Less Dependent on Another? available free to all readers, please click here to read it first.

    In Part I, we sketched out a framework for evaluating the trade-offs implicit in autarky; i.e., national self-sufficiency.  In Part II, we’ll explore a few potential ramifications of America’s declining consumption of energy and increasing ability to replace foreign-supplied capital, resources, energy, and expertise with domestic sources.

    The core issue of autarky boils down to: What are the risks and costs of exposing the nation to the vulnerabilities of dependence for the convenience and profitability of remaining dependent on foreign providers?

    Of the potential consequences, let’s focus on several high-visibility possibilities:

    1. China’s ownership of U.S. Treasury bonds possibly giving it leverage that amounts to blackmail-type veto power over U.S. policies.
       
    2. The dependence of U.S. corporations on foreign sales and the weak dollar for profits
       
    3. The decline of oil imports changing the calculation of U.S. interests in the Middle East and other oil-exporting regions

    Profits as Priority

    As I have often noted, the stupendous profitability of U.S.-based corporations is largely the result of non-U.S. sales and the profits reaped from a weak U.S. dollar.  When the euro was at parity to the dollar a decade ago (1 euro = $1), U.S. corporations reaped $1 of profit on every euro of profit gained from sales in the European Union. Now the same one euro in profit generates an additional 35% in dollar-denominated profits due to the exchange rate.

    I have also noted that the enormous importation of goods made in China has generated remarkable profit margins for U.S. corporations such as Apple, while the Chinese suppliers are eking out net profits in the 1% to 2% range for the privilege of manufacturing goods that generate gross margins of 50% to 60% for U.S. corporations.

    In other words, the Chinese did not impose this trade on U.S. companies the U.S.-based corporations extracted maximum yield on capital invested by moving production to China, not just in terms of lowering manufacturing costs but also in the enhanced proximity to the world’s great consumer-profit opportunities in developing Asian nations.

    In other words, while other nations may focus on self-sufficiency, the American priority is profitability and maximizing return on capital invested. If and when profitability is threatened, capital pulls up stakes and relocates to whatever locale makes the best financial sense.

    That the locale that makes the best financial sense is the U.S. is a new thought for many…

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  • Insider
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    How to Survive the Mother of All Bubble Burstings: A Collapse of the Bond Market

    It's time to batten down the hatches
    by Chris Martenson

    Thursday, March 21, 2013, 8:43 PM

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    Executive Summary

    • The three main signs presaging a bond-bubble collapse are now evident
    • Why the Fed will fail to get new credit debt growth at the rate it needs
    • The return of CDOs and other risky tactics that show market participants have returned to reckless thinking
    • How a bond market collapse will play out
    • How to product yourself and your wealth during the extreme pain of a bond market collapse

    If you have not yet read Part I: Investors Beware: Market Risks Today Are Higher Than Ever, available free to all readers, please click here to read it first.

    The dangers growing in the bond market are, of course, all the result of the Fed, et al., cramming the real rate of interest on Treasury bonds into negative territory, starving investors for income, and forcing them to chase yield whenever and wherever it can be found.  Given a long enough time without a serious disruption in the markets, you eventually find yourself exactly where we are, with everyone chasing yield because they have to. Hey, everybody else is, and nothing bad has happened yet, right?

    Of course, the odds of this ending well are practically zero.

    How ridiculous has it become?  How about a company currently in bankruptcy proceedings able to sell bonds at investment-grade yields?

    AMR Bankruptcy Yields Record-Low Bond Coupon

    Mar 13, 2013

    American Airlines is selling investment-grade debt even as it spends a 15th month in bankruptcy while bond buyers look ahead to the merger with US Airways Group Inc. (LCC) that will create the world’s largest carrier.

    The AMR Corp. (AAMRQ) unit issued $663 million of so-called enhanced equipment trust certificates yesterday that included a portion paying 4 percent, matching the record low coupon for similar airline debt, which was first awarded to United Continental Holdings Inc. in September, according to data compiled by Bloomberg. American is also seeking to refinance about $1.3 billion of bonds backed by aircraft after receiving court approval to do so in January.

    By the time you have 'investors' offering money to a perpetual basket-case like AMR a company that also happens to be in bankruptcy proceedings at present at investment-grade 4% yields, you know you are in the midst of a crazy bubble. Consider this anecdote to be the bond market equivalent of a hairdresser from Las Vegas buying her 19th house…

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  • Insider
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    The Forces That Will Reverse Housing’s Recent Gains

    Get ready for the "poverty effect"
    by charleshughsmith

    Monday, February 25, 2013, 9:56 PM

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    Executive Summary

    • Intervention in the housing market by central planners is experiencing diminishing returns
    • The four major trend reversals most likely to depress housing prices in the coming future
    • The power deflationary force of reversion to (or perhaps below?) the mean
    • Why demographics do not support rising prices

    If you have not yet read Part I: The Unsafe Foundation of Our Housing 'Recovery', available free to all readers, please click here to read it first.

    In Part I, we sketched out the larger context of the housing market: the dramatic rise of mortgage debt, the stagnation of income for 90% of households and the unprecedented scope of Central Planning intervention in the housing and mortgage markets.

    In Part II, examine what will likely cause this nascent rise in housing prices to reverse, and to resume the decline Central Planning halted in 2009.

    Intervention Has Only One Way to Go: Diminishing Returns

    As noted in Part I, every Central Planning support of the mortgage and housing markets has already been pushed to the maximum, so there is nowhere left to go. Interest rates are already negative, over 90% of the mortgage market is backed by Federal agencies, the Fed has already pledged to buy trillions of dollars in mortgages, etc.

    Four years of this massive intervention has stripped the mortgage and housing markets of the ability to price risk, capital, and assets. This has created a culture of supreme complacency, as participants have come to believe interest rates will stay near-zero for the foreseeable future and Central Planning intervention is permanent.

    But nothing is permanent in life. And the current extremes of intervention and complacency have set the stage for some important reversals:

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  • Blog
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    Gold & the Dollar are Less Correlated than Everyone Thinks

    Understanding the impact of Triffin's Paradox
    by charleshughsmith

    Tuesday, November 13, 2012, 3:03 PM

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    Whenever I make the case for a stronger U.S. dollar (USD), the feedback can be sorted into three basic reasons why the dollar will continue declining in value:

    1. The USD may gain relative to other currencies, but since all fiat currencies are declining against gold, it doesn’t mean that the USD is actually gaining value; in fact, all paper money is losing value.
    2. When the global financial system finally crashes, won’t that include the dollar?
    3. The Federal Reserve is “printing” (creating) money, and that will continue eroding the purchasing power of the USD. Lowering interest rates to zero has dropped the yield paid on Treasury bonds, which also weakens the dollar.

    The general notion here is that, given the root causes of our economic distemper – rampant financialization, over-leverage and over-indebtedness, a politically dominant parasitic banking sector, an aging population, overpromised entitlements, a financial business model based on fraud, Federal Reserve monetizing of debt, and a dysfunctional political system, to mention only the top of the list – how can the USD appreciate in real terms?

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  • Blog

    Egypt’s Warning: Are You Listening?

    by Chris Martenson

    Wednesday, February 9, 2011, 7:54 PM

    0

    One day, a fruit and vegetable seller was arrested in Tunisia, sparking social unrest, and a few weeks later the government of Egypt was set to topple. 

    Such is the nature of complex, chaotic, and unpredictable systems. The stresses build for years and years, and nothing really seems to be happening, but then everything suddenly changes. Egypt is therefore emblematic of what we might expect in any complex system in which pressures are building, such as the US Treasury market.  

    Can events in complex systems ever be predicted? No…and yes. No, because the precise timing and details can never be predicted. Yes, because we can be certain that anything that is unsustainable will someday cease to continue and things that are horribly imbalanced will someday topple. We can also be certain that the change, when it comes, will be rather sudden and abrupt, rather than gentle and linear.

    That is, we can easily predict that a complex system will shift, and that it will probably do so rapidly, but not exactly when or by how much.

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