Saturday, July 30, 2011


Of that bus that rolled over Wall Street trader's this week. For those that read this site on a regular basis then the past five days should have come at no surprise and the loss of 700 billion from the value of equities this week should barely raise an eyebrow. Personally I would have liked to have seen the streets flowing a little more red but I may get that wish on Monday. Beware of what one wishes just might come true. Lost in all the hooplah over the manufactured debt ceiling crisis were the real issues that we are dealing with. Last quarter's revision of GDP was shocking.....down to 0.4% and this quarters GDP of 1.3% (also to be revised later) reflect a dying economy.

"Economic growth ... was much weaker than the government
had previously estimated and this opens the door for
potentially another round of quantitative easing from the
Federal Reserve," said Gary Thayer, chief macro strategist at
Wells Fargo Advisors in St. Louis. "Therefore, the bond market
responded positively to the weak GDP number while the dollar
weakened." The data showed the U.S. economy in greater danger of
dipping into another recession than many had thought. "The problem in the second quarter was very, very
restrained consumer spending," said Pierre Ellis, senior
economist at Decision Economics in New York. "A revival in
consumer spending is critical to keeping us out of recession.

Ok then what do we take away from this week's action. The economy is weakening but most of the peeps are having their attention focused by the MSM on the circus in D.C. ...... WHY? Several possible explanations. One that is obvious is the increase in the value of treasuries .....certainly beneficial for the holders of this debt. Particularly if you are wanting to exit these positions under cover of crisis. Turn up the noise and and pull out the chain saws. By the time the noise subsides a lot of bonds can be moved. Good things happen to those that make them happen.

It might work like this: Bloomberg reported that Mike Feroli, Chief Economist for JP Morgan Chase, who said that the Fed has a contingency plan (right there you had better stop) in case Congress doesn't act on the debt. It would allow "certain" banks and financial institutions to exchange their Treasuries for green Cash from the FED. My my convenient.... Crisis=Premium Treasury prices=cash into selected Banks.....ouila.......QE 2.75..... get ready Freddy.....I smell MONEY!! Now guess where these selected banks is a hint....don't forget "contagion".

Of course this is only conjecture and one should not make trading decisions based on this but you might want to examine this over the weekend....enjoy your weekend See ya Sunday night after the weekend theatrics and the futures open.


  1. IMO - the push is on to force the FED to increase interest rates. Not good for those who owe too much. Higher rates are good for those who have savings (which should include a lot of retirees or near retirees).

    That is why all the MSM talk about higher interest being horrible doesn't make much sense if you are a saver and owe nothing. I for one would definitely appreciate an extra half a per cent or so on my fixed income accounts.

  2. Inlet: I've been saying that since 2008. The only people that are freaking about interest rates are those with massive amounts of debt. People like us with large stashes of cash in the bank will rejoice when rate finally start going up. There are always two sides to every coin.

    The talking heads will say "Oh, but many more will lose their homes!!!!" That would be great! We should be trying to get homes down to market value as fast as possible, not artificially propping them up with gimmick after gimmick.

    But the machine doesn't want that. Bernanke will devalue the dollar to Zimbabwe levels before he'll touch rates. I just finished reading Ben's book "Essays of the Great Depression". He spells it all out in this book. He's using a 1930's playbook for a 2010's ballgame. He is absolutely convinced that the Fed ended the great depression. And one of the points he hammers on constantly in that book is that purchasing power MUST come down.

    kli says QE3 is coming.... hell, they are probably drafting QE4 as as I type this.

  3. Jay -

    The market forces can only be manipulated for so long and then the natural econcomic cycles (forces) take control. What out pal Bernank seems to not realize is that in today's world with 24/7 information things happen a lot faster than in the 1930s. Besides we all know WWII was what really ended the Great Depression. Nothing cleanses more thourghly than a widespread war.

    Given the situation in Europe there is a good chance of a financial freeze up at some point in Europe. Italy already had to pull a longer term bond offering (no demand). Money market funds are pulling dollars out of European investments. So dollars for short term and over night loans between banks in Europe are getting scarcer.

    If we get a freeze up in Europe the US$ will soar (and commodities tank in $ cost). This could potentially give us the deflation many (yes you too KLI) are predicting. And there is probably not a damn thing the FED can do about it.

    So is it possible to have deflation and higher interest rates? I believe it is possible if foreign demand for dollars is such that the European banks have to purchase dollars in the open market (instead of the FED funding $14 trillion of interbank loans like they did in 2008-2009) at market rates.

    Times are very interesting.....

  4. I really don't know if we'll see deflation. Ben will keep printing until there are no more trees to cut down.

    ...And if that doesn't work, they'll purge the whole system and start over with the "World Dollar"