Saturday, July 21, 2012


"At 5.62%, two-year yields are almost back to panic spike highs from last November – and are essentially at the highest level since 1997. Despite the EU’s recently negotiated 100bn euro bailout, Spain’s borrowing costs have moved only further into unsustainable territory. The Spanish stock market was hit for 5.8% today. Things have reached the boiling point, as mass public discontent with the latest round of austerity measures recalls Greece’s unraveling."

What would happen here in the US if yields started to rise? How would our government be able to afford the escalating interest payments on our overwhelming debt?

circa  2010 !!

"The government already has made so many promises to so many expanding “mandatory” programs. Just keeping these commitments, without major changes in taxing and spending, will lead to deficits that cannot be sustained.
Take Social Security, Medicare and other benefits. Add in interest payments on a national debt that now exceeds $12.3 trillion. It all will gobble up 80 percent of all federal revenues by 2020, government economists project.
That doesn’t leave room for much else. What’s left is the entire rest of the government, including military and homeland security spending, which has been protected and nurtured by the White House and Congress, regardless of the party in power."

What is brewing? In 2014 as part of the AUSTERITY movement the defense budget is being slashed and studies suggest a HUGE LOSS OF JOBS  July 2012
"Across-the-board cuts to federal programs may cost the U.S. 2.14 million jobs and reduce the gross domestic product by $215 billion next year, according to a study funded by defense contractors lobbying to forestall the reductions. "

OUR US interest rates for the 10 year bond are around 1.5% !! so if you buy them your return will be LESS THAN THE INFLATION RATE??!!

BUY the US stock market and your return could be MINUS 40% !!! IF the Bear market returns (hasn't it?) and is that OK with you? Can you stomach a 20-50% haircut? WE are already over the time limit for the AVERAGE BULL MARKET OF 39 months.....those who bought in early 2009 and fought tremendous levels of FEAR were justly many of the pros are going to just sit around when she goes SOUTH and let those huge gains evaporate? WHO is going to sit around with HUGE gains and NOT SELL BEFORE the BUSH tax cuts are gone and capital gain TAXES RISE?

Now has it been the savings grace for US stock investors the fact the we are perceived not as bad as Europe? SO why my friends are the yields on our 10 year Bonds at HISTORIC lows? 1.46%? did I just answer my own question? OR is this just the action of those who can access FED money at next to nothing in cost and buying the 10 yr? IS the 10 YR or US treasuries in general still "the safest play if all"?
When in history has the yield been near Historic LOWS (FEAR) and the stock market near its highs? I don't think there was a time....usually stocks sold off and people rushed into bonds driving the yield DOWN.
Now the yield is near its historic lows of 1.440% and stocks are near there highs? DOES THAT MAKE ANY SENSE? or HAS THE PERFECT STORM TRAP been set?

When the market falls you can sort of BE SHORT the market by being in cash as your worthless cash buys more as prices fall. THIS CANNOT happen if you always just sit it out and HOLD can it?

Our need to finance our debt, the wars, domestic responsibilities, etc etc at ALL TIME HIGHS but YIELDS ARE AT ALL TIME LOWS..   "what is the law of supply and demand?
If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity."

This is one case, because of going through 2 nasty bears here, and problems abroad....and FED buying of their own treasuries in the previous and ongoing QE gambit.....demand for bonds nearly outstrips the supply.....BUT IN SPAIN 2 year yields are near 5.7% !!! and the 10 YR over 7% !!!! HOW CAN THEY FUND THEIR DEBT???? Highest levels since 1997 !!!! and this after historic ECB EURO LAND $100B EURO BAILOUT FUND AGREED UPON????

Are we headed for the fiscal cliff? WE CANNOT continue to go into $TRILLION deficits year after year after year.....SOMEONE HAS TO MAKE THE INTEREST PAYMENTS....THAT SOMEONE'S IS YOU AND ME....and they will do it with AUSTERITY (LOSS OF MORE JOBS) and YES the RAISING OF SERVICES COSTS AND TAXES....

$TRILLIONS have been lost in the first ever year over year decline in home the FED has engineered and targeted the STOCK MARKET for appreciation.....what happens when the words don't come and actions to keep supporting this? HAVE we not come to the fork in the road.

SOONER OR LATER, the imbalances must balance, debts default or have to be inflated away or thye get paid...which one will it be?



Anonymous said...

60The BDI is up three percent plus this month. Big S&P rally on the way

Marc R said...

MY, you called that rally well ! haaa Remember MR CEO....your post that 170 pts in DOW a week ago proved a bullish market, how childish.
BUT I won't call todays drubbing any more than a bad MONDAY open...fundamentally, if you read the articles of truth, the world has serious issues.