"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, April 12, 2011

Goldman Sachs jams bonds higher

Over the years of market watching, one can easily become very cynical as they observe the machinations of the international banks that run the financial system of the US. The manner in which their reports are issued, the timing involved, the reactions of the various markets, all lead me to believe that nothing should ever be taken for granted when it comes to the primary dealers and their cozy relationship with the Federal Reserve.

Those of you who have been watching the bond market are no doubt aware by now that they have been getting whacked of late. Over the last month, they have dropped over 6 full points. In the process of so doing, the bonds have been telegraphing inflation fears related to the out of control US government spending and easy money policy known as QE. The former necessitates huge supply of Treasuries to fund the deficits while the latter provides the demand.

The problem has been that the bond market is not cooperating with the Fed's intentions. They want the long bond market moving higher, not lower. In effect, the market has short circuited the effect of QE.

Now, how to stop this rapid descent in bond prices? Enter the primary dealer known as Goldmach Sachs, the plague upon the US financial system. Goldman issues a report today crowing about high crude oil prices slowing down the economy and stiffling demand for commodities and what not. They then go on to advise their clients to dump their long commodity positions. Meanwhile the Dollar continues to descend violating a major chart support level in the process only barely managing to recover that level before the close of afternoon trading in New York. However, bonds rallied sharply forcing a sizeable short covering burst as traders had been positioning for the inflation trade.

So what do we have when the dust settles? The crude oil market drops sharply down from its recent peak near $113 and bonds settle nearly a full point higher erasing half of the losses of the previous week. The Dollar however is still weak.

If you are the Fed and want to see your QE program be successful, you cannot have long term interest rates continuing to rise nor can you have energy prices continuing to soar. But what can you do short of actually stopping QE dead in its tracks, something which if you do, will crater the stock market. Why enlist your pals over at Goldman and agree to release their "client recommendation".
Presto - problem solved. Crude gets hit hard and bonds rally. The Dollar? Well that will have to wait for another day.

Look at the chart below and see the regions I have noted and compare the price action of the long bond with that of crude oil. Observe that for the last two weeks of February of this year, the surge higher in crude oil was being viewed as a deflationary occurence by the bond market, a tax on economic activity, which would slow economic growth. Bonds rallied sharply during that time frame and while the Fed was not pleased to see the spike in energy costs, at least they had the satisfaction of watching bond prices move higher and longer term interest rates move lower.

The problem began in the middle of March when crude oil, not content to sit at $100, went on to spike higher into new ground surging from just below $100 all the way to $113. By then the bond market noticed the move and began connecting the dots and selling off as traders braced themselves for the inevitable inflation outburst associated with soaring energy prices. Whether it was trucking, shipping, railroads, Fed-Ex, UPS, etc; anything requiring energy to move goods was going to be impacted. These businesses had to pass through the higher energy to their customers or end users with the result that the upward price pressures would filter through into the economy. As the bond market sold off and energy stayed firm, the QE program was becoming useless.

Call me cynical, but after looking at the price chart and noting how the rise in crude from mid March onward corresponded directly with a move lower in the bonds, it is evident that the bond market WAS NO LONGER viewing the rise in crude as a deflationary factor as it had done so a month earlier, but was now firmly pricing in the rising price as an inflationary event.

Today we suddenly get Goldman telling the world that the bond market has it all wrong and that the rising crude oil price is going to again be deflationary. Thus the recommendation to sell commodities, gold included, which has the effect of dropping crude lower and moving the bonds higher.

We'll see how long this "new" mindset sticks around or whether Goldman has singlehandedly managed to enforce a new psychology on the market place. Either way, the Fed is no doubt quite pleased at what they saw today, with the exception of perhaps the action in the Dollar. They can deal with that another day.

The Biblical plagues that beset Egypt did not include Goldman Sachs but the locusts that devoured all that is valuable and consumed it upon themselves have a lot in common with this privileged insider which makes its living by preying upon the wealth of others.


  1. Good article Dan. Helps me understand these complex machinations in the markets.

    I guess, though, that the big boys can do and say what they want, but the fundamentals will win out. No one can defy the laws of physics.

    What I'm hearing in New Zealand is a more cynical approach to the news coming out of the markets these days. People are beginning to wise-up but not to the point of trying to protect themselves. My feeling is they are like deer caught in headlights.

  2. Thanks Dan. Your commentary helps me understand the what's going on. Pure Wall St/Fed manipulation.

  3. Love the Biblical plague quote--so true

  4. Last Friday the market reacted rather rational. Bonds went down on inflation fears as gold, silver, and oil went up. The government was embattled over the budget and debt ceiling. The Feds were on their hands.

    Congress resolved things on Saturday. I got a strange feeling in my stomach as I wondered if the Fed would not go back to manipulate the market.

    Monday comes and sure enough the market gets wacked as the banks sugar daddy (the Federal Reserve) has a budget to work with.

    There's one thing the Fed can not control. Weather.


    1. Look up at the ChemTrails. They are trying very hard to control the weather too!

  5. My question is when these pronouncements from the Fed lose the ability to move markets? How many lies does it take for the credulous to become
    extinct...or is everyone just reacting to a perception of what the reaction of the credulous might be...kind of like a black hole of credibility that disappears from our universe but still has a enormous gravitational pull...

  6. Thanks Dan. Terrific analysis, as always. And love your photo!

  7. Absolutely priceless, Dan. Thanks!!

  8. Well worth the read, thank you.

  9. Good stuff Dan as usual. You cut right through the MSM B.S. and tell it the way it actualy works.
    Goldman is a leech with a willing host(Fed) who needs the leech to suck the life blood out of the taxpaying investors who are just trying to get ahead in life a litle bit.
    Goldman and the other TBTF's want it all even if it ultimately takes the entire system down gradually and surely.
    They are corrupt and short sighted. Basically money and power junkies who will say and do anything to feed their habit at the expense of all of humanty if given the chance.
    The Fed. is giving them the chnace as they are like siamese twins, one needing the other in order to survive.

  10. Excellent post, Dan. Keep it up.

  11. Another pat on the back for you, Dan. Great writing. Keep it simple, keep it real!

  12. Fantastic explanation Dan.
    Thanks for the education.

  13. Beyond excellent post. Every week a post which outdoes the previous one. Higher highs anyone? :)

  14. Much appreciated, as usual!
    Reading you, I feel like I have a wise friend trying to help me...

    Thanks so much!

  15. Excellent comparison of the Goldmanites to Egypt's Biblical locust plague! Perhaps even a better analogy than the Vampire Squid!

  16. Makes you wonder really how long can this go on. Good post Dan.

  17. Interesting observation with the DOW.
    The Feb 22 high of 12,400 & USD = call it 78.
    Recent April 8ish high of 12,450ish & USD = 75.5 and falling.
    In real terms even compared to 1.5 months ago the DOW is actually meeting resistance at it's 50 day MA and not making a new high.
    Even if GS can carry the weakness over this week to Options Expiry I think the odds/fundamentals favor a strong move coming.
    Thanks for the post.

  18. Great post Dan!!

    If you get a chance check this out,



  19. This comment has been removed by the author.

  20. Excellent post, always enjoyed you on jsmineset and on kingworldnews, you do great work!!!

    As for the manipulation, "it's nothing new" (witness Tech bubble, Subcrime bubble, etc etc) and it will continue and all the manipulation will give us a beautiful long (secular) bull in metals (till it bubbles) for what I hope will be 10 years, and i will be selling on every ballistic move higher.

    I am also hoping some people (Ron Paul) can wake up the rest of Washington, and prevent the demise of the dollar.

    I for one don't want to see america (dollar collapse) and all the doomsday business (end of america) but i have been preparing family and friends for the worst.

    best wishes,



  21. Great post Dan. Always appreciated.

  22. Thanks for the insight. Keep up the good work.

  23. Hey Dan,

    Not sure if the pump the bond trade is done quite yet. I kind of expect a 50% retrace to 120 on the 10-yr but we'll see. In the longer term, the Fed doesn't buy bonds in the 30 year range, but does play some in the 10-year. I expect the long end of the bond market to sell off hard after this retracement, and that will take the 10-year with it.

  24. Trader Dan, great stuff. Hey, that’s a good photo of you there. Nice to see the face behind the charts and keyboard. If you ever tire of your Trader Dan handle you might go with The Chart Man in Black. I think the late great Mr. Cash would approve.

    Now, on the financial system of the US - True, it is very easy to become cynical watching the markets and Fed action. What other mindset could any thinking person be inclined towards with the manipulation that grows increasingly blatant and occurs every day with the likes of Goldman Sachs, JP Morgan, the Fed, Treasury, CFTC, political Washington and casino Wall Street?

    It is not a stretch of the imagination to see the Fed as a bald Homer Simpson Fed with the disproportionately muscled arms of the Incredible Hulk. One arm tattooed JPM and the other GS. The head prints away while one arm ‘persuades’ the CFTC to stay silent on silver theft and the other arm waves the oil crowd to run for the hills.

    After seeing what the media and the hedgies do over the years when ‘Goldman Sachs speaks’, ‘I’ve come to the (cynical) conclusion that the market influencers have been trained very well. When the banksters want something, the Fed provides the cover… and vice versa. They are one multi-armed creature that has grown steadily tyrannical and audacious since it was spawned on Jekyll Island so long ago.

    It’s only natural to become cynical. Like Yogi Berra said, “you can observe a lot just by watching”. But my cynicism is balanced by faith and hope. Not faith in the Fed or hope that the modern day rulers of paper currency will do the right thing. Beyond faith in God and the certain comeuppance the evil empire will surely receive, I hold out hope that the wicked, self-serving fiat empires will crumble in a way that doesn’t destroy all that is good in our country.

    The Fed and their co-conspirators can’t control everything, all the time. They have printed themselves into a corner. Have become trapped by the massive dollar printing, silver shorts, international bailouts and bonds? Will they survive by continuing to pretend there is no trap? Will they convince Congress to free them and place the American people in the steel jaws? Or like the wolf, will the beast have to chew an arm off to escape? Will it be the GS or the JPM arm?

    These Paper Rulers cannot grow a crop, they can’t mine gold and silver, they can’t drill oil and they can’t do an honest day’s work. All they can do is obfuscate, create monopoly money and manipulate paper investments. That will come to an end, at least in the current cycle of empires. The end probably won’t be due to Washington getting intelligence or morals or enough of the right leadership… it will most likely be that the paper changers get run over by the demand for real products that are not paper.

    My hope is that Bennie, the Paper Tiger, and his government and international banker cohorts who all work for themselves and against what is good, fair and honest will reap what they have sewn and drown in an avalanche of their own worthless paper. God help those that trust in the Fed or hold toxic paper when that happens.

    At this point, I suppose the best we can hope for is a very hard landing or soft crash when all of this unwinds. After wings are torn off and the fire subsides we will no doubt lose some innocent passengers when this American Airline careens off the runway, but at least the plane will be back down to earth with survivors.

    Faith, self-reliance, self-sustaining talent and skill, gold and silver are the best seatbelts.

  25. Great read Dan - thank you so much!
    I'm wondering where you think the price of Silver and Gold will go this year?
    Cheers and all the best to you :)

  26. Great post Dan! I never miss a week of you on KWN.

  27. Good article Dan, but keep this in mind. The Fed is not targeting rates, they are targeting stocks. Since QE2 started they have run SPX up 20%. The US mkt cap was 17.5T, now is 21.8T from Aug '10 (QE2 started in Aug not in Nov, if you dont believe me, go to NY fed website and look up the POMO actions starting in AUG). So fed has printed $4.3T paper dollars by spending approx. 500mm in POMO so far. That is pretty good multiplier if you ask me. Much better and faster multiplier than you get in fixed income by way of loan growth.

  28. Nice to find another voice of reason in this barren wilderness of smoke and mirrors MSM driven masquerade. TF and now you have aided my rational perception of the situation, as well as my psychological health. Consider me a convert!

  29. On Tuesday, April 12, 2011 .....
    Goldman Sachs jams bonds higher

    And on April 14, 2011 we see

    Geithner Sees ‘Confidence’ in Markets for Fiscal Position (1)

    By Ian Katz

    April 14 (Bloomberg) -- Treasury Secretary Timothy F. Geithner said financial markets have “confidence” in the U.S. fiscal position.

    URL :

  30. Hi

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    Source: Goldman sachs interview questions

    Best regards


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