"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


Wednesday, April 20, 2011

The US BOND market has become the most important market on the Planet

It is my opinion that out of all the markets that the monetary officials are keenly interested in, some to the point of tinkering with constantly, no one market has become more important to them than the US Treasury market. Not even the Dollar has them as extremely on edge as the long bond in particular.

The reason for this is twofold. First of all, since the Fed is engaging in QE2, they cannot afford to allow the bond market to break down technically on the price charts. That would send a signal to every single hedge fund computer algorithm in existence to slam this market down sharply lower. The resultant rise in long term interest rates would choke off the economic "recovery" and would utterly and hopelessly short circuit the very reason for their massive purchases of Treasuries, purchases which I might add have resulted in their balance sheet holding more Treasury paper than the total reported holdings of China.

Second is the massive US federal debt level, a level which is looking increasingly like one associated with a banana republic. The cost of servicing the interest alone on this debt ratchets up with alarming rapidity with each and every tick higher in interest rates. As more and more new debt is issued, it then comes with a higher price tag for the federal government. A sinking bond market would compound this inescapable problem and add an entirely new dimension to the crisis.

That is what must keep monetary policy planners as well as fiscal policy planners awake at night and why so much attention is fixated on the bond market. It is also the reason that whenever any of the Fed governors sound a hawkish note on the US economy, Bernanke and the rest of the doves on the Board are so quick to counter. Their comments always serve to rescue the bond market from any potential sell offs.

Take a look at the following chart and note the nearly perfect correlation between the price action in the broader equity markets as illustrated by the S&P 500 chart and that of the long bond. The area within the rectangle is what I would like you to focus on. Note also the level of the S&P at its recent peak near 1340 and the level of the bond at that time, which had a 117 handle on it.

Now move to the right of the chart to see today's closing price on both. The S&P is a mere 14 points off its recent high and yet we see the bonds sitting with a handle of 121, fully 4 points higher than the last time we were anywhere near 1344 on the S&P.

Combine this print on the bonds with the fact that the Continuous Commodity Index  (  CCI ) put in an ALL TIME HIGH today with strength seen in the surging energy and precious metals markets, and one can see just how greatly the Federal Reserve has DISTORTED the interest rate markets in the US.

What they are attempting to do (and succeeding I might add) is to camoflauge or better yet, counterfeit, the message being generated by the bond market. They are duplicitly masking the inflationary results of their policy of QE.

I might add that if this were not fradulent enough, it also comes on the heels of a stunning downgrade of the US credit outlook by the ratings agency Standard and Poor. Imaging this even being possibly contemplated a decade ago!

In the face of a falling dollar, a US credit outlook downgrade, a surging stock market, and soaring commodity prices, the bond market, thanks to the interference by the Federal Reserve is telling us all that the only thing we need to fear is fear itself.

History is going to record this sham and I trust will not deal kindly with those who have perpetrated this fraud upon the American citizenry.

This will not end well.

Tell me that Political Leaders don't put pressure on Ratings Agencies

Fox News is reporting a story that contributes further towards my cynicism towards political leaders, manely that the Obama Administration was pressuring the ratings agency S&P, not to downgrade the credit outlook for the US government as they did from "stable" to "negative".

Here is the headline:

Obama Officials Tried to Convince S&P Not to Issue Credit Warning

Published April 20, 2011
| FoxNews.com

I find this particular galling giving the fact these reckless spenders have created a situation in which the US Dollar is sinking under the weight of this massive debt load and continued monetary policy foolishness. Instead of wasting time twisting the arms of the rating agency, which is finally doing what it should be doing and sounding an appropriate warning, these people who help create this unmitigated disaster should be doing what responsible statesmen should be doing, namely stop spending the damn money that they do not have.

The more stories like this surface, the worse the light it puts the US government in and the more it leads to skepticism that anything will be done to address the most monumental issue of our day.

You can read the entire story here:


Silver blows through Resistance at $44

The silver market is now entering a parabolic phase, a phase that while it can bring enormous profits for those who are long, is also extremely dangerous for traders. Markets in this phase can generate price swings in either direction that will wrench on the gut and turn euphoria into near panic.

The breach of $44 was impressive enough but the fact that it has easily taken out $45 with relative ease suggests this market is on course for a run to $50. The rate of ascent could take it there by early next week but at some point, there will be a rush to ring the cash register. Just know that those who want to trade this mad market, had better be prepared for what they are getting themselves into.

What makes trading a market of this nature so difficult is attempting to place money management stops or at least mental stops. The extent of the price swings are so huge that stops placed too close to the last trade are prone to be taken out in a price retracement which then quickly ends only to see the uptrend resume leaving the trader sitting on the sidelines watching as he misses the rest of the ride higher. Place a stop too far away from the last price and it could wipe out one's margin before it gets triggered. In other words, attempting to set a risk parameter for the trade if it goes sour becomes almost impossible for all but those with very deep pockets whose accounts are well funded.

Volume has picked up on the breach of $44 as expected which has alleviated the concerns I expressed here yesterday as it seemed to be floating higher instead of being driven higher as it is in the process of being done today. I still see a very real fear among would-be shorts to step in front of this thing. A market making moves of 2-3% day after day is primed for a correction but no one wants to jump on the tracks in front of the freight train.

The gold/silver ratio continues to drop in favor of silver and is currently near 33.16 as I write this. It was down below 20 in late 79, early 1980. Could it go this low again? Yes, it could.

US DOLLAR very close to an accelerating decline

There is only one way to describe what is occuring to the US Dollar; its future as the global reserve currency is in serious danger of disappearing forever. Under the "leadership" of the US Federal Reserve, and thanks also to the reckless and incredibly short-sighted spending occuring at the Federal level, the Dollar has run out of friends.

It's decline this morning has opened the door for gold to push past $1500 and silver into what looks to me like the beginning of a "MELT UP" mode. It has also send further speculative money flows into the commodity sector with the result that the CCI, the Continuous Commodity Index, is within a whisker of matching its all time high.

What many of us have feared could happen but were hoping to see avoided, is becoming increasingly likely the further the Dollar descends into this abyss. As a citizen of my nation who cares deeply for its future for the sake of my own children, I am both disgusted and grieved at what those who were charged with preserving the integrity of its currency have done to our birthright.
A pox on these scurrilous men who have sold out our nation for political expediency. Their only loyalty is to their own pocketbooks and their crony pals who could give a rat's ass what happens to the nation as long as they can profit from it all. This plague of locusts is stripping us bare.