Recheck your figures on "flight to safety" on US Bonds, I think you got it backwards……it is indicating that the smart money is INDEED going for the safety of the US Bonds, did you happen to catch the 90% failure of the Feds last auction ?…..Nobody wants the US debt at low interestes rates (4.69%) because of these silly assed politico scams like the "stimulus plan"…..So they didnt buy the bonds…will they eventually ?..You bet, but not until the govt offers 10-15% …..Paul Volcker-esque….anybody ? Or how about 25% ?
I am a long time private trader, and here is my take on it. This is shared collectively by the entire smart money trading world. I just happened to be one of them. Here's a little peek for you to mull over. Here we go…….
The catch that is VERY serious, in my opinion, for the purposes of this forum…..and were talking about rioting/revolt serious here…..The pensions and 401K money from the collective retirement of the workers of the entire US is NECK DEEP into the sub prime CDO's and MBS's….the banks are loaded with them also. Hence no credible collateral possessed by the banks is suitable for possible investment, they WILL not even loan to each other and the Fed usually wont take sub prime as collateral for overnight loans either thru POMO or TOMO, but he's changing his tune lately, so the only way to keep BofA and WM and many others solvent and within their mandated capital reserve requirements by law is the scam Bernanke is "allowing" by ""23A agreement letters" (hidden auction recipients) and thru the TAF short term loans made to these banks to keep them "appearing" to be solvent…they are NOT solvent.
MM funds, like banks are also neck deep into this jive. NOBODY knows the extent of their sub prime holdings…and they are NOT telling either, so NO ONE will loan them a nickel UNTIL its known what the risks are. No transparency ?….No actual risk assessment, then no loan for you….Check the performance of Equities in the market just since Jan 1….yeah….pretty sad eh ? Foreign money buoying them up ? You bet, on a few …Like Citi Group among others….but at a SERIOUS premium, like 10 Plus % loans…..THAT is untenable to maintain a banks profitability. Like I said, they are ALREADY INSOLVENT.
When will it all come crashing down ?….I used to think when the monoline bond insurers (MBI ABK, etc) actually had to make their public notification of the loss of the AAA rating for this debt….but the govt is ALWAYS getting involved and trying to game the system with fake news releases and such, AND this is an Election Year..so it hasnt occurred as of yet, however Cuomo (NY-AG) is handing out indictments for fraud on Wall street and wanting to take a peek at their books…Uh Ohhh…THAT cant be good for these guys…….CRIMINAL FRAUD…."What did you know…and WHEN did you know it" type questions from the AG….which could mean jail time for the officers of these corps..Anyone remember Sarbanes-Oxley ?….Maybe THIS will force the ratings agencies to honestly re-state the quality of that debt…and if they do….LOOK OUT BELOW !….By charter and Federal SEC Mandate the pensions AND the 401K's MUST sell them immediately (liquidate) to comply, they are not allowed to own so much NON AAA rated debt….THEN the CDO/MBS toxic waste will be FORCED to be "Marked to Market" … the REAL market, not the fictitious. "fairy tale value" they are currently at. So you ask:..Whats the real mark of the value of these COD's and MBS's ?…..simple……almost ZERO….
These Are Enormous loans on DEPRECIATING valued assets ! Honestly Worth almost ZERO!….WANT PROOF ?….Okay…Then WHAT would YOU as investor pay to buy a loan from an originator that was made on a DEPRECIATING asset such as a residential house? lets just say a 820K loan on a typical newer SD tract home ? Seen what the value of Real Estate has been doing lately?….AND dont forget, those loans in the portfolio youre thinking of buying now dont come with a AAA debt rating either, hence no INSURANCE for your risk will be available…Yeah, you know, like theres a damned good chance those loans will CONTINUE to default ? YEP, definitely, Look who they were made to ?……So what would YOU pay to be the bag holder on this previously supposed AAA debt ?…..Yeah thought so…..Well, The rest of the world agree's with you, its not worth a DIME !! Hence…a Global Credit Freeze…Which just so happens to be EXACTLY what were experiencing now.
So back the WHOLE scenario up and figure out what will happen to the 401K's and the private, state, federal Pensions that are a large part of the proud owners of that toxic garbage? ……Yeah, youre seeing it…..the retirement funds will EXPLODE and be worth MAYBE 10% maybe of their supposed value today….BOOOM….Working Americans just got their ENTIRE retirements GRENADED!! Think yours is safe ?…Hahahhaaa….just call your fund manager and DEMAND him to tell you EXACTLY how much of your portfolio is exposed to CDO/MBS toxic waste….Make sure you have a few Advil standing by for when he tells you….Which he will…He's required to by law.
You think Survivor Island and American Idol will be watched so much after that ?…No..me either, the people of this country will finally wake up, but its too late….I think were staring down the barrel of a full on global depression and economic collapse. This is the end of the "Millionaire Mentality" of todays homeowner….or more correctly stated:.. "Loan Owner"
So maybe the US Govt will then step in and back stop the bond insurers so the defaults wont cause them to go out of business of insuring debt on defaults?….Really ?….not a CHANCE !….Were talking in the HUNDREDS OF TRILLIONS OF DOLLARS exposed risk here….there isnt a govt in the WORLD that can take on that type of debt, NONE…and in fact, collectively the ENTIRE world's govts couldnt step in front of that bus ! Think about the significance of 600 TRILLION DOLLARS here…..I have even heard MORE being bandied about in investment circles.
Lets not forget also, the commercial real estate has been JUST AS STUPID !…they have LOADS of CDO's and MBS's type crap loaded into those ABCP instruments too, that were always looked at at safe investments…and THAT hasnt even been discussed yet. Let alone Option Arm loans….they dont explode until the 09 summer. It promises to be even BIGGER !!
Kondratieff cycles and many other economic analysis depict this scenario as a "Reset"…..Yeah, just like what your kid does when the Video Game he is playing is NOT going the way he likes it….he just reaches over and hits the "Reset" button and BAM… He starts over with a clean slate……Thats what going to happen.
Can it be avoided ?….Not in my opinion it cannot. Hell the Fed can cut rates to zero, its irrelevant what he does, the MARKET sets rates…not the Fed. He can cut rates to zero like the Bank Of Japan has done for 20 plus yrs if he wants, but he CANNOT force people to borrow, besides, Americans are TAPPED out anyway, they cannot take on anymore debt, hell, they cant even service the debt they have now…….Lets not forget either, the Fed is a PRIVATE BANK and their PRIMARY directive is PROFIT, so no return on their investments while underwriting the federal debt is NOT part of their plan. This goofy assed "stimulus plan" is the govt's attempt at FORCING people to borrow, they just wont pay it back until 09 taxes, but the average citizens haven't figured that part out yet, but they will…Cute huh ?
I also fully expect to see the 10 and 30 yr bonds SKYROCKET up to 20% interests rates also, THAT will be the price required for risk from people with REAL money to buy the debt….Bam.….THAT will finally KILL whats left of the RE industry.
If your NOT debt free now, forget it, your sunk. If you can become debt free quickly…then DO IT immediately, otherwise plug your ears, the loud BOOM your gonna be hearing will be the WORLDS ECONOMY..If you got CASH (NOT GOLD) you will be in the drivers seat in the coming depressed economy…..
This crunch is on the credit/supply side….make no mistake, the US Govt CANNOT inflate its way out of this, oh they might try, I FULLY expect them to but the bond market will teach them rather harshly like it did last time Bernanke tried to cut rates by jacking up the 10 and 30yr rates…. in 10 minutes, after his last .50 BPS rate cut got swallowed up by int. increase on the 10yr…..Hahaha…SPANKED him hard ! Look at the chart if you don't believe it. This information is available to the public domain. Takes a little looking, but nothing secret here.
Got treasuries ?….if you want to make a little money and be somewhat relaxed in it being a safe investment….for now anyway…Thats where the "Smart Money" is right now, hiding in safety, NOT invested in the market for potential returns. Check out TreasuryDirect.gov……google it up. its pretty simple.
Cash Dollars will become incredibly more valuable, not worth less, like so many tend to think…. When No One will loan money, IE: "No NEW money", or more correctly, no "new debt origination"…. then the existing cash money becomes worth even more. That IS DEFLATIONARY
