Foreign Central Banks Dumping U.S. Treasury Bonds, Treasure From TreasuriesInterest-Rates / US Bonds Jan 07, 2012 - 07:22 AM GMT
“Holdings of U.S. Treasurys (sic) by foreign central banks has fallen by a record amount over the past four weeks according to the latest Federal Reserve data.
“The net $69 billion drop in Treasury holdings registered at the Fed by foreign official institutions comes as benchmark yields ended 2011 near record low levels…
“The decline in foreign holdings of Treasurys (sic) in recent weeks has not resulted in higher yields and lower prices because other investors have sought the safety of US debt.”
“Foreign Central Banks Cut Treasury Holdings by Record”
The Financial Times, www.cnbc.com, 12/30/11
Foreign Central Bank holdings of U.S. Treasuries have fallen to Record lows, but, notwithstanding this Massive Central Bank selling, the (ostensible) demand for these U.S. Treasuries is so great that their Prices are near record Highs.
A Conundrum!! The Solution to which reveals considerable Profit Opportunities and Wealth Protection Essentials described here, as well as the continuing disinformation published by Official Sources.
Consider Jeff Nielson’s Take on U.S. Treasuries:
“One should never underestimate Federal Reserve Chairman B.S. Bernanke… This is the same man who told the world (day after day) that the U.S. had a ‘Goldilocks economy’, where U.S. markets and house prices would keep going up forever – at the very peak of the made-in-Wall-Street U.S. housing bubble. This is the same man who then promised the world (again and again) that the U.S. economy would experience a ‘soft landing’ after that gigantic bubble had already burst. This is the same man who has announced more ‘exit strategies’ than Harry Houdini – with not one of them ever materializing.
“Yet even the infamous ‘Helicopter Ben’ Bernanke has outdone himself with his latest operations in the U.S. Treasuries market. For those who missed the news, foreign central banks (the largest holders of U.S. Treasuries) have been frantically dumping more Treasuries onto the market over the past four weeks than at any other time in U.S. history.
“Those with even the tiniest understanding of supply/demand fundamentals understand how markets operate in such situations. When there is a sudden explosion of supply, the price buyers are willing to pay for that good plummets until enough new buyers enter the market to soak-up all of that excess supply.
“So how far have U.S. Treasuries prices fallen during this ‘panic’ in the U.S. Treasuries market? Zero. To comprehend the absolute absurdity of this situation requires adding one more piece of data to our scenario: U.S. Treasuries prices are currently at their highest level in history – despite the fact that the United States has never been less solvent.
“Readers need to realize how a bond market works. Prices and yields (i.e. interest rates) move in a precisely opposite/inverse manner to each other. As yield goes up, bond prices decline in a precisely proportional manner (and vice versa). Given that yield is (supposedly) a function of risk, with the U.S. economy being less solvent than at any other time in history, this implies record-low prices for U.S. Treasuries – not all-time highs…
“Understand what is directly implied here. For maximum supply to be dumped onto this market, while prices didn’t even budge slightly from all-time highs does not merely imply ‘high demand’. It necessarily implies infinite demand. Only where demand was literally ‘infinite’ would we see sufficient buyers instantly materialize (at the highest prices in history)…
“…‘Infinite demand’ is not a plausible explanation for what has transpired in the U.S. Treasuries market…
“As a matter of unequivocal arithmetic, if there was infinite demand for U.S. Treasuries, yields for all maturities of U.S. Treasuries would be compressed to 0%. The fact that (even at the highest prices in history) these yields are not at 0% is absolute proof that there has never been anything close to infinite demand for U.S. Treasuries.
“To make these impossible parameters even more ludicrous, in the real world there are effectively zero buyers for U.S. dollar instruments – and infinite sellers…
“China and Japan (two of the world’s top-5 economies) just announced they are phasing-out U.S. dollars from their bilateral trade. This is merely the latest in an endless series of bilateral and multilateral deals which are incrementally (but relentlessly) removing the U.S. dollar as the world’s ‘reserve currency’.
“To date, these deals have already reduced the demand for U.S. dollars by $trillions per year…
“Even beyond the fact that no other nations want any U.S. dollar instruments, we are confronted with the fact that there are no other (visible) buyers able to soak-up all these unwanted U.S. dollar instruments (including Treasuries)…
“We have a seemingly intractable paradox here. In the real world there is essentially zero demand for U.S. Treasuries, while we have the recent transactions in the Treasuries market directly implying infinite demand.
“More specifically, we have no visible sources of capital to even finance the purchase of all of those Treasuries. Thus the phantom-buyer of all of these Treasuries must be an entity capable of ‘manufacturing capital’ – directly implying that this phantom-buyer has a printing-press at his/her disposal.
“At the same time, we have B.S. Bernanke getting in front of microphones day-after-day insisting that he has ended all of his bond-buying…
“…We have a farce so utterly absurd that it should not fool anyone with the brain-power to be able to count their fingers and toes.” (emphasis added)
“Maximum Fraud in U.S. Treasuries Market”
www.lemetropolecafe.com, Jeff Nielson, 12/29/11
Clearly, the most plausible inference is that The Fed and Certain of its closely Allied Central and Key Mega-Banks (in the U.S., certain Primary Dealers) are (primarily) Covertly buying up these U.S. Treasury (and Other Sovereign) Bonds in Massive Amounts.
This is Massive Debt Monetization is accomplished via largely Covert QE, a.k.a. Money Printing.
Further consider that the ECB is also engaged in Massive Money Printing, via the recently announced LTRO, and otherwise.
We expect this Massive, Monetary Inflation ought to be (and indeed it is) reflected in Massive Price Inflation, at least in certain Sectors.
And so it already has, but the Bogus Official Figures do not reflect that. Consider the Real Numbers for the USA from shadowstats.com** (Note 4 below) and note that U.S. C.P.I. already verges on Hyperinflationary at 10.99% annualized.
Thus the U.S. C.P.I. number provides a key clue to obtaining Treasure from Treasuries.
The ongoing Overt and Covert Money Printing and Debt Monetization are prospectively Hyperinflationary but especially for certain Sectors. Equally bad, this QE Monetization hurts Investors, the Middle Class and most businesses, and helps only Certain Mega Banks.
Consider Bob Chapman:
“It is now obvious to alert observers that the ECR’s new long-term refinancing program, LTRO, is an end-run quantitative easing program…. Then there is Target 2, where the Bundesbank has secretly but legally, lent the ECB $640 billion…. Just five years ago these target claims were just 7% of Bundesbank assets. They now represent 64% of assets…. What this means is that $1 trillion swap, which is really a loan to the ECB by the Fed, will probably be exclusively used to bail out European banks, 523 at last count.
"The elitists want fast GDP growth attained by the issuance of more money and credit as exemplified over the past three years by the Federal Reserve and others. This supposedly allows fast growth. Unfortunately, thus far this has not been successful as yet, just sending GDP slightly upwards for a short period of time. History shows us that 98% of the time this approach has been unsuccessful. It is glaringly obvious that the only thing central banks have tried to do is save themselves, banks and other financial institutions and governments. Little or no effort has been made to rebuild labor markets or to provide capital for expansion, research and market protecting efforts.”
“The Corbett Report | Interview 441 with Bob Chapman”
Apropos of the Mega Bankers saving themselves, consider the analysis of ‘Tyler Durden’:
“Nine weeks after its bankruptcy, the general public still hasn’t quite realized the implications of the MF Global scandal.
“…This is the first tremor of the earthquake that’s coming to the global financial system….
“…There are several extremely serious aspects to the MF Global case: Specifically, how their customers were shut out of their brokerage accounts for over a week following the bankruptcy, which made it impossible for those customers to sell out of their positions.
“…I want to discuss one narrow aspect of the MF Global bankruptcy: How authorities (mis)handled the bankruptcy – either willfully or out of incompetence—which allowed customer’s money to be stolen so as to make JPMorgan whole.
“From this one issue, it seems clear to me that we can infer what will happen when the next financial crisis hits in the near-term future….
“These 40,000 (MF Global) customers were not Big Money types – they were farmers who had accounts to hedge their crops, individuals owning gold … in short, ordinary investors. Ordinary people—and they got screwed by the regulators, for the sake of protecting JPMorgan and other big fry who had exposure to MF Global….
“Now what does this mean?
“It means that nobody’s money is safe. It means that regulators care more about protecting so-called ‘Systemically Important Financial Institutions’ than about protecting Ordinary Joe investors. It means that, when crunch time comes, central banks and government regulators will allow SIFI’s to get better, and let the Ordinary Joes get F _ _ _ _ _.
“So far, so evil—but here come the really troubling part: It is an open secret that there are more paper-assets than there are actual assets. The markets are essentially playing musical chairs—and praying that the music never stops. Because if it ever does—that is, if there is ever a panic, where everyone decides that they want their actual asset instead of just a slip of paper—the system could crash.
“And unlike with fiat currency, where a central bank can print all the liquidity it wants, you can’t print up gold bullion. You can’t print up a silo of grain. You can’t print up a tankerful of oil….
“When is there ever a run on a financial system?
“When enough participants no longer trust the system…. MF Global has moved us a lot closer to this theoretical run on the system.
“As I write this, a lot of investors who I know personally—who are sophisticated, wealthy, and not at all the paranoid type—are quietly pulling their money out of all brokerage firms, all banks, all equity firms. They are quietly trading out of the paper assets and going into the actual, physical asset….
“Tuur Demeester, who runs Macrotrends, a Dutch-language newsletter out of Bruges: ‘The banks are insolvent, the governments are insolvent, and all that’s left is for the people to realize what’s going on—and that will start a panic….
“…The integrity of the systems has been completely shattered. If in the face of one medium-sized brokerage firm going under, the regulators will openly allow ordinary people to be ripped off for the sake of protecting the so-called ‘Systemically Important Financial Institutions’—in this case JPMorgan—what will happen if there is a system-wide run?
“Will they protect citizens’ money?
“I think we know the answer….
“After all, Demeester pointed out, all the banks and all the governments are broke.
“This it’s only a matter of time before they come for your money….
“…Anyone will money in the system will lose at least a big chunk of it, in one of two ways, or a combination thereof…
“We critics of the current, corrupt state of affairs also sometimes confuse the SIFI’s with the system itself, whenever we say, “The whole system is corrupt!”
“But the system is not corrupt—it’s the regulators and SIFI’s who are corrupt.
“…Once the general public catches on to what we already know … oh boy.”
“Guest Post: A Run on the Global Banking System – How Close Are we?”
‘Tyler Durden,’ 12/27/11, zerohedge.com Guest Post via Gonzalo Lira
Investors are invited to consider drawing the following conclusions from this ongoing Central Bank Money Printing and Debt Monetization Derby.
- It is wise to move as many Monetary Assets as feasible into Tangible Assets in relatively inelastic Demand, such as Agricultural commodities, and especially
- that that move should be into the Monetary Metals, Gold & Silver. To be sure, Gold and Silver are subject to ongoing Cartel* Price Suppression Actions, but Deepcaster has developed a Strategy for minimizing the Adverse Impact of their Price Suppression Actions and, indeed, Profiting. See our “Profitability Playing Manipulation” (7/21/11) in the ‘Articles by Deepcaster Cache’ at deepcaster.com
- Since it is not feasible or reasonable to entirely divorce oneself from The Paper Economy, one needs to employ other techniques to maximize the chances of “Beating” Real Inflation. For example, Anticipated Gain plus Yield (i.e. Total Return) must prospectively exceed Real Inflation of e.g., 10.99% in the U.S. (Deepcaster has developed a High-Yield Portfolio with this Goal.)
If any Reader thinks a Financial/Economic Crisis is nowhere near imminent, just consider that on January 4, 2012 Italian 10 year Bond Yields have moved back over the Unsustainable 7% level, and Italy is Too Big to Fail without bringing The System down.
The ECB’s (and Fed’s) Money Printing and Debt Monetization are not working to “save” the Eurozone Sovereigns, but just to buy more time to stave off the inevitable.
The Key to finding Treasure in Treasuries is to take advantage of the Hyperinflation resulting from Mega-Banks increasing Money Printing and Treasury Debt Monetization. One can find a Profitable Refuge in Essential Tangible Assets and Precious Monetary Metals.
By DEEPCASTER LLC
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