“’The Fed can continue to spew out QE until the bond market says it can’t.’ - Richard Russell. PS: The bond market has said that ‘it can’t.’”
Richard Russell, dowtheoryletters, 06/21/2013
“The real menace of our Republic is the invisible government which like a giant octopus sprawls its slimy legs over our cities, states and nation. At the head is a small group of banking houses…This little coterie…runs our government for their own selfish ends. It operates under cover of a self-created screen…seizes…our executive officers… legislative bodies…schools…courts…newspapers and every agency created for the public protection.”
John F. Hylan, Mayor of New York, 1918-1925
“Some even believe we (the Rockefeller Family) are part of a secret cabal working against the best interests of the United States, characterizing my family and me as internationalists and of conspiring with other around the world to build a more integrated global political and economic structure – one world, if you will. If that’s the charge, I stand guilty, and I am proud of it.”
David Rockefeller, Memoirs, page 405
“The Critical Trend toward higher interest rates has begun,” Deepcaster has been saying for several weeks now. And yields on the most important rate in the world – the U.S. 10-year Treasury – have popped up to 2.6%ish from well below 2% just a few weeks ago.
And all this simply because The Fed announced a conditional (confirmed by Fed Governor Dudley) plan to begin tapering stimulus, later this year. But isn’t it true that since the initial Negative reaction to this conditional tapering plan was so severe – witness the consequent Bond and Equities Markets sell-offs – that The Fed will likely not be able to remove stimulus according to plan by 2014?!
In any event, the consequences of this Climacteric Trend of increasing Interest Rates for Investors, Markets, and Economies are considerable regardless of whether The Fed tapers according to plan. Consider just Brazil, Australia, Japan, Spain, and Italy, as examples.
On the news from The Fed, Brazil’s 10-year rate shot up over 200 BPS from 9.5%ish to 11.5% and, consequently, Brazilian interest rates to businesses and consumers shot up too. Coupled with the slowdown in Chinese demand for raw materials from Brazil and China’s curtailing of Credit to businesses, this puts a considerable crimp in Brazil’s Emerging Market economy. And Australia too has suffered similar effects with a shock to its Equities Markets and a dramatic drop in the Exchange Value of its Currency. And if the Yield on the Japanese 10-year reaches 2%, 80% of Japan’s Tax Revenue would be required to service that Debt.
And so too does the interest rate spike and upward Rate trend for the economies of Spain and Italy, and ultimately the U.S.A. Rate spikes increase the debt servicing burden, and dangerously so for over-indebted countries such as Japan, Spain and Italy. None of the Eurozone’s structural problems has been solved and increasing rates will make achieving a Real Solution more difficult, if not impossible.
And all this occurred simply on the Catalyst of the announcement of The Fed’s conditional plan for tapering. But consider implications of the fact that increasing rates will make debt service that much more difficult (and impossible for some), and not just for Japan, Spain and Italy, but also for the USA and other Debt Saturated Nations.
All the foregoing implies that any Economic Recovery will be that much more difficult everywhere. And that implies that The Fed (and other Central Banks) will not be able to end QE according to schedule. Or, until Hyperinflation forces them to. In sum, QE to Infinity, (i.e. until likely Hyperinflation and then collapse), looms on the horizon. Key Investment Strategy: Be prepared for much Higher Inflation [of course, Key Official Sources dramatically understate Inflation already – for example, Real Inflation is the U.S. is already nearly 9% per Shadowstats.com].
Another consequence of the U.S. Treasury Rate Spike was a boost for the $US vis-à-vis other Fiat currencies. The $US was up nearly 200 BPS on the news. Not surprising, because two major determinants of a currency’s strength are Interest Rates and Purchasing Power Parity. Result: Interest rates UP, therefore Dollar UP (but only for the short to medium term as our analyses published elsewhere show).
Consider finally one other development with profound Investment implications:In the week of The Fed’s Tapering announcement, Bonds fell along with Equities. Typically, Bonds strengthen when Equities fall because they are deemed a Safe Haven. Both falling together is Ominous. See our Forecasts & Notes 2, 3, 4, and 5 below for the forward looking implications.
Given the Hyperinflationary Threat resulting from the Central Bank’s Money Printing, Investors wisely would turn to Real Money, Gold and Silver, as Safe Havens.
But Real Money is a Mortal Threat to the Central Banks Fiat Currencies & Treasury Securities (witness e.g., the Indian Central Banks/Government’s repeated increases in Tariffs on Imported Gold).
And predictably, The Fed-led Cartel (Note 1) is using $US strength as a pretext to yet again take down the paper prices of Gold and Silver.
Significantly, however many Central Banks are using this Paper Price Takedown as an opportunity to purchase Physical as are Investors in China and India in increasing amounts.
We have earlier advised, and do still advise, that investors seriously consider taking their cue from the Central Banks, Chinese, and Indians to Buy, and take personal delivery of Physical while it is cheap. This will allow you to move some of your assets outside of the banking system. We forecast you will be very happy you did that in the not too distant future.
Cyprus “Bail-ins” (making large Depositors liable for Banks’ liabilities—e.g., Sovereign Debts not being Repaid) are likely to be writ large in countries around the world. In other words, if Sovereign Debts can not be paid due to rising Rates (already the case for some countries) then “Bail-Ins” for Banks hold the Toxic Paper become highly likely. Indeed, Mega-Banks around the world are prospectively legitimizing “Bail-Ins” of Depositor Funds.
“Have you protected yourself from the inevitable bail-in? Theft is coherent only to thieves. The banks lost the money. You did not. You can be sure the banksters are fully protected from bail-in….
“France Finance Minister: Including ESM Option in Bail-In Makes Whole Deal Coherent
“BRUSSELS–Including the European Stability Mechanism bailout fund in the plans for rescuing banks creates "solidity and solidarity" for the bloc, France’s finance minister Pierre Moscovici said in the early hours of Thursday morning, after EU finance ministers reconvened following inconclusive talks in Luxembourg last week.
"’Some countries didn’t think on Friday the ESM should be included, we thought it should, be, it is–and it makes the whole thing coherent,’ he told reporters after the meeting. ‘It didn’t seem coherent to me to put in place on the one side a direct mechanism for recapitalization through the ESM, and on the other side, to exclude the ESM from the flexibility.’
“He said while the deal need to be finalized in the trialogue process, which involves the European Parliament and European Commission, the deal overall is "entirely satisfactory for France."
Jim Sinclair’s Commentary
“This says it directly. You as a depositor are an unsecured lender to the bank. You are screwed.
“EU makes bank creditors bear losses as Cyprus bail-in becomes blue-print for rescues
“New European Union “bail-in” rules to impose the losses of failed banks on shareholders, bondholders and some large depositors were agreed early this morning by Europe’s finance ministers.”
-- “By Bruno Waterfield, Brussels, 9:38AM BST 27 Jun 2013”
Jim Sinclair, jsmineset.com, 06/27/2013
Optimistically, the dramatic ongoing increase in Treasury Yields may provide a catalyst for a launch up in the Gold and Silver Markets and possibly beginning in the next few weeks too. And that would be helped along by the Bullion (Cartel) Banks Massive Reduction of their Short Positions in recent months, which they have already achieved. Indeed, the Central Banks continue to accumulate and East to West Demand for Physical intensifies. And then there is the matter of the depleted Comex and LBMA Inventories of Physical which we have discussed before!
And clearly, the linchpin of the Mega-Banks’ Cartel’s strategy is to depress the prices of all important Real Assets (witness commodities recently) but above all Gold and Silver prices. Indeed, the Paper Gold Price has now been pushed below the cost of Production for some Miners.
With Bonds and Equities both Tanking and China slowing, and Interest Rates increasing it is no surprise that the US$ has shown and will continue to show strength, short-term.
Thus, the perceived Ostensible Strength of the U.S. economy vis-à-vis other major ones should help keep the $USD trading near the top of its 80-84 trading range (basis USDX) for a while longer. But we reiterate that the massive and unrelenting printing of $US (the Fed’s balance sheet is now over $3 Trillion!) has already pushed Real U.S. Inflation to the Hyperinflationary Threshold (8.99% per shadowstats.com). Indeed, it bumped up from 8.70% to 8.99% in just the last month. The Trend is there for those with the Courage for the Truth to see.
Long-term the $US is still doomed to lose half its Purchasing Power vis-à-vis Key Real Assets: Oil, Food, Gold, and Silver, and hard currencies (e.g. AU$ and CA$). That key underlying trend prompts us to call the Trend of Rising Interest Rates what it is: a Massive U.S. Treasury Bond bubble. And it is a Bubble that is beginning to Burst.
In sum, given that Equities and several other Key Markets are now (pathetically) mainly dependent on the Reality and Prospect of Q.E., it is highly unlikely that The Fed or other Key Central Banks will actually taper any time soon. It is likely they will periodically talk tapering (i.e. Jawbone as they recently did) because it helps achieve their purposes of aiding their Mega Banker owners/Allies and keeping rates low. But QE to Infinity (almost) is here, and “bail-ins” are on the horizon.
In sum, notwithstanding the Fed’s $85 Billion per month Bond Purchases which will continue for a while longer per the recent announcement, the critical trend toward higher interest rates has begun. As Paul Volcker (the last competent Federal Reserve Chairman) recently said, “Once you have the idea that a little bit of inflation is a good thing, it is very hard to get rid of it.”
A long-term bet on weakening US Treasuries and strengthening Physical Gold and Silver Prices should be most profitable.
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