U.S. Dollar Dead Bounce Ends, Treasury Bond Bubble Begins to Dissipate
Interest-Rates / US Bonds Jan 07, 2009 - 03:05 PMBy: Jim_Willie_CB
The marquee line best describing the past two to three months has been that the Dollar Death Dance has been fueled by failure of US banks & corporations, along with sponsored assaults against speculative hedge funds. The climate has changed from liquidation and bankruptcies, obviously steered and exploited by the Powerz, toward more legitimate attempts to have a recovery initiative take root across the landscape, It is fast approaching a wasteland. The most vivid signal of market manipulation, intended to benefit the USGovt borrowing costs, and designed to promote the totally false notion of a Flight to Safety, has been the USTreasury bubble.
It is not the last bubble. Next will be the gold & silver bubble in the next few years, as investors wake up to the reality that hyper-inflation is to take root in 2009. We have ridden the gold wave from the start. The precious metals will zoom in the middle months of 2009, as 2008 prices will be seen as the best bargains in a decade. The deflationists will be silent by the yearend. A few key charts reveal some important reversals in trend. Details are in the upcoming January Hat Trick Letter reports.
Tide is turning in an important political manner. Loan modification in the form of home loan balance reduction is finally being discussed by the US Congress. Payola takes time to set up. Foreclosures are not improving, nor are home inventory levels. Generosity is so broad in the corrupt dens in Washington DC that even redemption for Madoff victims is being discussed by the SIPC. Some will double their money from fraud twice committed, in a wonderful made-in-America hybrid scam. Move the entire account over there, reinstate that ‘lost' account over here, pretty simple. A closer look might reveal that some ‘victims' are ringleaders. As the Watergate Deep Throat said in 1973, follow the money, but this time look where it is hiding, with full protection from an extradition-free zone. What few seem to expect, never a surprise to the Hat Trick jackass wannabees, is the next step down for the big banks. Meredith Whitney once again is beating the drums for the Bataan Death March, not yet wrong, hardly revered, but surely respected. What a relief to gaze upon Meredith, rather than Abby Jo!
LONG-TERM USTREASURY BUBBLE BURSTING
Don't look now, but the USTreasury bubble has begun to burst. This should be an ongoing story throughout 2009. The entire sold story of a Flight to Safety is about as moronic and baseless as regarding the US stock and bond markets are regulated. The initial stage was clearly a flight out of non-guaranteed bonds like mortgages and corporates and junk and emerging nations. All but govt bonds were found to be junk! The second stage involves the hangover felt during the morning after, upon realization that the USGovt will fund the $8.5 trillion in pledged programs, bailouts, rescues, and other hidden fraud that are painfully apparent. If they cannot fund via USTreasury issuance, auction, and sale, they will print money and purchase in a process called monetization.
Already, repurchases are messed up by low yields. The Untied States will not inflate its debts away, not at all! The US will inflate everything in sight in order to avert a collapse, with greater debts than ever before, so great that by the summer and autumn months, when more rational reckoning usually occurs, the enlightened discussion will center on potential USTreasury defaults. They are assured, but the framework intended to deceive its inevitability will be cleverly or brutally applied. The main issue right now is that the entire world has begun to spend their USTreasurys, starting with China, and soon enough the US Federal Reserve will reduce its own bloated inventory. Translation: the USTreasury Bond bubble will give off endless gas as 2009 proceeds, since the new primary directive is to produce inflation immediately, at all costs, and to toss aside all moral hazard concerns. The artificially high US Dollar harms USTBond sales.
GOLD RECOVERY WELL UNDERWAY
Gold smells inflation, and does so much more accurately than fickle analysts, even those in the gold community itself. No sign of deflation exists in monetary measures, when the financial sector data is incorporated. Money velocity is at light speed in the corrupted failed financial sector, as desperation has set in thoroughly. Credit derivatives lift the speed way past any reasonably agreed upon speed limit. That financial kinetic energy will find its way to the main street roadways as a result of sheer political forces and utter needs. The gold price has begun to price in mammoth global stimulus. All major currencies are at risk of debauchery. This current week has been telling. The truly huge USTreasury security auctions demanded a rally of sorts in either the USTBond complex or the US Dollar The Powerz thought they could engineer one in the US$, since the guard had dropped. Not so! Notice the bullish hammer this week, as gold refused to go down or stay down.
It smells big time monetary inflation from monetization relief for everything under the sun. As the entire globe embarks on substantial stimulus, the US Dollar might stay afloat for a surprisingly long time. Watch for gold to de-couple from the US Dollar, its alter ego. The MACD signaled a bullish crossover a few weeks ago. Next comes the technically significant bullish crossover in the moving averages. See the 20-week MA (in blue) soon to rise above the 50-wk MA (in red). Technicians react to such signals.
USDOLLAR FILLS GAP
Two major messages come to mind when viewing the US Dollar chart. The first is that the rally has been based upon corporate failure with associated Credit Default Swap payout's denominated in US$. That effect is global in nature. The second is that the powerful decline in December, when reality entire the brain stems to FOREX traders, produced a very big gap that finally has filled from a technical standpoint. They sold at high valuation in a gift opportunity. Some more backing & filling from fluctuating price action might result in the 82-83 range, but it should not be the onset of any recovery for another leg up. The rally on weakness has run its course. Meaningful efforts to prevent a US Economic and US Financial System collapse will assure degradation, devaluation, and a semblance of destruction for the beleaguered US Dollar It is on its last legs after 37 years since its removed tether from gold.
SILVER RECOVERY FINALLY
A nice sequence of bullish daily hammers has occurred during this week. There were three in succession, which confirm the uptrendline that is new in formation. This recovery is a long time in coming. The phony bottom has been set. The Powerz were more vulnerable on their silver contracts than with gold, on a per-contract basis. So they slammed the paper silver price.
CRUDE OIL CONTRACT LIQUIDATION ENDS
This is NOT demand destruction. The puny few percentage decline in demand is temporary, and surely grossly insufficient to explain the 60% to 70% price drop. The wreckage in the oil price is more from calculated, orchestrated, sanctioned genocide of hedge funds by Wall Street elite, with regulatory blessing and full motive to harm firms whose investment positions were in opposition to those of Wall Street firms. A hidden motive is strong: render great harm to both the Saudis and Russians, who are planning to launch new gold-backed currencies within 12 months time. By the way, the Chinese are ordering grandiose increases to their crude oil stockpiles. Call them smart. Call those on the US side corrupt. Also, oil traders are busily attempting to secure tankers to store crude oil bought for speculative purposes. A rising crude oil price usually renders harm to the US Dollar
BANK INDEX READY TO DECLINE AGAIN
Just when you might think the bank sector in the Untied States has rooted in stability, prepare for yet another leg down. Meredith Whitney today spoke of another $40 billion needed in bank capital. Debt downgrades dictate higher assets held on their books, so as to comply with ratio rules. They are so dead, that the word insolvent does not apply anymore. The BKX stock index shows an imminent bearish stochastic crossover, another important technical signal. The trendline shows some powerful resistance. If history is any guide, the BKX stock decline will come before the next stream of bank losses. My forecast is that bank losses will come from the next round of adjustable and Option ARM mortgage losses as well as basic consumer loans like for cars and credit cars, in addition to a new ugly wrinkle of failed commercial mortgages. The bank woes are nowhere near an end.
HOME INVENTORIES NOT IMPROVING
The primary impetus force behind the national wreckage is the powerful rise in bloated home inventories. The new and existing home inventory levels have each breached the 11-month supply levels. No signs of meaningful reduction for either. The flimsy federal programs to aid homeowners have resulted in revolving doors for the people and huge graft payoffs to Wall Street firms, in typical American style. Unless and until the inventories reduce materially and significantly, the destruction of banks and households will continue, in a remarkably simple analytic conclusion. Job losses are huge in recent weeks and months, which worsens matters.
HOMEOWNER DELINQUENCIES
Homeowner mortgage delinquencies are not improving, not a bit. They are growing worse by the month, mainly because the US Economy has entered a disintegration phase, and because no mortgage relief program has any substance whatsoever. The policy to make home loan reduction voluntary to banks is empty and vacant and vapid, when lenders suspect a grandiose nationwide federal mortgage reduction program as near. They wait. The delinquency process will continue until home loan relief has real meaning. The delinquencies assure high levels of unsold property inventory, in plain view. The home foreclosure data shows no sign of improvement either.
SHOCKING VACANCIES
Contrary Investor provides market observations, with great work. A recent survey showed a shocking vacancy rate near 3% that is stubborn holding. Empty homes dot the landscape. Sure, rents will come down, but only because $trillions in home equity are lost. What a tragedy! What a pox on the nation! What a grotesque inefficiency! What a nasty epitaph to the misguided housing construction boom! What a clear signal of failure by the financial sector conmen!
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by Jim Willie CB
Editor of the “HAT TRICK LETTER”
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