Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
How Much CHIA Coins Profit from 100 Plot 10tb Farm? Hard Drive Space Mining - 13th May 21
Stock Market Bulls Getting Caught in the Whirlwind - 13th May 21
Legoland Windsor Mini land and Sky Train Virtual Tour in VR 360 - UK London Holidays 2021 - 13th May 21
Peak Growth and Inflation - 13th May 21
Where’s The Fed? Watch Precious Metals For Signs Of Inflation Panic - 13th May 21
Coronavius Covid-19 in Italy in August 2019! - 13th May 21
India Covid Apocalypse Heralds Catastrophe for Pakistan and Bangladesh - 13th May 21
TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
Gold Price During Hyperinflation - 12th May 21
Stock Market Extending Phase Two? - 12th May 21
Crypto 101 for new traders – ETH or BTC? - 12th May 21
Stock Market Enters Early Summer Correction Trend Forecast Time Window - 11th May 21
GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
Cathy Wood Bubble Bursts as ARK Funds CRASH! Enter into a Severe Bear Market - 11th May 21
Apply This Technique to Stop Rushing into Trades - 10th May 21
Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
CHIA Getting Started SSD Crypto Mining by Plotting and Farming on Your Hard Drives Guide - 9th May 21
Yaheetech Mesh Best Cheap Computer /. Gaming Chairs on Amazon Review - 9th May 21
Breaking US Trade Embargo with Cuba - Build 7 Computers in 14 Hours Before Ship Sales Challenge - 9th May 21
Dripcoin Applies New Technology That Provides Faster Order Execution - 9th May 21
Capital Gains Tax Hike News: Was It REALLY to Blame for Sell-off? - 7th May 21
Stock Market Transportation Index Continues To Grind Higher - 7th May 21
SPX Stock Market Correction Arriving or Not? - 7th May 21
How to Invest in an Online Casino? - 7th May 21
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Treasury Bonds Safe Haven Could Sink

Interest-Rates / US Bonds Jul 10, 2010 - 01:17 AM GMT

By: Casey_Research

Interest-Rates

Best Financial Markets Analysis ArticleBy David Galland, Managing Editor, The Casey Report writes: This morning I read an interesting story in Soundings magazine. It recounted the final voyage of the S.S. Morro Castle, purportedly one of the safest ships afloat back in 1934 when it regularly transported revelers on junkets between New York and Havana. Then, on the night of September 8, a series of unfortunate events occurred that ended with the ship washing up on the New Jersey shore the next day, close to half of its 300 or so passengers dead.


First, the ship was hit by a storm. Then, while fighting the towering waves, the veteran captain clutched his chest and fell dead from a heart attack, moving a less experienced man into command.

Next, a ship's steward discovered a group of drunken passengers entertaining themselves by flicking lit cigarettes into a trash can in one of the salons. About an hour later in that same salon, a fire broke out.

With the ship still battling through the heavy waves, the crew now had to turn to putting out the fire - but were shocked to discover that there was no water pressure, rendering the fire hoses useless.

Making matters decidedly worse, shortly afterwards the fire ignited an explosion that blew out the salon window, sucking in the air necessary to turn the blaze into an inferno.

Quickly thereafter, the raging fire burned through critical ship's wiring, causing the electricity to short out. That, in turn, resulted in a failure in the steering, leaving the ship helplessly afloat in the turbulent seas.

With the blaze rapidly spreading, the replacement captain gave the command to abandon ship, but as there had been no lifeboat drills, the scene quickly descended into chaos and death that ended several hours later with the burned-out hulk washing ashore... turning the floating party palace into the ruined remains seen in the photo here, in the proverbial blink of an eye.

The story resonated with me on a number of levels, but first and foremost as a cautionary tale that even when everyone agrees that something is "safe," events can quickly prove otherwise.

For example, in the current economic context, U.S. Treasuries are considered the safest of harbors for storm-weary investors. But that assumption contains within it the further expectation that the status quo will prevail - that, proverbially speaking, no captains will drop dead, or drunken passengers will set a fire by playing a truly mindless parlor game. Further, should such unexpected events occur, a widespread belief holds that the water pressure will be there when needed, and that the power won't cut out at the worst possible moment.

That's a lot of assumptions. And those just named are specific only to a ship at sea - not the complex system of the U.S. economy, which is, in turn, but a cog in a globally interconnected market. In other words, a system that is unimaginably complex.

In the pre-history days of emerging human consciousness, upright apes viewed the overt expressions of the complex system that is nature - volcanic explosions, lightning, seasons, drought, pestilence, etc. - and tried to make sense out of it all by organizing around belief systems that today would be considered laughable. At the time, however, dancing around open fires bedecked in certain animal skins or allowing shamans to sacrifice virgins were seen as effective methods for controlling the natural chaos of things.

Even though the nature of our belief systems has grown less barbaric, we modern humans still persist in nonsensical notions and associated rituals that are viewed in much the same light - rituals that do little more than pretend to control the chaos intrinsic to life on this small globe spinning through space.

Most prevalent among the modern belief systems is that shamans of government and high finance can, by virtue of their Harvard degrees and clearly advanced intellects, effectively manage large economies. The fallacy in this notion should be evident to everyone - here in the U.S., it's as simple as noting how everyone from the Fed chairman to almost all of the nation's political leaders and the best and brightest on Wall Street failed to anticipate the current crisis. Any way you slice it, the lot of them were caught as flatfooted as the crew and passengers on the last voyage of the Morro Castle.

One minute, big party... the next, diving over the side of a ship to an uncertain future in mountainous, storm-tossed waves.

Forget assuming the power and water will stay on - for the shamans to have missed the pending crisis is akin to the ship's captain entirely dismissing even the idea that a storm at sea were possible.

But a failure of foresight isn't the worst of it. The worst of it comes from the idea that, when troubles do arise, the modern shamans can dissect the entrails and proscribe a regulatory brew that magically solves the troubles, and solves them for essentially all times.

Case in point, currently the European Union is laying the bricks for a new round of regulations that limit bankers' compensation and require some substantial percentage of any bonuses they receive to remain in escrow for years, and be payable only if the bank does well. The eurozone is not alone; similar legislation is in the works in the U.S. as well.

This, we are told, will somehow prevent any further excessive risk taking of the sort that laid the world's economy low. This, of course, completely ignores the lead role the world's governments played in creating the debt bubble at the heart of the crisis - but that's not a topic the shamans will be addressing anytime soon.

Even so, I would concur that in the cases where a bank receives government funds - which it shouldn't - the government, as shareholders, could agitate with other stakeholders to vote down excessive, or excessively risky, compensation schemes. But that's an entirely different thing than a heavy-handed new attempt at regulating out all risk in the banking sector. Should such regulation pass, and it likely will, all it will actually serve to do is create an exodus of the more intelligent members of the sector to banks operating in less restrictive regimes. Money goes where it is treated best, and so do bankers.

And, again, this is just a speck of dust on a broader body of legislation and regulation that will get much worse before it is finally revealed for the virgin burning that it is.

Am I suggesting that any and all regulation should be done away with? I have to admit I find that idea tempting because it would immediately create an environment in which people would have to rely on their own judgment - or on that of those they trust - before making an important decision.

Think about it. What would happen if the government pulled its deposit guarantees from the banking system? I can assure you people would pay a lot more attention to the capital levels and loan policies of their financial institutions.

That said, I can get my head around the idea that some minimal operational standards may need to exist. Flipping back to the cruise ship metaphor, I could see some requirement that the proverbial fire dousing systems be kept up to code, and that the steering has a backup system. But even if those standards didn't exist, I have to believe that cruise ships would soon learn to compete on safety measures as well as luxury.

Alternatively, people could risk sailing on a less expensive and somewhat less secure line... or not take a cruise at all. It's not a perfect world, and not everyone is going to enjoy the perfect life, no matter how much the shamans promote the idea that they can deliver just that.

Back to the financial matters, it's increasingly important to view the steady passage of draconian legislation and regulation in much the same light you'd view the sacrificing of virgins. In almost all cases it accomplishes nothing and solves nothing. In fact, as often as not, it is decidedly counterproductive - lulling people into a false sense of security or causing them to make misguided decisions about their businesses or finances. Not to mention forcing businesses to spend money that could otherwise be invested more profitably on nonsense such as carbon taxes.

Of course, I am but an inconsequential squeak in the night: The current belief system will remain intact for many years into the future, probably the rest of our lifetimes.

Thus, the best thing you can do is to become as self-responsible as you can - trusting no shaman and approaching every important decision with a clear understanding that if things go wrong, no one - and no entity - will be there to make it right. Increasingly, as the sovereign states get noticeably bankrupt, that will be the case.

Viewing the world in that context, it's hard to consider the unbacked IOUs of any government a safe investment, no matter how fancy or elaborate are the shamanic runes decorating the paper.

David Galland, investing legend Doug Casey, and economists Bud Conrad and Terry Coxon make up the editorial team of The Casey Report. Every month, they analyze big-picture trends in the making and find the best investment opportunities to profit from them. To learn how to make money even in the worst of times - click here.

© 2010 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in