Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert
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Commentary by Mark Gilbert
May 21 (Bloomberg) -- The odds on the dollar, Treasury bonds and the U.S. government’s AAA grade all heading for the dumpster are shortening.
While currency forecasting is a mug’s game and bond yields can’t quite decide whether to dive toward deflation or surge in anticipation of inflation, every time I think about that credit rating, I hear what Agent Smith in the “Matrix” movies called “the sound of inevitability.”
Several policy missteps suggest that investors should stop trusting -- and lending to -- the U.S. government. These include the state’s pressure on Bank of America Corp. to buy Merrill Lynch & Co.; the priority given to Chrysler LLC’s unions over the automaker’s secured creditors; and the freedom that some banks will regain to supersize executive bonuses by giving back part of the government money bolstering their balance sheets.
Currency markets have been in a weird state of what looks almost like equilibrium for the past couple of months. What’s really going on is something akin to an evenly matched tug of war that fails to move the ribbon tied around the center of the rope, giving the impression of harmony while powerful forces do silent battle until someone slips.
“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”
Flesh Wounds
Why pick on the dollar, though? Well, not necessarily because the U.S. economy is in worse shape than those of the euro area, the U.K. or Japan. The biggest problem is that external investors -- particularly China -- have more skin in the dollar game than in euros, yen or pounds, which makes the U.S. currency the most likely candidate to meet the cleaver in a crisis of confidence about post-crunch government finances.
China owns about $744 billion of U.S. Treasury bonds in its $2 trillion of
Except the price of gold.:
May want to check the latest bid/cover ratios and foreign participation in US bond auctions. As reflected in the falling yields.
From my understanding, it's quite the opposite to what you are saying over the last couple weeks.
Though, some pretty big auctions coming up yet.
BEIJING (AFP) — A decision by China to reduce its US Treasury holdings suggests concern about the US attitude towards its economic woes, Chinese economists were quoted as saying in state media Wednesday.
The remarks, coming after US data showed a modest decline in Chinese investments in US government bonds, were in contrast to an earlier statement in Beijing which had said the recent sell-off was a routine transaction.
"China is implying to the US, more or less, that it should adopt a more pragmatic and responsible attitude to maintain the stability of the dollar," He Maochun, a political scientist at Tsinghua University, told the Global Times.
According to US Treasury data issued Monday, Beijing owned 763.5 billion dollars in US securities in April, down from 767.9 billion dollars in March.
It was the first month since June 2008 that Beijing failed to purchase more US T-bills.
Well I guess you have to wonder who is actually buying the things then? China says 'we no want no more, please, thankyou!'
So as a trader you have active shorts on gold? I can see it going back to the high 800's in the short term at least? Always Black Swan insurance eh?
Come on Unc admit it. You are annoyed & frustrated that gold isn't at $3000 and the dow at 3000.
Funny though you bring up Japan, more on that latter.
Come on Unc admit it. You are annoyed & frustrated that gold isn't at $3000 and the dow at 3000.
Funny though you bring up Japan, more on that latter.
Any way out of it UF?No, I don't think I'm annoyed or frustrated, learned to de-emotionalise to a certain extent some years ago. Probably surprised that the money shufflers have & can still call the shots, whatever disguise it goes by?
I really think the Fed knows what they are up against, even as far back as the 'contained' announcements some years ago - either that or they don't really have a clue and it's far worse than even an avid gold bug would have dreamt!
It really is an 0 or 1 game coming up pretty soon - they either hold it together or they don't, only the time frame is unknown. So in the meantime gold is still part commodity, part currency. When it becomes solely a currency due to USD liquidation then let the real game begin - tis only a matter of time if you keep a track of the US debt juggernaut?
Any way out of it UF?
How can the US get out of such debt and still keep the currency alive?
Any solution?
Or, do we just all fall into oblivian...
I'm not seeing any 'green shoots', but then again I'm just a dumb ass pyjama trader
Of course you can't as 'green shoots' can only be viewed when both eyes are open, not just one
Whether these 'green shoots' take hold or wither and die is the issue.
Oil was sold down because demand vanished - economics 101 - just check the figures for global trade the last year or so, gone off a cliff. Oil is back to break even for producers.
You talking about the 'green shoots, second half' recovery? The one where the US has to find an extra 2 TRILLION paper IOU's to get someone to give to them, or recently, print!
'when the world recovers'? You mean if the world recovers? The cycle theory is busted, we are at the start of Japanese stagnation on a global scale?
California, the 5th largest economy in the world, is bankrupt! Federal income tax receipts for April were a shocker, creating a net deficit for the first time in several decades!
Unemplyment - the real figures are somewhere around 15%! The Fed are now paying the unemployed $2000 a month benefits trying to prime the economy, as compared to normal benefits of around $500/m! I'm sure they all go out and buy the latest flat screen TV or a second investment property?
Income is falling while debt & unfunded liabilities is rising at an parabolic rate. The real game on Wall St is to get as much of the billions getting handed out before the hole jalopy comes crashing down. One estimate was that $50 billion was going to be 'collateral' wastage!! by scammers and corporate looters!
The show aint over yet, not by a long way! The 'insurance policy' is still current and there is a sizable client base taking out new policies every day - ie check the ETF's etc. The US gives the OK for the IMF to sell it's gold - gold barely flinched.
The USD - China has suddenly gotten a bad case of USD indigestion recently, something to do with someone printing more of them (helicopter Ben has come through with his promise), hence diluting the value of existing USD's??
Bond yields say that creditors want a higher return for the junk now.
"how many people seem to have most of their money, and all of their portfolio in gold, or gold stocks!"
This is interesting? Is this data published by the ASX or someone? Or are you assuming?
PS - just aboout everything the 'gold bugs' have been saying for the last few years has come true - why start to doubt them now? The game continues........
Hi Uncle,
Although, I must say - I was quite pleased to read that explod would sell his holdings if gold began to deteriorate. I confess, explod - I've held a fear for a while that you would end up keeping the stuff until the day you died!
Well now, you will be even more pleased to know that today I sold all of my gold stocks. I am out. I will not sell my physical as that is a longer term thing. The market though is very spooky and last Octobers fall has sounded an alert button even to old Plod.
The Dow is on the verge of a total collapse in my view and all stocks will take an enormous bath.
Thank you for the concern old son. Because we know we will be fine. I feel very sorry for the poor devils that dont'.
You're joshin'
Mostley tounge in cheek as you all know, but never more serious in my life on the last.
We are in for a bath, prontus asorus.
And the gold price tonight, DOWN, the great US dollar UP, the world is crazy man. Read the posts of Uncle above, dont' peddle or follow him, but his info is spot on in my view.
No, I do mean when the world recovers. I can safely say, with complete certainty - that one way or another, the world as a whole will recover. Individual countries may not, granted - but I honestly know that the world will.
Have you even contemplated that one of those countries that will not recover is the USA?
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