[ALERT] Treasury Auction Results, Is the Fed going to cause another crash?

Public Debt News

I'm not usually one for pure threads about bonds but as I am education myself on the matter I might as well give you the information as well.

From one of my favorite sources... Hot right off The Ticker blog:

Here's what happened:

The auction results make absolutely no sense under "conventional wisdom."

Median yield down, primary dealers took about half and indirect bidders took the other half, basically.

What? 50% take for foreign central banks on 30y debt at a 4.6ish coupon?

Here's the HUH?

That makes no sense given what we're being told is coming: massive inflation, maybe even hyperinflation, commodities ramping to the moon, the stock market going to the moon in a hyper-inflationary printing explosion.

The stock market rocketed on the release. I couldn't make sense out of the initial FX moves, especially in the DX and Yen. Someone was front-running in the financials bigtime as well, with a big ramp for an hour or so prior to the results.

Folks, if you think hyperinflation is coming, or even serious inflation, you're going to get your head cut off on a 4.6% 30y bond. In fact you could easily lose half or more of your investment, should you need to sell, and your coupon will be half or less of what it should be.

Here's the end:

So how does this make any sense?

There is only one reason for the FCBs to want this sort of exposure:
They expect a ramp in the dollar and crushing DEFLATION, as this is the only way that bet will pay off.

If you're on the other side of this trade in any way, I hope you are putting on some sort of hedge.

Remember, foreign central banks can FORCE a pull in liquidity and make their desires a self-fulfilling prophecy.

Care to bet against someone who can make their bet pay off?

That's what I thought.....

And finally the warning:

PS: If this analysis is correct then we're in for some really NASTY trouble, quite soon.

So in conclusion we are in bizzaro world again, with the market giving us a clue as to what will come. Now those last 2 lines are the most important out of this whole post...
"Remember, foreign central banks can FORCE a pull in liquidity and make their desires a self-fulfilling prophecy. Care to bet against someone who can make their bet pay off?"

If you dont understand what what a pull in liquidity is... It is what caused the 08' Crash. The Fed pulled 100 Billion in bank liquidity out of the market and destabilized it!

Now use your brains and tell me what that means.

I sure am going to have to buy new pants if they do that again.

[edit on 6/11/2009 by Tentickles]

Here's a little more from Zero Hedge You'll be interested to know.

Ever since the 30 year auction closed earlier, the market has been acting about as rationally as the Stalingrad Bourse back in 1939. Nowhere can this be seen better than the volatility in the 15 Year mortgage. Vol has moved from stocks, to CDS, to treasuries and is now roosting in mortgages. Rinse. Repeat?

[atsimg]http://files.abovetopsecret.com/images/member/752d3d881738.jpg[/atsimg]

An even more vivid representation is the spread between the 30 year mortgage and the 10 year UST. Holding our breath for the SEC to release the 8-K saying this is normal and expected market gyrations.

[atsimg]http://files.abovetopsecret.com/images/member/700ab832d8e1.jpg[/atsimg]

I have never seen such a hectic jumping in any type of graph related to this!!

At the risk of sounding extremly uneducated, would you mind putting it into a laymens terms for some of us?

I see the sharp spikes, and I'm about to check out your original link, but my bet is the economic mumbo-jumbo will pick at me.

Sorry for the double post.

[edit on 11-6-2009 by ThirdJohnAdams]

Household Wealth in U.S. Decreased by $1.3 Trillion

U.S. household wealth fell in the first quarter by $1.3 trillion as home and stock prices dropped, extending the biggest slump on record.

Net worth for households and non-profit groups decreased to $50.4 trillion from $51.7 trillion in the fourth quarter, according to the Federal Reserve’s Flow of Funds report today. The government began keeping quarterly records in 1952.

One positive aspect of today’s Fed report is that the decreases in net worth are starting to ease. Wealth dropped by a record $4.9 trillion in the last three months of 2008.

Ticker

But...

If you look inside the Flow of Funds report you will see that total liabilities have decreased by only $178 billion.

That is, asset values have declined at a rate nearly ten times that of the debt in the system against those assets.

This is the definition of the problem:

The so-called "asset gains" were fraudulent and have evaporated into the wind, but the debt taken on to acquire them remains as a millstone around the consumer's NECK!

I keep coming back to this same point, and the data continues to say the same thing:

There is no possible durable economic recovery so long as value is destroyed but debt is not, because as debt-to-equity ratios rise debt service becomes more difficult, credit quality declines, and both of those facts force diversion of income to paying down debt and contracting the consumer balance sheet.

You can keep trying to blow bubbles and you might even "succeed", as we did in 2003 - but you see what it got us. A jobless "recovery" and then a ruinous crash. If we allow this to be attempted again the duration of the 'recovery' will be shorter, shallower, and the resulting crash even worse!

WE MUST STOP BEING STUPID IF WE WANT A DURABLE ECONOMIC RECOVERY FOR OURSELVES, OUR CHILDREN AND GRANDCHILDREN.

Just piling more an more bad economic news from JUST TODAY!

[edit on 6/11/2009 by Tentickles]

reply to post by ThirdJohnAdams


The market is reacting to all the interference from the outside. Just sit back and watch everything freak out then tumble.

your missing a small piece of the puzzle...

The average rate for a 30-year fixed mortgage was 5.59 percent this week, up from 5.29 percent last week, Freddie Mac said. The last time the average 30-year fixed rate mortgage was higher was the week ended Nov. 26 of last year, when it averaged 5.97 percent.

Why? no one was buying notes so...

On Wednesday, the government was forced to lift the yield on 10-year Treasury notes to 3.99 percent to lure in buyers at an auction. That was the highest yield it's offered since last August, before it started bailing out the nation's financial industry. That act, seriously hurt the recovery effort

Of course everyone was expecting this to happen however we didn't expect to see it quite so soon

From this we can make a couple of predictions... First with all credit rates on the rise again we should, short term, see another round of big ticket buying... folks trying to get things now before interest rates get to high... then we get another crash... fed has to again lift the yield and interests gets hiked again... another quick burst of buying then another crash... you see where this is going right? each time interest rates go up... what we by becomes worth less but what we pay to borrow the money to get it goes up higher and higher. to cover interests rates prices have to be inflated an to keep pace, interests rates go up too... all the while downgrading the items real net worth... hyperinflation... when a load of bread cost $10,000 a loaf..

So you may ask how long with that take??? Who knows... there are places where it happened over night, others where it took years but with a full 5% of our nations wealth owed to other countries it's likely to happen sooner then later

[edit on 11-6-2009 by DaddyBare]

Dollar will be a wild card for stocks this year

NEW YORK (MarketWatch) -- The dollar is likely to remain an unpredictable factor in the market this year, with fear that huge issuance of government debt could send it sharply lower and fuel inflation, while further strength could curb a recent rally in commodities-related sectors and hit multinationals' overseas profits.

Text in bold most likely.

One of the comments puts this all into a nice little sentence:

Look the US has for sometime been like a patient with an incurable disease, compulsive borrowing from everyone including the future generations to pay for its seemingly incurable spending habit. Now the masive injections of liquidity are by some miracle supposed to save the patient, or they're gonna' kill it!

MarketWatch Comment

[edit on 6/11/2009 by Tentickles]

reply to post by Tentickles


I must say your simplified explanation worked perfectly well. I'll meddle my nose in areas I'm suited for. You market guys seem to really be on it.

And what you said seems to be the best way to describe everything as of late.

Originally posted by ThirdJohnAdams
reply to post by Tentickles

 

I must say your simplified explanation worked perfectly well. I'll meddle my nose in areas I'm suited for. You market guys seem to really be on it.

And what you said seems to be the best way to describe everything as of late.

I try my hardest to explain everything as simply as possible. Believe me I wish there was someone like me when I first started getting into this stuff.

Glad I could help.

Bloomberg

June 11 (Bloomberg) -- Treasuries surged as an $11 billion sale of 30-year bonds drew the highest yield in almost two years, luring investors concerned that record government spending and debt sales will lead to inflation.

The bonds sold today drew a yield of 4.72 percent, the highest since August 2007, and above the 4.80 percent average forecast by eight bond-trading firms surveyed by Bloomberg News. The sale is a reopening of the $14 billion 30-year bond auction on May 7, which drew a yield of 4.288 percent.

What does 4.72% of a 50-cent dollar come to?

The big boys are just squeezing the last bit of blood out of the turnip....right now it's a musical chairs game....they're all dancing around making trillions, and they fully realize that when the music stops, there will be only ONE chair to grab...and the sad news is that the Americans are not in directing the band..

There seems to be a BIG foreign player involved here to make this happen....like Karl says, it doesn't make ANY sense until you consider the possible endgame....the complete and utter destruction of the United States of America...

[edit on 11-6-2009 by RolandBrichter]

Obamarket Update #94 for Monday June 8, 2009: There’s a Crash Occurring, is Anyone Listening?

That crashing noise you’ve heard was not the volume on the NYSE and DJIA as it did not exactly reflect commitment to the short, intermediate or long term. No, the crashing noise and focuse of tonight’s column was the United States Treasury Market and now that the 2 year note has continued its move from Friday the panic you are hearing is that of one Mr. Ben Bernanke going “oh #” if the yield curve starts to narrow from the 2 to 30 year range.

If this spread narrows too fass with a 2.5-3% 2 year and a 5% 10 year, we will see some major market distortions. But what I fear worse is that the laws of supply and demand kick back into gear and the auctions this weak only go “fair” causing a huge amount of doubt and a further accelerated price decline thus a higher yield. That would be the trigger event for an equity sell off at some point as the foreign participation will speak volumes about their perception of the U.S.

Thus with that said, here are the bond charts with my opinions on them and note rapid rise of the 2 year yield of over 40 bps in 3 days.

Read the entire post for more information, theres a curse word or two so I wont copy paste the rest.

Below is a link to a piece from Shenandoah/John Galt that I posted in this forum back in February. With everyone speculating over today's impressive 30yr auction results, a review of this missive might help connect a few dots. How many of today's indirect bidders were foreign CB's ?...and how many were actually offshore hedge funds controlled by US banking interests ?

It was anticipated that the Fed would defend the long bond here......your tax dollars at work

Note that recently (Sept 08 - March 09) , the 3rd largest buyers/holders of US treasuries are none other than the Carribbean Banking Centers.

Who are the Caribbean Banking Centers ?

I'll leave you with an excerpt from John Galt's prophetic summation:

Has Back Door Debt Monetization Already Begun?
by John Galt
February 26, 2009

....holdings of the apparent hedge funds in the Caribbean, most of which are subsidiaries of companies that did in fact receive TARP and other government handouts, have more than quadrupled their total holdings but why and under who’s direction? It would make sense to launder the money via the Caribbean to insure that the Fed can still proclaim to world markets and uphold confidence in our markets that direct monetization of our debt has not begun. Using Treasury alternatives via Primary Dealers and their Caribbean subsidiaries along with other handout recipients does provide an almost bulletproof deflection of what appears to be the obvious. It is also a logical method to insure that mortgage rates remain artificially low and calm the markets down to prevent drastic resets of Option ARM mortgages and other adjustable rate instruments which are not just impacting the residential markets but the commercial real estate arena now also.....

....Just maybe this was to protect the long end of the curve just in case the foreigners elected to dump their 10’s and 30’s and buy the short term Treasuries only. We may never know until a historian digs through the archives and reveals just what the meetings with the Federal Reserve and Treasury were really all about.

Full Text

Related: Tonight's Update

June TIC report should be interesting.

GL

reply to post by OBE1


Thank you for posting that OBE1, I was just about to do so myself, since he just mentioned it in his newest post.

Obamarket Update #96 for June 11, 2009: DUH!

There was a ton of consternation and amazement as the 30 year Treasury yield dropped today after an “unusual” and “miraculous” auction where “suddenly” there was lots of words like deflation, stability, ‘green shoots’, recovery and of course, my favorite phrase “start of a bull market” were tossed around like a Bison Frise at a Michael Vick pit bull practice session. If you believe any of those phrases hold validity, you can stop reading now and download a porno or replay the latest MSNBC program because you’re probably too stupid to live. The auction was a rousing success because “DUH” the Fed had to have a rousing success. But how dare I accuse our beloved favorite private corporation of rigging a market without a pretty picture to illustrate it. I refer back to my old posting from February where I dared to ask the question “Has Back Door Monetization Already Begun?”

[edit on 6/12/2009 by Tentickles]

reply to post by Tentickles


Of course the ticker was right but didn't explain properly..

He is right in saying that Inflation of the Core Consumer Price Index will rise..

Food
Oil
Gold
Energy
The Stock Markets WILL shoot to the moon, as the money has hit the markets running..

But Wages will continue with extended Stagnation, and due to unemployment average Per Capita Income will DECREASE..\

Inflation of the Markets..

Deflation of the Purchasing Power..

Equals the exact same thing that peaked in August of 2008 ..

There has been a lot of debating.. are we in Deflation or Inflation .. I think ultimately, without growth in Per Capita Income, wage growth, ie. purchasing power.. we cannot and will not enter an era of hyper inflation, or even steep inflation ..

We will continue in a Deflationary Spiral.. as the Currency and Purchasing Power deflates, the cost of commodities will increase.. The ONLY reason we are seeing inflation is the devaluing of our currency -- please see 2001-2008.... we are making this economic crisis into a cycle within a cycle.

reply to post by Rockpuck


Great response my friend you are always on the ball.

This has already started with Milk.

Originally posted by Rockpuck
reply to post by Tentickles

 

We will continue in a Deflationary Spiral.. as the Currency and Purchasing Power deflates, the cost of commodities will increase.. The ONLY reason we are seeing inflation is the devaluing of our currency -- please see 2001-2008.... we are making this economic crisis into a cycle within a cycle.

While your model is correct, and represents the situation fairly well - some of your terminology is a bit inaccurate.

Your last paragraph doesn't make much sense - when the currency and purchasing power goes down, that's inflation - not deflation as you suggested, and of course commodities will go up.

What I suspect is that wages will go down at first - until inflation really starts to get a grip - then it will go up, but real wages will drop like never before in the US - you are likely to have 3rd world standard of living shortly, with no recovery from that state ever intended.

What is happening is Stagflation (high unemployment, industrial stagnation, recession and inflation combined) - this does NOT rule out hyper-inflation.

Also you assert that the US is suffering inflation ONLY because of the devaluing of the $US?? That is the DEFINITION of inflation - debasement of the currency - loss of purchasing power due to oversupply of money.

What is interesting is how far the money is being kept away from consumers - this means the average Joe is probably paying for nearly ALL of the inflation tax on this money - its being neatly done.

Stagflation is being caused because the money is not getting where its needed - it is being carefully managed by the banks to go into basically useless endeavors that are not going to help anyone. That the banks have money is well known - but it is going into useless areas.

There are now three main sources of spending by the Federal Reserve through its agents, this is where MOST of the 'bailout' money is going;

1) Money is being filtered to participating banks to supply gold and silver futures, let them appreciate a bit - then buying them back at a loss. This exercise holds down the gold and silver prices - artificially propping up the $US - and all other fiat currencies - if this wasn't done - you would see that most currencies are in free fall at the moment.

2) Buying up US national debt. This is being done in a variety of ways - one plainly obvious one is the use of participating banks to buy long bonds, esp. 30yr bonds. The idea is to hold the curve between long and short bonds - giving the impression long term confidence is still there. In fact - there is no long term confidence - everyone knows the US dollar is dead, along with the US economy.

3) Useless credit. This means providing for mortgage loans, margin loans, operating liquidity etc - basically credit that is useless in generating any growth or recovery.

The whole thing is simply going to plan - the plan is destroy America - reduce it to starvation - then offer them a salvation currency, loss of sovereignty and socialism.

The other events that I see happening is a general collapse in the market before the end of the year - the 'leaders' of this collapse will be manufacturing and services; including Technology, Health and Transport. It will be assimilated by the government again, merging the big players and destroying the smaller ones - fascist monopolies will be consolidated. So it will recover remarkably quickly - what you won't obviously see is the destruction of all the small companies.