Tag Archives: bond bubble

Gresham’s Law meets its Minsky Moment

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000%, fattening the coffers of the tax collectors. 

While it’s no secret that the Fed, along all global Central Banks, are supporting their respective financial systems by capping interest rates with “QE” (also known as “money printing”), the yield on the 10-yr Treasury has risen 36 basis points in two months from 2.04% in September to 2.40% currently. There have not been any Fed rate hikes during that time period. The yield on the 2-yr Treasury has jumped from 1.26% in early September to 1.66% currently. A 40 basis point jump, 32% increase, in rates in two months.

This is not due to a “reversal” in QE. Why? Because through this past Thursday, the Fed’s balance sheet has increased in size by over $7 billion since the Fed “threatened” to unwind QE starting in October. The bond market is sniffing hints of an acceleration in the general price level of goods and services, aka “inflation.”

I wanted to post this comment from my blog post the other day because this person uses an expressive writing style to convey incisively the uneasy truth about the financial and economic system in the U.S.:

Bankers are moral lepers, the financial equivalent of hookers and blow. You can never get enough of the moral debauchery in that world.

When a shit box tiny house, half the size of my man cave, goes for $50,000 less than my entire home in Reno, the end is nigh. $2,000 a square foot for a studio? What effing moron would pay that. Don’t answer. We know someone did. I pity the fool.

Bitcoin 7000, DOW 23,500, studios for $550,000 are all a result of the Greenspan /Bernanke/Yellen  QEpocalypse.

The flood of faux FIAT creates the same Cantillion effect as the flood of gold and silver from the new world that inflated the values of assets in the old world and decimated those outside the ring of prosperity created by that effect.

And that was when gold and silver were real money. But do you think gold and silver can catch a break today? Nope, not a chance.

There’s a reason that the Fed pursues these actions and it’s not a conspiracy theory. When unlimited cash hits a limited supply of assets, whether paper or hard, this inflationary deluge boosts taxable asset values by 100-1000%, fattening the coffers of the tax collectors. No accident there.

You would think this might solve some fiscal woes at the local and state level by boosting tax receipts by a few hundred percent. Nope, not happening there either.

The states and cities created their own PONZI schemes with underfunded overly generous pension plans. Even a moron could get a better return in those funds but now they are out there with their begging bowls.

The County of Maui just raised it’s property taxes 42% to pay for pension plan deficits. A senator from Ohio wants to use funds from treasury bonds to bail out their public pension deficits.

As we see asset prices sky rocket, the demands from the public sector grow even faster than tax revenues and asset inflation will handle. Gresham’s Law meets its Minsky Moment and none too soon.

And don’t even get me started about Social Security. Just let me get mine before the whole shit show collapses.

Trump Is Already Betraying His Voters

Posted from St. Martin (the French side, of course!).  I kind of expected this to happen, as close friends and colleagues can attest.  Trump is not only NOT going “drain the swamp,” he’s populating it with a different breed of swamp monster.   His choice for AG is a red-neck, right-wing senator from Alabama who, 80 years ago, would have been a member of the inner circle of the Third Reich.  Ditto for the names that have been floated for Secretary of State.  As for Treasury Secretary, the names floated for the position bear the unmistakable mark of the Wall Street beast:  $6$6$6.  They are every bit as vile,  if not worse, than the thieves that moved through there the last 12 years.  Jamie Dimon?  Steve Mnuchin?  Give me an F-ing break.

It is what it is.  Out with the old, in with new old.   James Kunstler penned another epic post that deserves a thorough perusal:

For all practical purposes, both traditional parties have blown themselves up. The Democratic Party morphed from the party of thinking people to the party of the thought police, and for that alone they deserve to be flushed down the soil pipe of history where the feckless Whigs went before them. The Republicans have floundered in their own Special Olympics of the Mind for decades, too, so it’s understandable that they have fallen hostage to such a rank outsider as Trump, so cavalier with the party’s dumb-ass shibboleths. It remains to be seen whether the party becomes a vengeful, hybrid monster with an orange head, or a bridge back to reality. I give the latter outcome a low percentage chance.

For the rest of this, click here:  Boo Hoo – America Didn’t Get What It Expected

The stock market continued a stunning move higher last week despite evidence of
widespread financial market turmoil signaled by the bond and currency markets globally.
With evidence mounting everyday that the U.S. economy continues to deteriorate, the
behavior of the U.S. stock market can only be explained as being a product of the enormous pool of liquidity created by the Fed – printed money plus rampant credit availability – that piled into any and all stocks moving higher. This will ultimately turn into a momentum move in the other direction that will inflict serious damage on the system.   – Excerpt from the latest Short Seller’s Journal


Here Come Pension Fund Benefit Cuts

Talk to anyone who is involved in the management of a pension fund and they will tell you the unspoken horror is that every pension fund in the country is underfunded – most of them horrifically underfunded.

A large Teamsters pension fund – 407,000 beneficiaries – just received notice that benefit cuts are coming  because the fund has to financially reorganize:  Teamsters Pension Fund Cuts

For decades corporations have been underfunding their true future benefit obligations as a means of manipulating GAAP net income for the purpose of maximizing upper management net income-based performance compensation.

There will be a wave of this coming.  Many large pension funds admit to being underfunded by 30-50%.  But these valuation assessments include an unrealistically high long term ROR assumption of 7.5% (some even higher).  Plus every pension fund invested in illiquid alternative assets like private equity deals is more than likely marked too high on the value of those investments.

When the Fed finally loses its ability to keep interest rates artificially low and a safety net under the stock market, most pension funds in this country will be wiped out.

Short/Sell This Bounce In Glencore Stock AND Short The Bonds

Glencore stock has bounced at 16% today on a rumor that some investment group could take Glencore private.  Too be sure, there’s plenty of idiots out there with enough cash to pay 9x revenues for The Onion’s business section (Business Insider), but it’s another matter to find enough banks and institutional investors investors willing to finance a massive $40-50 billion buyout of an overleveraged commodity company.  This is especially true given that the outlook for Glencore’s base metal products is very grim given that the world is on the cusp on the worst economic depression in history.

The bonds have not moved in response to that rumor, with the Glencore 5.95’s of 2020 trading in the 70’s.  That’s 70 cents on the dollar.  That’s roughly a YTM of 6.44%, or about 500 basis points off the 5-yr Treasury.  That’s the equivalent of a low-B or triple-C rated bond, which reflects a fairly high probability of eventual insolvency.   Furthermore, the cost of credit default risk insurance got more expensive today.   Both of these markets are telling us that, not only was the rumor absurd but that the credit markets are expecting a turn for the worse.

Glencore is now going to conduct a fire sale of assets in order to start addressing its $30 billion in debt.   This is the absolute worst time to sell assets which derive their intrinsic value from base metals, energy and agricultural products.   This is the classic sign of a “fire sale” being conducted by a company that is walking the plank.   It also tells us that the willingness of the credit market – which have behaved like moronic drunken sailors for the last 5 years – is unwilling to chase bad money with more printed money.   

Glencore is entering the irreversible death spiral.   We used call the bonds issued by companies in Glencore’s predicament, “IDS bonds” – irreversible debt spiral bonds.  The only event that will save Glencore is a massive helicopter drop of more printed money and I doubt even that will move the needle on commodity prices (except gold and silver, of course) other than a brief knee-jerk bounce.  QE does not stimulate real economic growth.

Perhaps the best indicator that Glencore is poisonous is the fact that Carl Icahn is not trying to get involved.  In my opinion he sniffs out opportunities to capitalize on bubbling Ponzi schemes better than any investor I’ve observed.  The difference between Carl and the crooks who bought Glencore is that Icahn doesn’t get involved unless he has a “greater fool” in his back pocket.

The Glencore equity holders do not have a greater fool.   I take that back:  the bondholders who financed the original buyout are the greater fools.  And the greatest fools are participants in the pension plans managed by the greater fool institutional investors.

Not only is Carl Icahn not sniffing around Glencore’s back-side, he’s issued a statement today which indicates he’s going to take his chips off the table and find a different game to play.  The greater fools who will pay more than the previous fools are likely gone altogether from this market. But there will plenty of greatest fools who will try to catch falling knives…

SoT #56 – Craig Hemke: The Existing Global Financial System Is A Ticking Time Bomb

Market history tells us that regardless of the Central Banks’ intentions to drive the market higher, the overall market can overwhelm the Central Banks. Last Monday [August 24th Dow 1,000 point intra-day crash] is an example of that.  – Craig “Turd Ferguson” Hemke on Shadow of Truth

The Plunge Protection Team’s (Fed + the Treasury’s Working Group On Financial Markets) repeated attempts to keep the massive U.S. asset bubbles pumped have created an extreme degree of moral hazard in the form an unprecedented degree of capital misallocation.  The poster child of this is the U.S. stock market.

However, an even more horrifyingly extreme misallocation of capital is the private equity financings of Silicon Valley “unicorns.”  Snapchat, for instance, was recently capitalized at $16 billion despite having a estimated annualized revenue of $1 million.  That’s 16,000 times revenue.

When this insanity implodes, the collateral damage will rip huge holes in pensions funds, which having been tripping over themselves to shovel money at the big private equity firms.   To call what these sleazy NYC financiers are doing  with your retirement money a “moral hazard” is misuse of that term.  It’s more like a flagrant disregard for morality and ethics.

The Chinese recognize that the debt-based, dollar-based global reserve system wasn’t going to go on forever…as the Central Banks have tried to prop up the existing system, which is just a dead man walking, the Chinese have been, for the last seven years, preparing an alternative system for when the existing debt-based system finally collapses.  – Craig Hemke

The Wall Street propagandists, via their mainstream financial media hand puppets, are casting the blame on the recent volatility in the global equity markets on the Chinese.  It has nothing to with the inevitable unwinding of the global asset bubbles which have been inflated primarily with western Central Bank money printing, the amount of which has been multiplied many times over through a jungle-gym apparatus known as carry-trades and OTC derivatives.

Rory Hall of The Daily Coin and I hosted Craig Hemke of the TFMetalsReport on the Shadow of Truth to hear his thoughts and analysis on the key issues affecting the global financial system,  eventual collapse of the U.S. dollar, and the transition of economic and geopolitical hegemony from the west to the east.

The Price Of Oil Is Collapsing Again: Economic Armegeddon Coming

An increase in the quantity of money and fiduciary media will not enrich the world. … Expansion of circulation credit does lead to a boom at first, it is true, but sooner or later this boom is bound to crash and bring about a new depression. Only apparent and temporary relief can be won by tricks of banking and currency. In the long run they must lead to an all the more profound catastrophe.  –  Ludwig Von Mises

The price of oil continues to collapse, reflecting a rapid contraction of the demand function connected with economic activity.  This is a global phenomenon and the countries with the largest economies – e.g. China, the U.S., the EU and Japan – are contributing the most to the economic contraction.   Click to enlarge:


The equity financial bubble in the U.S. continues to inflate today. It is setting up a crash that will take most of the country by surprise. It’s hard to see the truth when the only news to which you are likely exposed is propaganda-laced soundbytes seeded with lies and fraud.

Sorry Janet and Stanley, but this graphic below reflects information about the economy that clearly you are not picking up in your “ivory tower” econometric data pools and algorithms – click to enlarge:


It’s hard to hide the truth when there’s still checks and balances around to counter-balance the Orwellian fog that is engulfing our system. How long those “checks and balances” will be allowed to exist is anyone’s guess but eventually forums like this will be snuffed out by an ever-oppressive Government.

As John Embry said to me recently: “when the balloon on this pops, we’re going to wish that we were on another planet…”

How Much Longer Can Fascist Monetary Fraud Continue?

Jay Taylor invited me back on his “Turning Hard Times Into Good Times” internet radio show on VoiceAmerica.com.  The topics covered include the China’s currency devaluation and what it means, the proliferation of U.S.-originated media propaganda false flags and the growing shortage of physical silver.

One thing is certain China has placed a lot more forethought and planning into this move than has been put into the analysis being regurgitated ad nauseum by the Sesame Street characters who masquerade as Wall Street economist and financial media analysts.  Jay and I try dig beneath the obvious and discuss what might be going on.

SoT Market Update: China’s Yuan Devaluation: Bracing For Impact

Note:   Below this commentary is a Shadow of Truth “Market Update” in which Rory and I discuss possible reasons – besides the obvious – for why China is devaluing its currency. 

China began devaluing its currency two nights ago in a move that took the markets by surprise, judging from the reaction of the U.S. stock market and the precious metals.  While there are many obvious reasons for China to devalue its currency in relation to global currencies, ultimately I believe it’s China’s strategy of bracing for the impact of a global economic depression and the collapse of highly overvalued stock and bonds markets globally.  The latter of which resulted primarily from U.S., Japanese, European and Chinese money printing in unprecedented size and scope.

I find it amusing how analysts and the media in the U.S. are constantly pointing at Japan, Europe and China to demonstrate relative economic weakness and financial overvaluations.   In fact, when Rory and I were in the middle of recording our discussion on this issue, Marketwatch dispatched this article:   China could trigger the biggest financial rout since 2008.

With the media and most financial analysts it’s always the straw that broke the camel’s back that was the cause of a catastrophe, not the fact that the camel’s back was already insidiously overburdened with destructive weight…

But let’s look at this in the context of the overall, big picture.

This could be the black swan everyone one has been straining to see.  I view China’s move differently than desperation on China’s part.  I think it’s a brilliant defensive move by China.  Yes,  China has issues but the issues are no different or worse than the issues infecting the U.S. system.

While the financial “Einsteins” in this country point toward China’s massive sovereign debt, corporate corruption, market overvaluations and $15 trillion “shadow” banking system, no one puts the assertions in the context of the same issues in the U.S.  Using combined public, private and contingent liability debt of at least $200 trillion, the U.S. has by far the largest debt obligations in the history of the known universe. The U.S. “shadow” banking system is estimated to be in excess of $24 trillion.

Everyone overlooks this: China has a massive sovereign “cushion” of $3.6 trillion in foreign currency reserves PLUS god knows how much gold.  The U.S. has neither to cushion the blow coming.   A friend of mine stated it elegantly:  “China is bracing for impact.”   The U.S. is not prepared for impact.  “Impact” = the economic depression and financial collapse hurling toward the world.

Here’s another aspect to what China is doing that everyone seems to forget:  China started taking measures to deflate their bubble roughly a year ago.  They’ve raised certain bank lending rates and they’ve raised capital reserve ratios.   The U.S. has continued to intervene fully in U.S. markets and it’s continued keep the bubbles here inflated.

I believe China’s move was to hasten the process of deflating its own bubbles before everyone else’s bubbles blow-up by market forces. The people in China own gold.  The people in the U.S.?   Mortgage, auto, credit card and student loan debt.

China is getting the ball rolling on the inevitable.  A prisoner’s dilemma of sorts in which China is the first to spill the beans as means of minimizing the consequences on its system when the global financial collapse hits the system – again.

SoT #41 – Wolf Richter: How Will The Global Asset Bubbles Unfold?

Stock bubble, credit market bubbles and housing market bubbles.  Unfettered money printing by Central Banks globally have created massive bubbles of unprecedented proportions across all asset classes.

Once Government and the Central Banks lose the power to stop markets from going down, you’ll have situation that spirals out of control quickly.  – Wolf Richter, The Shadow of Truth

Wolf sees China eventually emerging as the world’s new number one, but believes that first it must “cleanse” the massive excesses – asset bubbles fueled by a massive credit bubble – with a painful financial and economic correction.

He also thinks that there’s a strong possibility that the 30% stock market correction in China is a preview of what is coming to the United States:

I am convinced that it’s very difficult to impossible to make a significant amount of money in U.S. stocks going forward. I think they’re all pretty much overpriced – way overpriced.  – Wolf Richter

The biggest problem Wolf sees with the United States is the Federal Reserve.  The Fed’s money printing has enabled the Government to incur a massive load of a debt and enables Congress to operate free from any budgetary contstraints:

As long as the Fed keeps buying Government bonds, Congress does not need to address this country’s fiscal problems.

Finally, we take a look at the reinflation of the housing bubble by the Fed.  Wolf is one of the few blog writers who offers insightful analysis on the housing market.

We think Wolf’s blog is one of the best alternative media sources of truthseeking and analysis on the internet. You can find his work here: Wolf Street – Howling About Business and Finance

Amazon.com: A Giant Ponzi Scheme

Jason Burack of Wall Street for Main Street invited me to discuss economic issues and the precious metals market. He keenly interested in the report I wrote which exposes Amazon.com to be, in essence, a Ponzi scheme dressed in drag – replete with highly misleading accounting issues and very questionable business model.

We also discuss why the Fed can’t raise interest rates, the precious metals and mining stocks, whether or not the LBMA and GLD are effectively out of physical gold bullion and the housing market:

“Speaking of Cramer, this is how you know the housing stocks are about to fall out of bed: just last week Cramer put out a strong buy recommendation on three homebuilder stocks (insiders have dumping shares in all three)” – from the podcast