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Ed Bugos' Market Thoughts - FOMC Pumps Smoke to Reassure Bond Bulls
But there was no change in policy.
The Fed put out a balanced view… essentially that there is growth but that the pace of recovery “has slowed in recent months,” citing high unemployment, sluggish home values and investment in “nonresidential structures”. It even pulled out the deflation bogeyman by complaining that bank lending continues to contract. Despite all this, however, it still anticipates the economy to recover –at a more modest clip than formerly expected. And of course, there is no threat from inflation.
It gave the bears a little, and the bulls a little. It didn’t give the bulls quite what they wanted – more money – but it did commit to reinvest the proceeds of maturing agency debt and mortgage backed securities, which should surprise no one. It said that it would aim at keeping its holdings of securities around their current level, but that it will reinvest principal payments (including early repayments) on maturing non-Treasury securities into more “longer-term” Treasury securities.
The T-bond markets broke higher on the announcement. Indeed, they have been advancing for several months, at times seemingly inexplicably in the face of recovering stock and commodity prices and a falling US dollar. The Canadians have been loading up on Treasuries more than average this year, as you can tell in the chart below. Obviously, the news has been expected.
The trouble is, however, that the Fed has already been buying a lot more long term Treasuries than usual, and more to the point, there aren’t very many agency and mortgage backed securities on its balance sheet maturing over the next five years. Let’s deal with the former issue first.
As you can see, the Fed’s holdings are already more concentrated at the longer dated end than historically when more than 50 percent of the securities it purchased had maturities of less than one year. Today, the proportion of these securities that mature in under one year is 14%, if we exclude the mortgage-backed securities. Including the latter the Fed’s holdings of securities that mature in one year or less today is less than 5%... one tenth of the amount historically purchased.
Nevertheless, the Fed’s plan is to reinvest maturing agency and mortgage backed securities into long dated Treasuries. It may be too early to grasp all the implications of this controversial policy, but one thing we can conclude is that the news is not as bullish for Treasuries as it may seem.
Not only is the Fed already concentrated at the long end, but also, the market may be overestimating the amount of purchasing power that will support the T-bond in the short term.
Source: Federal Reserve (release h.4.1, table: 2)
Note that including mortgage-backed securities more than two thirds of the Fed’s securities portfolio is concentrated in securities with maturities of more than 5 years.
The total amount of Agency debt securities on the Fed’s balance sheet that mature in the next five years is around $130 billion. The total amount of mortgage-backed securities that mature in the next five years is $30 billion (nearly all $1.2 trillion of its mortgage backed securities mature AFTER 10 years). That amounts to $160 billion in total purchasing power over the next 5 years.
So we’re talking about $32 billion per year in purchases of long term bonds, which is about the same amount by which the Fed used to expand reserves balances each year prior to 2008 (by buying short term T-bills). Big deal. But, let’s say that some of those mortgages are paid back early. What proportion? No one knows for sure. We have heard estimates that the Fed could reinvest as much as $200 billion in Treasuries each year. Yet we can’t find that much maturing on its balance sheet in the next five years, in TOTAL. That means that in this bullish estimation, the market is expecting early repayments of as much as $800 billion over the next five years.
That’s most of the mortgages! Hard to swallow in our opinion.
We can’t imagine that the Fed will buy more than $50 billion of new Treasuries per year, unless it plans to expand its balance sheet, which is just enough to help the Canadians off their paper.
Has the outlook become so dire that the Fed has to rely on making meaningless announcements to reassure the markets?
We would stop short of recommending a short against the Treasuries because it is difficult to pick a top in any market let alone the Treasury market. However, this is a good argument for a short. For the brave hearts out there the ProSahres UltraShort Lehman 20yr+ ETF lists in the NYSE under the symbol TBT. The ETF shorts Treasuries with long-term maturities and uses leverage to amplify the fluctuations in NAV.
It is currently trading at the lows of 2008, following the stock market crash, which may be an extreme, and reflects too much optimism about the reinvestment program.
Sincerely,
Ed Bugos
Chief Analyst
The Dollar Vigilante
Wake Jefferson Back Up! + another iPod track
Well, let's wake him up, just one more time! I gotta see his expression when he sees today's headlines!!
-Portland Lemonade Stand (Run by 7 year old) Runs Into Health Inspectors, Needs $120 License to Operate
-Man Faces 16 Years in Jail For Putting An Encounter With a Policeman on YouTube
-General Motors (Now Owned by US Government) Donates Money to Lawmakers' Pet Projects
What follows are the transcripts of my conversation with Thomas Jefferson (TJ):
TJ: What the dickens! Oohh I have just awoken from the most terrible of nightmares.
Jeff Berwick (JB ): It's a nightmare, alright, but you weren't sleeping Tommy. Take a look at these headlines, just from today, in 2010!
TJ: This can't be! By what right did these men from the government have to forcibly shut down that little girls stand and demand money from her? We must revolt!
JB: They are going to revolt. It's called the Lemonade Revolt. You can sign up for it on Facebook.
TJ: Facebook? I don't know of what you speak but this Lemonade Revolt doesn't sound like much of a revolt to me. We need to take arms with our muskets and take back the republic!
JB: I'm with ya!
TJ: And what is this, the government owns an automobile company? How could they possibly? With what money could they purchase a private company?
JB: Oh, you are going to love this, income tax! Plus thousands of other assorted taxes and levies.
TJ: You must be gilding the lily!
JB: I don't know what that means. But I'm sure you are right!
TJ: Well, at least tell me that we have managed to keep those dogs in England away from our sacred republic.
JB: Hmm, not exactly. They are, sort of, the only friend the US has right now. In fact, England joined the US when they went and occupied Iraq and Afghanistan. The US & the UK are in NATO, together, along with 26 other countries. And the US is now threatening war with Iran and is conducting daily drone operations in Pakistan.
TJ: Congress approved all of these wars and alliances?
JB: Not really, they don't really go through the trouble of "declaring war" anymore, the President just, sort of, decides. The last President used to call himself, "The Decider", in fact!
TJ: And who is now the President?
JB: His name is Barack Obama. He actually just won the Nobel Peace Prize!
TJ: Has no one listened to anything I said? "Commerce with all nations, alliance with none?"... "Conquest is not in our principles. It is inconsistent with our government?"... Any of those sound familiar?
JB: I thought you coined, "They hate us for our freedom?".. No?
TJ: Ohhhhh, I feel feint.
And with that we bid Thomas Jefferson farewell yet again. Perhaps one day we can resurrect him and show him something we can be proud of!
Until then keep preparing for the collapse of the US dollar system and the entire global financial system in its wake. The Dollar Vigilante offers subscribers valuable news and information on how to survive the coming dollar crash.
In the meantime, here is our latest pick for your iPod. It's an old rap classic. Rap, in fact, was a musical art form founded on the basis of freedom as American blacks were so oppressed by the system that it was almost always central to the message of rap. This track and video have great lyrics and message and are from one of the best and wisest rappers, known as the teacher, KRS One.
Resurrection & another track for your iPod
I know who I'd pick! Right now! Bring back Thomas Jefferson, my favorite of the "founding fathers" of the US and the principal author of The Declaration of Independence.
Why? I just think seeing the look on his face after he took a quick survey of his United States of America would be priceless!
Sure, at first, he'd be astounded that he'd been resurrected. And very quickly he'd see all the amazing innovations, many of which were developed in free markets that he helped create, such as cars, airplanes, antibiotics, nuclear reactors and the internet. He'd be in awe... for a moment.
But then I'd show him just a random sampling of headlines from the last few days in the USA. That is when the magic would happen. Get your camera ready!
-Feds Admit Storing Checkpoint Body Scan Images
-Feds Raid Amish Dairy and Threaten Action Over Raw Milk Sales
-Young Buck's Home Raided by Shotgun Toting Feds
I am certain after seeing just a few of these headlines we would get to see a facial expression never before seen in history.
And then to save him from any more pain we could show him this video and he'd immediately have a heart attack and return to his peaceful slumber:
And now, for a bit of light entertainment, check out this hilarious video about what 99.99% of politicians are really all about:
And finally, here is an excellent track for your iPod from the Foo Fighters called The Pretender. The video is incredibly well done. The theme of the song and the video is about standing up to the oppression of your government. The clash scene that starts at 3:15 of the video is truly epic and should keep you energized in the gym as you prepare for the coming currency collapse and riots!
You can view it at YouTube at this link: http://www.youtube.com/watch?v=5-EU-Xwm7RY
That's all for tonight. We are releasing our report on "Investing in Junior Mining Companies" to paid subscribers on August 7. If you'd like to receive the inside scoop on how to invest in these incredibly lucrative investments, subscribe now here .
Regards,
Jeff Berwick
Chief Editor
August Issue & Ipod Playlist
In this month's paid (Basic & Full subscription) issue we listed our top 3 must own holdings for Dollar Vigilantes who want to survive the coming dollar collapse. As well, in our Expatriation of Ass & Assets section we listed our #1 favorite country for getting residency, a 2nd passport (for very, very cheap and easily) and even as a place to live freely and cheaply... and happily! It' s only a few hour flight from the USA. Subscribe to get this and much more info.
Also, for Basic & Full subscribers, on August 7th we will be sending out our special report entitled "Investing in Junior Mining Stocks". This is a complete guide to investing a portion of your assets in the kind of stocks that can double, literally, overnight and can soar more than 1,000% if you pick the right ones.
And on August 15th, for Full Subscribers only, we will be issuing our first junior stock recommendation. Subscribe now if you want to receive all that and more.
In the meantime, we want to use this blog to have fun and to bring you lots of interesting things such as music of a revolutionary bent for your iPod.
In case you haven't heard it, we will start our iPod list with the song we chose as The Dollar Vigilante them song. View/Listen here:
Killing & Starving People is Hard. Don’t Let Bloggers Tell You Otherwise.
According to Athreya, economics is just too difficult for anyone who has not taken “a year of PhD coursework in a decent economics department.”
We agree that it is difficult to centrally plan an economy and artificially fix the price of money (interest rates). In fact, it is impossible. Just ask the Soviet Union. It’s no wonder Athreya, who describes himself as a “rank and file PhD economist,” and a “worker bee chipping away with known tools at portions of larger problems,” finds it so difficult. It can’t be done.
But perhaps Athreya does not even realize he is working within an artificial economic system set-up by the power financial elite in a criminal institution whose sole purpose is the subterfuge transfer of wealth from the poor to the rich. It’s a tough job, but someone’s got to do it, right Athreya?
Central banks, including the Federal Reserve, have taken wealth from the economy for centuries now and transferred it to the rich. The transfer of wealth happens just slow enough that most people never quite figure out what is happening and the governments and banks themselves always like to point to how difficult economics is as a ruse to pilfer.
As the central banks inflate the money supply the people who hold assets such as real estate, gold and businesses see their assets increase in value in relation to the currency whereas all the real “worker bees” who have little assets only see their cost of living increase and year by year fall further and further behind until they are basically slaves to the system.
Even further, the criminal institution for which Athreya so diligently works is the only thing that enables virtually all wars. Without a central bank standing ready and willing to lend governments whatever amount of cash they need to pay for their foreign wars and entanglements there is no way taxpayers would support the great majority of wars of the last century.
There would be a lot less, “We gotta support the troops,” going around if everyone was handed a bill every month for the occupations of far flung places such as Iraq and Afghanistan. Instead, the Federal Reserve just quietly creates the money and no one seems to notice until a few years later when all that new money begins to increase the prices of goods across the board. But by that point the lapdog mass media will always point to another culprit as being the reason for the rise in prices.
And so, yes, you are correct Athreya, it is difficult to work within an enterprise almost solely responsible for most starvation, poverty and death via warfare in the world today. In fact, I don’t know how you do it without slitting your wrists for all the despicable things you have been a party to.
Yet, Athreya goes on to make statements that are even more profoundly idiotic as he goes! It seems the more he opens his mouth the stupider it gets.
The only way to sufficiently show this level of sociopathy is just to quote him word for word. If at the end of reading the next paragraph you aren’t slumped over in your chair, drool dripping from your slack jaw, like a person who has just had a stroke, your brain ceasing to function for a brief millisecond or two as it tries to even fathom how someone could have a thought process like this, then consider yourself lucky.
Athreya states, in what quite easily could be the most profoundly idiotic statement of 2010, the following:
“I find the comparison between the response of writers to the financial crisis and the silence that followed two cataclysmic events in another sphere of human life telling. These are, of course, the Tsunami in East Asia, and the recent earthquake in Haiti. These two events collectively took the lives of approximately half a million people. Each of these events alone had larger consequences for human well-being than a crisis whose most palpable effect has been to lower unemployment. However, neither of these events was met by a widespread condemnation of seismology, the organized scientific endeavor most closely “responsible” for our understanding of these events.”
I’ll tell you what, Athreya, if you promise to shut down the Federal Reserve and stop the widespread murder, impoverishment and starvation of millions then I’ll do my best to try to end the science of seismology who you deem so obviously culpable in failing to prevent natural seismic events that have been occurring for billions of years.
And just think, if the Federal Reserve were shuttered forever then Athreya would have to actually find a real job worthy of his intellect. We could then look forward to his next literary masterpiece, “Bagging Groceries is Difficult. Don’t Let Bloggers Tell You Otherwise.”
Subscribe to The Dollar Vigilante to find out how to protect yourself from the upcoming financial system collapse. There are 3 levels of service. We offer a free newsletter for those who want to get a taste for our service. The basic newsletter which has everything except specific portfolio stock and investment recommendations for $15/month or $150/year. And the full newsletter has everything the basic letter has plus includes all our portfolio insights and recommendations for $25/month or $250/year. Click here to subscribe at our Pricing & Subscription page.
What Happens When Boomerang Kids Meet the Homeless Baby Boomers?
Much has been written over the last decade or two about “Boomerang Kids”. The term, generally, means an adult in their 20s, 30s and sometimes 40s who returns home to live with their parents after an unsuccessful foray in the real world.
Often this condition is caused by the inflationary world we have been living in for the last few decades. Stealth inflation has slowly stolen from everyone leaving many younger people without the ability to afford even basic living expenses much less a home for themselves. Not to mention sometimes 6 figure student loans they’ll be paying off for much of their adult life.
But, as we write about in The Dollar Vigilante, the upcoming financial system collapse and the complete collapse of unfunded pension payments in the majority of the western world is about to leave a lot of seniors who depend on these pension payments in a very dire predicament.
So, what happens when the boomerang kids find that mom & pop not only had to mortgage their home just to make basic living expenses and may soon be looking to the working-age child to provide them with a means of subsistence?
We don’t know the answer to that but it isn’t going to be pretty.
But that is how all fiat currency based, inflationary economies always end up. The insidious nature of these systems is that they serve to hollow out an economy over decades until, at some point, the great majority of people just can’t even afford to survive with what’s left of it.
And, as if it couldn’t get any worse for seniors, the latest tax finagglings of the US Congress has essentially put a bounty on the heads of those who are nearing the end of their natural lives.
As this article in the WSJ, entitled “Too Rich to Live?" points out, those American elderly who managed to create a nice nest egg during their lifetime may now be watching their backs as 2010 is set to be the last year where the Estate Tax will not be levied upon the deceased. In 2011, however, the Estate Tax will be back in full force and take a whopping 55% of your lifetime’s work in order to feed the gaping maw in Washington DC.
As the article points out, those who see the finish line fast approaching are left with a truly bizarre set of circumstances. Some are even considering suicide in order to avoid transferring the great majority of all their assets to the US government instead of their loved ones.
And so, as we fast approach the collapse of the Dollar system, we stand in awe at how horrible and twisted things can get under such a system. In the coming years we will have countless homeless and destitute baby boomers looking for support from their unemployed and heavily indebted boomerang kids.
And for the few who made it through life with assets they are left in a situation where they might be sleeping with one eye open to make sure those in their will aren’t trying to put a pillow over their face in order to have them pass on prior to the January 1, 2011 Estate Tax coming into effect. Either that or weighing whether they wish to take their own lives in order to save their loved ones what could be millions and millions of dollars.
What a bizarre world these governments have given us.
Subscribe to The Dollar Vigilante to find out how to protect yourself from the upcoming financial system collapse. There are 3 levels of service. We offer a free newsletter for those who want to get a taste for our service. The basic newsletter which has everything except specific portfolio stock and investment recommendations for $15/month or $150/year. And the full newsletter has everything the basic letter has plus includes all our portfolio insights and recommendations for $25/month or $250/year. Click here to subscribe at our Pricing & Subscription page.
Is this what government is for?
And so, with that, let's begin!
I was speaking to an old friend today. We lost contact for years but Facebook reunited us. For those who don't use Facebook I really recommend it. It has become invaluable to me to keep contact with old friends and colleagues and family. Everyone is on it. I realized that when my grandfather called me two years ago to ask me what my Facebook account was!
Anyway, we were catching up on a lot of missed time together. I first met him when I used to own a recording studio in the early 1990s and he would come in to record Voice Overs for commercials, video games and cartoons. He's one of those guys with a really deep and charismatic voice - he's usually the villain in most things he is cast.
I was going through his resume and was amazed by the amount of big name video games he starred in. He played lead roles in such video gaming household names as Halo Wars and Call of Duty 4.
My comment to him was that he must be doing really well. His response was that it was a really painful thing to find out that after working for years to reach the top levels of his craft that the paydays were very, very small. Many of his lead roles in multi-hundred million dollar video games netted him a paycheck of less than $1,000! I was shocked at how little they get paid.
I even quickly did some YouTube searches of Voice Over guys and came upon this clip of James Earl Jones recounting his role as the voice over actor for Darth Vader in Star Wars. His paycheck for being a voice that everyone in the world knows: $7,000!
That was all interesting but none of this would have seen the light of day in The Dollar Vigilante blog until my friend recounted, "If it weren't for certain gigs, like this gig I did for the US Governments National Highway Traffic Safety Administration, which paid me $3,000, I'd barely be getting by!"
He went on to state, "The funny part of that gig was that it never even saw the light of day. The commercial itself was too gruesome to air on broadcast television."
Here is the commercial for those interested. It comes in a "bloody" version and a "non-bloody" version for those who may be squeamish!
But the blood wasn't the part that made me want to puke. What made me want to puke is that there is actually a department of the US Government called the "National Highway Traffic Safety Administration" which likely employs countless bureaucrats who sit around and plan ways to spend taxpayer money to scare people into wearing seatbelts! And not only are they making literally ridiculous amounts of commercials for this (see their website page where they have dozens of radio, TV and web spots ) campaign, many or all of which never even get to air. And that is actually a good thing, because if they did make it to air, that means that US taxpayers are then paying big dollars in advertising to be told to wear their seatbelts by means of scare-tactics!
In essence, the US government is going to your door, saying that you need to give them $10. You ask them why and they just tell you its for your own good so just do it. They then hint at jailtime if you do not pay your taxes. Then they go and use your $10 to pay people to come to your door with blood on their face and try to scare you into wearing your seat belt.
Where in the US Constitution is this stipulated as a role of government?
It's just one of, literally, a million departments and agencies all spending your money as fast as they can on wasteful and useless projects.
Does watching that commercial make you want to wear your seatbelt? Or does it make you want to grab a pitchfork and a torch and head down to Congress? If you chose the latter we are with you!
Welcome to The Dollar Vigilante Blog!
We have launched our first newsletter on July 1, 2010! The first issue is available completely for free. You can see it here: dollarvigilante.com/TDV_July_2010_Issue.html .
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Cheers!
Jeff Berwick
Chief Editor
