Close X Cookies are necessary for the proper functioning of 24hGold.com. By continuing your navigation on our website, you are accepting the use of cookies.
To learn more about cookies ...
EnglishFrench
In the same category

Credit Is Suspicion Asleep

IMG Auteur
Published : November 24th, 2012
684 words - Reading time : 1 - 2 minutes
( 1 vote, 5/5 )
Print article
  Article Comments Comment this article Rating All Articles  
0
Send
0
comment
Our Newsletter...
Category : Editorials

 

 

 

 

"6,125 Proposed Regulations Posted in Last 90 Days - Average 68 Per Day"

~ CNS News, November 8

Ironical, as the release came on the week when certain politicians were observing the deaths of so many soldiers - in the defense of freedom.

"Japan Plunges Into Deep Recession"

~ Financial Times, November 12

"Bank of Canada warns that 'vigilance by all parties' is essential to contain the country's household debt problem."

~ Financial Post, October 30

This seemed familiar so we checked our notes:

"The impact on the broader economy from sub-prime is likely to be contained."

~ Ben Bernanke, March 28, 2007

Using the typical timing on the end of boom, the yield curve was likely to reverse from inverted to steepening by as late as June 2007. The deadly reversal was completed by late in that fateful May.



Credit Markets

Representative sub-prime bonds soared to an outstanding high on September 14th. News that mortgage-backed securities were on the Fed's shopping list was announced the day before. The chart shows the initial sell-off was followed by a trading range below the high. It broke down this week, suggesting no lack of supply for a foolhardy bid. At 57.4 now, taking out 56.6 would extend the downtrend. Taking out 55 would ring the alarm bells.

Contrary to official plans other bond sectors showed contempt for notions about "containment".

US corporate high-yield (CYE) tested the late September high at 8.05 in late October and then plunged to 7.08. The low during the concerns of May was 6.86.

Junk (JNK) also tested its September high and has rolled over. The high was 40.53 and taking out 39.25 will set the downtrend. The low in May was 36.45.

Representing global markets, the Spanish Ten-Year reached 7.52% with concerns about default in July. Then the "risk-on" move dropped the yield to 5.34% in mid-October. The action has trended up and taking out 6.10% will start to get some attention.

As risk began to gain regard, the long bond has rallied from a key low of 144 and change on September 14th. Last week the high was 151.66 and the move is not overbought.

In shorter maturities, the Ted-Spread reached an exceptional degree of oversold at 0.203 on October 24th. It has set a brief and choppy uptrend to 0.240, which has been caused by the treasury bill rate plunging while Libor remained unchanged. It will become interesting when Libor starts to increase.


Wrap

This brief update will lead to a more extensive comment about government treasury departments issuing endless amounts of bonds as government central banks buy endless amounts of treasury issues. In case of the US it includes buying , shudder, the sub-prime.

Of course, outside investors have been playing the game, but overall it is institutionalized insanity. Where does the money come from to pay the interest? Well, it comes from issuance of yet more debt and it reminds of playing the popular game of Monopoly. Decades ago our family and friends decided to play the game with all of the money from another Monopoly set. It went on forever and there were no winners. Eventually, we quit and went back to only one set of money. Played by the rules it's a good game.

Back in the 1970s as interest rates were soaring to unprecedented levels there were some articles about the costs of compounding interest. One concept was that within a speculative rise in price the compounding cost of interest eventually limits the ability of speculators to drive prices higher. This really took effect when surging prices faltered, which was the cue for Mister Margin to come onstage.

It makes sense that this would apply at any level of interest rates. Compounding doesn't care what the rate is and even today's low coupons must be paid.

Recently this seems to have been noticed by the UK government. The request for interest payments from the Bank of England is fascinating.

Halkin's Weekly Letter includes a brief and amusing piece that starts with "Dear Mervyn":





Link to November 17 'Bob and Phil Show' on TalkDigitalNetwork.com: http://talkdigitalnetwork.com/2012/11/fiscal-...-creamy-filling

 

 

Data and Statistics for these countries : Canada | Japan | All
Gold and Silver Prices for these countries : Canada | Japan | All
<< Previous article
Rate : Average note :5 (1 vote)
>> Next article
Bob Hoye is the chief financial strategist of Institutional Advisers
Latest comment posted for this article
Be the first to comment
Add your comment
Top articles
Latest Comments
First Report since April, 2014
05 FebAndy_K
Jason, One of your articles written way back is one of the reasons I started paying attention to silver and shortly thereafter started to ...
Something has Changed in Gold St...
06 Febneville
No nothing strange has happened in GOLD stocks....absolutely nothing.....The fact of the matter is that you byrne have been playing the man and...
The Revisionist Theory and Histo...
05 Febovertheedge
"The key is in the hand of the U.S. government. It is the same key that was used to lockthe U.S. Mint to silver in 1873, and to gold sixty years la...
First Report since April, 2014
05 FebS W.
Here I was just 2 days ago thinking whatever happened to that evangelical silver guy. Low and behold up he springs, like some spirit from the g...
LBMA Silver “Price”: A Perfect S...
03 FebS W.
There is no doubt that the Comex can be used as a casino for those who want to trade Silver up/or down or maybe some just wish to take a small punt...
LBMA Silver “Price”: A Perfect S...
30 JanOzSILV1
Bron refuses to EVER admit this market is a Casino and the disconnect between Paper and Physical is a big clue to this
LBMA Silver “Price”: A Perfect S...
30 JanS W.
Usually I enjoy Bron's take on things,but to be perfectly honest, I can't understand 95% of what he his on about here. I get the feeling that h...
ANOTHER NAIL IN THE U.S. EMPIRE ...
30 JanDemosthenes0
Very naive and pretentious article! The author thinks he knows everything and yet knows next to nothing. Shale gas producers are neither stupid n...
Most commented articlesFavoritesMore...
World PM Newsflow
ALL
GOLD
SILVER
PGM & DIAMONDS
OIL & GAS
OTHER METALS
Mining Company News
Lara Expl.(Cu-Zn-Au)LRA.V
Revised Resource Estimate Report Filed for Maravaia Copper Gold Deposit
CA$ 0.34+1.47%Trend Power :
Corporate news
Black HillsBKH
Black Hills reports 4Q loss
US$ 50.90-0.59%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Kinder Morgan(Oil)KMP
Midstream Companies Were above the 20-Day Moving Averages
US$ 102.03+1.98%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
Gasoline Inventories Rose Last Week despite Fall in Production
US$ 24.85-6.44%Trend Power :
Corporate news
United States Steel(Fe-Sn)X
U.S. Steel (X) States Ratification of Labor Agreements
US$ 7.94-3.64%Trend Power :
Corporate news
Black HillsBKH
4:34 pm Black Hills Corp beats by $0.04, misses on revs; guides FY16 EPS below consensus
US$ 50.90-0.59%Trend Power :
Corporate news
Black HillsBKH
Black Hills Corp. Reports 2015 Fourth Quarter and Full Year Results
US$ 50.90-0.59%Trend Power :
Corporate news
Transcanada PipelinesTRP.TO
TransCanada to Sign Substantial Agreement to Benefit Québec Economy
CA$ 48.65+0.16%Trend Power :
Corporate news
Devon Energy(Ngas-Oil)DVN
4Q15 Crude Oil Prices: Fallout for the Energy Sector and SPY
US$ 24.85-6.44%Trend Power :
Corporate news
Comments closed