The CDS collateral is sucking up a lot of outstanding short term treasuries. Reduce the outstanding CDS, and watch treasury rates rise above zero. You'll also see people investing in other things besides treasuries.

@ Subcommander Doom | 12.02.08 - 11:33 am | #

Replace 'home' with 'pony' and it works even better.

From the last thread:

It's a crisis of confidence!

How long before that meme dies? Both the NPR "Planet Money" and "Marketplace" shows feature interviews with economists that blame the downturn on the psychological state of the consumer.

We're not anywhere near "capitulation" as long as there arguments are being made.

A loss of confidence in a con game is not a crisis of confidence. If the foundations are flawed a loss of confidence is to be expected. And must be corrected by addressing the flaws not hiding them.

A crisis of confidence in a sound system is fixed with transparency. None of the fixes so far have been included transperacy, suggesting this is not a crisis of confidence, but an actual crisis.

"The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system."

Everyone want's somebody else's currency to be in that basket - it would be like the kiss of death from a domestic jobs perspective.

Then of course the currencies still have to all float unmanipulated vis-a-vis each other.

Good luck w/ that.

This bear market is the creation of a humorous God. How else can one explain people buying long-term Treasuries that yield 2.7%, while the government is trying to debase its currency to prop economic growth?

Ice is right the gods must be crazy.

Fed Extending Key Credit Programs for Financial Institutions to April 30 (story developing)

I weep for my puts.

I must admit, I've been adding to my put collection today. SHLD looks particularly juicy.

Bill Gross...Dow 5k...hot off the presses

I don't have time to read it right now.

Is he commenting on his previous prediction or saying it still applies to the future?

Today Barack Obama talked to US Governors about the current "slow down". Here is my retort:

It's Not A "Slow Down", Barack
Today during a press conference involving the governors of the 50 states, Barack Obama talked about all of the states needing to work together so that we can quickly turn around this economic "slow down". I have bad news for Mr. President-elect: this is not a slow down. This is an economic disaster that will DWARF the Depression of the 1930s in scope and toll.

It's hard to know where to begin, but here are 10 reasons why considering the current economic situation a "slow down" is actually very dangerous and irresponsible:

1. Almost All of the banks of the world are, essentially, bankrupt. They have no capital. Capital has been summarily destroyed over the years by falling interest rates, rampant bond speculation and governmental check-kiting, fraudulent accounting, fraudulent valuation, the elimination of reserve ratios, the creation of money by federal decree (fiat currency), hidden off-book "assets" in the tens of TRILLIONS of dollars, a shadow banking system driven by derivative betting scams that globally reach toward half a QUADRILLION dollars in scope, etc. Were you to go the radical route of declaring a bank "holiday" and forcing the banks of the world to "open" their vaults and hard drives for objective inspection, what you'd find is trillions of pieces of worthless paper. If Assets = Liabilities + Equity---and in a world where many if not most of these institutions are leveraged 30:1, 40:1 and beyond---then the assets currently held by the world's banks are worthless.
2. The environment is collapsing. Oceanic acidity and de-oxygenation are creating enormous "dead zones" in which fish cannot live. The polar ice caps are melting at a rate far more hyper-annuated than first thought, destroying habitat at an alarming rate. Phytoplanktons are disappearing from the world's salt water bodies, thus depriving many of the ocean's species of ample food sources. Disease-carrying insect populations are exploding due to longer and warmer springs and summers around the globe, leading to large outbreaks of Malaria, Dengue Fever and Sleeping Sickness. We have reached the Peak Oil plateau and will begin to see rapid depletion of the world's oil reserves: The age of fossil fuels is coming unceremoniously to a close. More and more countries and facing drought and famine caused in part by a lack of predictable rainfall and in part by a lack of glacial run-off. I could go on of course. The conclusion drawn however is that TRILLIONS of dollars would need to be invested immediately in developing technologies aimed specifically (not secondarily or in by-product) at trying to reverse these ongoing processes. Not only are these dollars we do not have, but under current economic conditions the cries of build more, dig more, mine more, produce more are the cries of the desperate: and desperation cannot tarry with the indulgences of environmentalism. Thus comes the death bind of depleted resources, environmental degradation, and a lack of capital to employ in the production of goods that use these depleted and unharvestable resources.
3. Sovereign default looms on the horizon at a scale never before witnessed. Ecuador will default on its loans 2 weeks from now---unless of course it secures more loans to stave off the need to service the interest on existing loans. Ecuador is but the 1st of many. Pakistan, Iceland, Ukraine---all countries lining up to receive emergency sustenance from the soon-to-be illiquid IMF. The Baltic states, Ireland, Argentina---all countries teetering on the edge of default. The cascade of events precipitated by such defaults will be horrific.
4. The Baltic Dry Index currently stands at a rate of 684, down 14 points from yesterday's close. The index essentially tells us how much it would cost to send certain goods and commodities via ship to different locations around the globe. In MAY of 2008 the Baltic Dry Index reached its high of over 11,700 points. A 90+% drop in just 6 months means ships are not moving goods because the ship-owners cannot make a profit in doing so. As such, much needed bulk commodities (Wheat, Steel, etc.) are not being shipped to market. When reserve stocks run out, so will the production of food. This trend cannot be reversed through the infusion of more debt into the already reeling system. Additionally, within months the cost of oil will once again rise as OPEC manipulates markets to try desperately to maximize gains. When this happens, the Baltic Dry Index should reach 200 or less. At that level, it will COST a shipping company hundreds of thousands of dollars to ship goods. Not a great business model.
5. The housing implosion is surreal in the level of capital destruction that is ongoing and that is not even close to "bottoming":

a. It is impossible to valuate CDOs that hold mortgages because it is impossible to untangle them. No longer do banks hold the loans from which they have profited: they are packed together with hundreds of other "like" assets and sold on the market to greedy investors. (Of course those days are gone, but the detritus remains)

b. Nobody trusts valuations anymore anyhow. The agencies who were supposed to valuate securities accurately did nothing of the kind. The depth of mistrust--and rightly so---is SO deep that, in fact, all of the moves to prop up the system are viewed by the public as ways in which the rich can make themselves richer. Claims to the contrary by Paulson et al are met with anger and amazement: "Do they really think we are that dumb?!?"

c. There is no such thing as mark-to-market anymore: even mark-to-MODEL is dubious as the current model is utterly fraudulent.

1. People aren't going to start borrowing anew, and banks aren't gonna start lending anew, because suspicion runs deep regarding duplicity, off-book debt, etc. The FED can spend TRILLIONS on "purchasing" and guaranteeing anything it so desires, but until the government carries out a full blown CENSORSHIP campaign on the Internet and on Television, trust will not return. Everytime Paulson or Bernanke speak, the market responds with fear. The market knows that these men are dissemblers extraordinaire, and as such the markets respond accordingly. Mr. Obama's team does nothing to engender the kind of trust necessary for individuals and institutions to willingly take chances on the kind of investments that have just recently been exposed as fraudulent and illegal.
2. Foreign countries who have purchased US Bonds are not dumb, and they are NOT going to wait until those bonds reach maturity. As soon as it becomes crystal clear that default may be looming, the run on the US bond market will be, shall we say, entertaining.
3. Confidence in the veracity of our political leadership is at an all-time low. Don't under-estimate this dynamic. Even in this moment of relative beauty---the election of an African American President---our incipient Chief Executive has pulled together a staff of old-school, Keynesian cronies. His ploy may be an appeal to the Center, but it ignores the reality that tens of millions of Americans have come to associate the old school as entirely corrupt and duplicitous. And these suspicions will only be exacerbated by the doomed-to-failure Freidmanite approach to the financial crisis: that of spending TRILLIONS more on stimulus packages that cannot, by their very nature, succeed in an environment of debt-based toxic shock.
4. The Credit Default Swap Cyclops is hiding in the cave, but it has not gone away. The CRIME of derivative trading has created so much debt and so much counter party risk, that one more significant corporate failure could start the dominoes a-tumbling and essentially bring the global economy to a complete and grinding halt.
5. And finally, our obsessive and insane addiction to 5% GDP growth---to growth and expansion in general---makes ANY solution to the current mess a failed proposition before the fact. Spending TRILLIONS to renew growth in a global system that has reached well beyond the limits of healthy growth is crazyness. Utter crazyness.

No sir, Mr. Obama. This is not a slow down. This is not a contraction. This is not a market correction. This is an economic disaster of epic proportions. This is to the 1930s what an F5 tornado is to an afternoon thundershower. An umbrella will not shield you from this storm sir.

Plus CMBX is off the charts, or would be if they didn't rescale them.

AlleyGator(Unrated) writes:
Err, buy/sell whatever. They said they were going to try to raise the price.
AlleyGator | 12.02.08 - 12:16 pm | #

No they didn't say that - they said they want to inject more liquidity regardless of the liquidity trap they sense they are in (correct analysis - they aren't stupid)... so they say they will buy assets LIKE TREASURIES - putting more dollars into circulation.

The market read this (correctly I believe) as 'price supports'.

They are talking past each other - the Fed & the bond market that is.

The thing the market better be aware of is once the Fed thinks they've put enough dollars out there to 'check deflation' - they could stop buying Ts regardless of the markets 'price support expectation'.

Bond traders playing this game better stay close to the exits and be the fastest, strongest runners in the room - only the first few out the door will avoid getting trampled and burned alive once the Fed changes it's fickle mind.

Myself - I'm going to watch from a lawn chair safely outside.

Ben and Hank - can you please shut up..... or maybe shut up and leave!

(Note to self .... sell short on days either has a televised speech)

Bearly, CA has the same problem as Detroit.... large pensions given after 20 years.

Interestingly, even when people find out it's a pyramid scheme they often still try to continue down the same path.

That's because of the realization that such a scheme ending results in total collapse.

Suddenly doing everything to postpone the collapse seems to be the better option than fixing the underlying problem vis-a-vis the US ponziconomy.

the credit markets are frantically signaling SOS, so the stock market responds by rising 3-4%.

humms to self:

"Only in America"....

Live within our means. What a novel concept.

I forget who coined the phrase, forgive me for lack of source credit, but some financial guy said "Act your wage." I thought that was pretty good.

The point is the talk is meaningless.

Yup. When the Feds dump a truckload of money on the steps of the state capital, will Arnold turn it down?

"The federal government shouldn't give us a penny until we straighten out our mess and we can live within our means"
--A. Schwarzenegger

Nice words. Unfortunately, the proposed solution is for California to tax itself into oblivion.

I need to see some hard choices made on spending. California can no longer afford to spend like drunken pirates on shore leave, when the ships no longer risk sailing through their waters.
.

Offerings of notes by institutions that are guaranteed by the FDIC and various treasury guarantee programs are exempt from registration with the SEC under Section 3(a)(2) of the 1933 act because the notes are guaranteed by an agency of the US acting as an instrumentality of the US goverment. There's a no action letter from the SEC on this point as well.

Shit's starting to get real here.

Dave of SV - got a link? TIA

Money quote from PeakVT's link:

"So why didn’t the rating agencies capture that? Because, believe it or not, they pretend the super-senior stake doesn’t exist. The rating agencies only go to AAA. There is nothing above that. How very un-spinal tap."

If you missed it early, Bill Gross says something useful: FT Alphaville » Blog Archive » Farewell ‘Oh ratio’, we knew you well

My transgenerational stock market outlook is this: stocks are cheap when valued within the context of a financed-based economy once dominated by leverage, cheap financing, and even lower corporate tax rates. That world, however, is in our past not our future. More regulation, lower leverage, higher taxes, and a lack of entrepreneurial testosterone are what we must get used to — that and a government checkbook that allows for healing, but crowds the private sector into an awkward and less productive corner.

Of course, he promptly becomes un-useful and says you need to buy bonds.

Thanks dan, just when I was getting a warm fuzzy feeling for everything, you reminded me that I'm screwed...items assured to increase in value...canned beans, bullets and bandaids....

....there are no leaders when there is no solution......

Interesting historical note:

"As the British economist Peter Warburton noted seven years ago in his essay "The Debasement of World Currency: It Is Inflation, But Not As We Know It" (Gold-Eagle, derivatives were invented (and encouraged by central banks) largely to help conceal monetary inflation by diverting investment and speculative demand from real things into paper instruments. That is, derivatives were designed to manipulate markets. Just getting them out of the way or putting them under ordinary regulation by government agencies that mean to do their jobs instead of look the other way might restore the real economy against the parasites of financialization."

This is from a piece by Eric Sprott and Sasha Solunac of Sprott Asset Management.

Dan,
Why did you have to write that? Now I am crying.

--
Gentlemen prefer bonds (UST STRIPS) and dopes prefer Scams!

Born-and-bred morons prefer democracy!! (The root cause of modern evil by putting evildoers in-charge of the economy).

Just returned from the Greater Dopeland to Dopeland,

Jas

PS: Indian dopes exist to make born-and-bred American dopes look good. Both countries are headed for collapse in order of the dopiness.

Wow, great comment by Dan. Cheers mate, I'll drink to that!

jas,
If only you could have bored those gunmen at the Taj to surrender.

Re the Bill Gross essay linked by PeakVT:
Actually. Gross doesn’t go far enough in telling us what the problem is. He helpfully cites ‘the “Q” ratio, or the value of the stock market relative to the replacement cost of net assets’. In the real economy, the replacement cost of the net assets is just a proxy for productive capacity. When we have real, final demand falling below productive capacity, which is happening now, a Q ratio of 1.0 would indicate overvaluation, not fair valuation. An example is the Detroit 3; they need to shrink their asset base before their valuation ratios can be taken at face value.

@ sanity clause

Obama has IMPLICITLY stated that he is a Keynesian, that he is a Rooseveltian, by virtue of his Cabinet selections. This portend disaster for the country.

"I weep for my puts.
Eric | 12.02.08 - 11:58 am | # "

Not too worried about mine. I have a high level of confidence this effort to restore confidence will have as good an effect as all previous TARP like efforts.

What is driving me crazy is where we are going with the debt, the bailouts, and the Q/E in the context of inflation and interest rates.

Three words: We are scroomed!