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« Yves Calls the Bond Market - the New Bond Guru? | Main | Last Chance is Gone, Top is In »

Friday, October 02, 2009


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Mamma Boom Boom

It would be great if somebody came up with a better yardstick than 'GDP'. It's just so yesterday.


GDP is not even true to its name - it is not Gross, it is a Net figure and is a joke, so who cares what they say it is.


Inflation is always and everywhere a monetary phenomenon, as in the intersection of supply and demand for base money, "high-powered money". The demand for houses has for the moment moved into demand for bonds. This is not deflation. There has been no consequental base money growth, since the Fed's new "interest on reserves" program has kept most new money on deposit with the Fed.

When a long-term international bubble pops, whether there will be inflationary or deflationary pressure depends on whether a country has been running a trade deficit or a trade surplus. The US has been running a trade deficit for 30 years. This has created a bond bubble. When this bubble pops, interest rates will spike higher, very possibly with great force and magnitude. If the Fed does not raise interest rates fast enough and high enough, this will be inflationary.

The only question is whether there will be normal inflation or above normal inflation, possibly hyper-inflation, and I'm very skeptical the Fed will raise interest rates enough. Any further drop in bond rates is merely more bond inflation, futher adding to a bubble that will pop in the not too distant future.


The bottom line is that it's pretty darn difficult to be bullish on a stronger DOLLAR in the wake of a deflationary environment and lower Treasury yields.

People continue to discount just how long we can continue to sell our debt to the Chinese and other Central Banks while the Dollar continues to decline.

And if you don't think that the Fed can expand their balance sheet out to $4 TRILLION dollars . . . Think again.


What everyone is missing:

1) The Fed is the main purchaser in the bond market, attempting to keep rates low.

2) Investment money is going into gold/silver and other hard assets. The physical gold/silver markets are well bid and the paper market - the joke that it is - has strong buying, with only the Fed/Bullion Banks taking massive short positions against all comers.

If the Fed/Treasury was not massively shorting the gold/silver markets, the prices would be exponentially higher. It is an attempt to SHOOT THE MESSENGER.

The Bond Market is giving the ILLUSION of deflation, while gold/silver is giving the indication of REAL inflation.

So There!

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