Category Archives: Investing

Peter Schiff: The Bond Market Is Rigged!

The Federal Reserve has its multi-trillion pound thumb on the scale. From Peter Schiff at SchiffGold.com via zerohedge.com:

You may have noticed that the financial media has started talking about inflation. But by and large, it’s not a warning. It’s reassurance. Many analysts are dismissive of any concerns raised about inflationary pressure. They often claim the bond market isn’t signaling inflation. But as Peter Schiff points out in a clip from a recent podcast, the bond market is rigged.

The narrative is that the bond markets aren’t signaling much concern about inflation. Treasury yields have risen in recent weeks with the 10-year rate now above 1%. As Peter pointed out in a more recent podcast, the upward trend does indicate some investors are starting to get nervous about inflation, and at some point, we could see “an explosive move up in interest rates.” But so far, the broader market hasn’t caught on. Even though the trend is up, yields remain historically low and they don’t exactly scream “inflation problem.”

After all, if investors were concerned about inflation, why would they be willing to loan money to the US government for 10 years at 1%?”

Typically, inflation is a major concern for lenders. If you plan to lend somebody money for 10 years, you have to consider what that amount of money will buy when you get it back. In effect, you’re giving up the opportunity to buy something with your money today in order to lend it to somebody else. You’re willing to do this because the borrower is paying you for the service of loaning him that money. But if inflation is going to eat away your purchasing power over time, you will want to charge a higher rate of interest to compensate for that loss.

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Bond Market Smells a Rat: 10-Year Treasury Yield Hit 1.04%, Highest since March. 30-Year 1.81%, Highest since February. Mortgage Rates Jumped, by Wolf Richter

The bond market may well be the canary in the coal mine for the impending financial collapse. From Wolf Richter at wolfstreet.com:\

Seems, inflation prospects jangled some nerves today.

The 10-year Treasury yield jumped 8 basis points today and settled at 1.04%, the highest since the wild panic days in mid-March 2020. As the yield rises, the price of that bond falls. This yield has now exactly doubled from the historic low of 0.52% on August 4, when folks were still betting that the 10-year Treasury yield drop below zero:

The 30-year yield jumped 11 basis points today to 1.81%, the highest since February 26. On March 3, as all heck was breaking loose, the yield had briefly plunged below 1% for the first time ever, and days later it was back at nearly 1.8%, in some wild and volatile panic trading. But this time, the upward trend started on August 4 and has been systematic:

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Doug Casey on Whether the US Dollar is Headed for an Inflationary or Deflationary Collapse

The answer is all of the above. From Doug Casey at internationalman.com:

dollar collapse

International Man: In the past decade, the Fed’s money printing has created bubbles in stocks, bonds, real estate, and other many areas. It’s likely that the stimulus and money printing will not only continue but accelerate at breathtaking speeds in 2021.

What do you think the prospects are for what the great Austrian economist Ludwig von Mises called a “crack-up boom?”

Doug Casey: First of all, we have to define what Mises meant by a “crack-up boom.” It can occur when the public realizes that money is being printed at a great rate, and it’s likely to continue being printed at a great rate. The public then starts moving out of money to buy anything of real value. All that money is passed around faster and faster, like an old maid card, causing a “crack-up boom.” It’s not a real boom. It’s caused by fear, not prosperity. The desperation of trying to get into real goods and get out of the US dollar creates what you might call uneconomic economic activity.

They won’t try to put the money into productive enterprises, rather just tangible assets that will defend them from inflation. The most famous crack-up boom in modern history, of course, was in Weimar Germany during the early 1920s.

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Getting Out Before the Crash… 5 Secrets to Spot Market Tops, by Doug Casey

It all seems so easy, just buy low and sell high (or sell high and buy low). So how come so many people do the exact opposite? From doug Casey at internationalman.com:

market tops
 
International Man: Markets have extreme emotions. They can go from irrational exuberance—where it seems everyone is swinging from the chandeliers—to a bottom-of-the-barrel bear market where people don’t even want to look at the business section.

Why is assessing the psychology of the market so important?

Doug Casey: The market, as Warren Buffett has pointed out, can be either a weighing machine or a voting machine. You can make money in the market either way, but you have to recognize which machine is giving you signals.

Although Mr. Market sees and knows almost everything, he pays the most attention to the voting machine, because he’s basically bipolar, a manic-depressive. As a result, not only do you have to deal with the psychological aberrations of millions of other people who are running in a crowd and voting with their dollars, but much more important, you have to deal with your own psychology. You are, after all, part of the market.

The only thing you can control, however, is your own psychology, not that of the market’s other participants. Once again quoting Buffett, “Be fearful when others are greedy. Be greedy when others are fearful.”

It’s a matter of having good psychological judgment. Everybody wants to be a contrarian, and perhaps they think they are a contrarian. But, in reality, it’s hard to be a contrarian.

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The Disappearing Retirement Fund, by Jeff Thomas

You just never know when a cash-strapped government might dip into your retirement fund. From Jeff Thomas at internationalman.com:

retirement fund

As a general principle, I’ve always tended to avoid entrusting others with my money. I’ve avoided funds, as they are often based upon investments that are peaking or close to peaking. I’ve avoided pension funds, as they’re often structured in a similar manner.

And whenever by law I’ve been required to be invested in such funds, they’ve rarely been successful over the long term. In the end, I would invariably have made more money by pursuing those investments that had great promise but at the time were unpopular (and therefore underpriced).

As dubious as I tend to be of conventional investment schemes (and those who broker them), I am doubly dubious of any government-run scheme. Governments, historically, have proved to be poor money managers, and politicians tend to place more value on big promises that garner votes than on delivering on those promises.

And so, I’m predictably biased as to the likelihood of any form of fund that any government may be involved in. Even if it’s structured well, which it may well not be, governments, if they have the power to do so, will tap into the fund, draining it of the intended recipient’s contributions, leaving the fund exposed, should a crisis occur.

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Unhinged….. And Then Some! by David Stockman

Buy stocks because bonds are so central-bank suppressed that they’re the guaranteed investment from hell. That’s what passes for wisdom on Wall Street these days. From David Stockman at davidstockmanscontracorner.com via lewrockwell.com:

Jerome Powell puts you in mind of the boy who killed both of his parents and then threw himself on the mercy of the court on the grounds that he was an orphan!

That’s what JayPo essentially did in his presser yesterday while trying to explain that the most hideous equity market bubble in history is actually not that at all:

“If you look at P/Es they’re historically high, but in a world where the risk-free rate is going to be low for a sustained period, the equity premium, which is really the reward you get for taking equity risk, would be what you’d look at,” Powell said.

“Admittedly P/Es are high but that’s maybe not as relevant in a world where we think the 10-year Treasury is going to be lower than it’s been historically from a return perspective,” Powell said.

Right. The Fed has essentially murdered the bond yield. So relatively speaking, grossly inflated stocks are a bargain compared to dead-in-the-water bonds.

Bloomberg even has a chart to prove all this based on the so-called “Fed model”:

The S&P 500’s earnings yield – profit relative to share price – is 2.5 percentage points higher than the yield on 10-year Treasury notes. The comparison, loosely labeled the Fed model, sits well above what the spread was before the burst of the internet bubble, when bonds yielded more than equities by that measure.

Then again, the “earnings yield” is not exactly cash you can take to the bank, unlike a bond coupon as meager as it might be at present. The former is just a computational hope that today’s vastly inflated stock prices relative to earnings stay inflated indefinitely, world without end.

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The Social Security Shell Game, by Dennis Miller

Social Security is flush with its one asset—the federal government’s debt! From Dennis Miller at theburningplatform.com:

Shell game with three cups - The Social Security Shell GameA friend sent me the recent announcement about the Social Security Cost-of-Living Adjustment (COLA) for 2021.

“Social Security and Supplemental Security Income (SSI) benefits for approximately 70 million Americans will increase 1.3 percent in 2021.

The 1.3 percent cost-of-living adjustment (COLA) will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2021.”

Brian Anderson tells us, “The average Social Security benefit was $1,503 per month in January 2020.”

The average recipient is going to get a $19.54/month COLA increase. I sarcastically responded with “whoopee!”

They make a great fanfare out of telling recipients about their increases.

COLA Social Security Chart

Since January 2010, COLA increases have averaged 1.375%.

As a 15-year Social Security recipient, I know in December they send out the notification about how much you will receive the following month. Most, if not all, of the increase is taken back with increases in Medicare Premiums.

Brian Anderson continues:

“Social Security benefits have lost 33% of buying power since 2000. TSCL’s (The Senior Citizens League) analysis found that, over a 10-year period, average Social Security benefits of $1,075 per month in 2009 lost a total of $15,258 in financial growth from 2010 to 2019 when compared to the previous decade when COLAs averaged 3%.”

Why don’t benefits keep up?

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Digital Money Is Coming to America, by Bill Bonner

Inflationary regimes have often swapped the old, depreciated-to-next-to-nothing currency for a brand new, nominally revalued and reset currency that soon sinks to next to nothing. Right now the world’s inflationary regimes are scheming to replace currencies, especially that hard to track paper money, with digital, easy to monitor, currencies. From Bill Bonner at rogueeconomics.com:

Week 28 of the Quarantine

SAN MARTIN, ARGENTINA – For half a century, America’s greatest export has been the dollar. So much so that there are now more physical dollars outside the U.S. than in it.

Overseas, people use dollars as an alternative to their own money. Foreigners are more familiar with Ben Franklin than Americans. In many places, people cling to U.S. dollars like a drowning man to driftwood.

Here in Argentina, for example, inflation is already running at about 50% per year. People think it will get a lot worse. So they prepare by trading their pesos for dollars – now at a rate of 150-to-1.

Sinking Dollar

But what happens when the dollar sinks?

The question is premature. Almost naïve.

For the present, the dollar is as buoyant as an empty plastic bottle. The velocity of money – a key component of consumer price inflation – is actually going down.

Americans are happy to get dollars from the government. And foreigners are happy to get them any way they can.

But soon, everyone will see that the U.S. feds are acting like the people who run sh*thole countries. They stifle the economy with laws and regulations – shutdowns, moratoria on evictions, $1,200 checks for everyone – and try to finance it with printing-press money.

We have no superpowers here at the Diary. We cannot climb walls, fly through the air, or see through concrete walls. So we cannot tell you when or how the dollar fails.

But today, we will explore the question of what you should do about it.

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Wall Street is firmly in Wonderland, by Edward Chancellor

Anything resembling fiscal rectitude and propriety on Wall Street are things of the past. From Edward Chancellor at reuters.com:

LONDON (Reuters Breakingviews) – Alice was tired of studying for the CFA exams, the figures in the spreadsheet were blurry, she laid her head on the desk…

Her first day at Tweedle Asset Management was going to be a busy one. She was escorted around the offices by a young staffer named Otto. Their first visit was to the bond team. Fixed income was Alice’s keenest interest.

“Do you hold bonds for income?” she eagerly asked. Everyone laughed. “Are you dreaming?” the desk head replied rudely. “The coupon is subtracted from the principal, not paid out. If it’s income you want, you should take out a Danish mortgage, they pay very well. Or sell short Swissies.”

“But why own a bond, if it doesn’t pay interest?” replied Alice, who’d read her Homer and Sylla assiduously.

“As long as yields continue declining, even at negative rates we hold bonds for capital gains. If you want dividends, go ask the equity folks.”

“I see,” said Alice doubtfully, hoping that stock market investors would prove more sensible. At least they valued investments by discounting future income streams. But on opening a door marked “Fundamental Active Equity”, she came across an empty trading floor.

“Oh, we closed down that team last month – they’d been underperforming for decades,” said Otto.

“What was their problem – did they buy overpriced stocks?” Alice asked, keen to show off her knowledge of Fama and French.

“That’s exactly what they didn’t do!” replied Otto scornfully. “They stuck with value, and as everybody knows value sucks. If you want to outperform, you’ve got to show your FANGs.”

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Could Wall Street Lose the Election? by Charles Hugh Smith

Popular anger with Wall Street is rising, perhaps because Wall Street is filled with grifters and crooks. From Charles Hugh Smith at oftwominds.com:

Two simple regulations would drive a stake through Wall Street’s corrupt, evil heart.

While the corporate media is focused on the presidential election, perhaps the more interesting question is: could Wall Street Lose the election? That is, could Wall Street face potentially fatal restrictions regardless of who wins?

If this seems farfetched, consider the history of abrupt social-political-financial turn-arounds that surprised the mainstream. Off the top of my head I would point to Big Tobacco and environmental controls on Big Industry.

For decades, Big Tobacco was politically invulnerable. Big Tobacco greased the political machinery with huge contributions to politicos and massive lobbying campaigns to deny the self-evident reality that smoking was hazardous to human health.

Every effort to change this political dominance was thwarted with ease–and then suddenly, Big Tobacco fell out of favor. Politicians who had collected millions of dollars in Big Tobacco bribes–oops, I mean campaign contributions–without any blowback were suddenly in the spotlight as enablers of an industry that had remorselessly killed millions of its customers while claiming that tobacco’s health effects were still a matter of debate and/or choice.

Practically overnight the political walls protecting Big Tobacco crumbled as all the lies and political complicity that had long been accepted as “normal” were denormalized.

Big Industry encountered little political resistance to its decades-long dumping of industrial waste into the nation’s waterways and air until 1970. Images of American rivers catching fire changed public perceptions and eventually even Big-Business-friendly Republicans supported environmental regulations that cost Big Industry tens of billions of dollars in new costs.

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