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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Aubie Baltin
June 16, 2009
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The rising 10 year US Treasury Bond yield captured everyone’s attention when it rose above 4%, hardly a high level. Yet enough to create some cracks in the stock market preoccupied with baseless “Green Shoots” talk on the psychological side and by falsified bank balance sheets on the accounting side. Big time stress is finally affecting the US Treasury complex, which is at the epicenter of the credit markets. Leave it to Government, its flunky Media and Wall Street to trumpet less than expected (by whom?) bad economic statistics and a passel of miserable news on the jobs, home foreclosure and falling home prices to put a happy bullish face on the whole situation. Will it be unemployed workers, dispossessed homeowners, and insolvent households who will lead the nation on a recovery, while credit risk underwritings are much more strictly enforced? Do you enjoy a good Fairy Tale? Leave it to Wall Street to trumpet a healing process when huge market to market write downs are replaced by “Credit Value Adjustments” and then booked as profits on the Bank’s books.
For those of us who can read between the lines;, a powerful megaphone message is screaming loud a clear: The US Federal Reserve is being forced to continue on in its giant monetization scheme, which has dealt a powerful blow to global confidence in the US financial system generally and the US Dollar in particular. The group of 20+ bond dealers, whose job it is to make a market and sell US Government debt, are being squeezed and face a possible risk of failure. In the face of rising long-term US T Bond yields, demand is still growing. But Bond supply is growing even faster. Auction sizes used to be $5, $10 and sometimes $15 billion on a given month; last week the official auction was for $110 billion, a 10-fold increase. There are just not enough buyers to absorb all that supply. The $300 billion monetization sounded like a big amount, but that amounts to only a two or three months supply, if the $1800 billion in US Government deficits is to be financed. The $1 trillion monetization MUST BE REPEATED, and even become a quarterly event in order to avoid failed auctions. Remember what happened to private equity firms stuck with their own stock and bond inventory? They went bust. That is precisely the risk to our bond dealers and to the private equity firms that fueled our last Stock Takeover Bubble.
The trend is clear: The official bond auctions will continue relentlessly, probably well over $100 billion per month; worse, the federal deficits will be much larger than estimated, especially as interest rates steadily increase. Tax revenues are down 35% year over year and for the first time ever, April had a deficit month. However, monetization of debt only forestalls the inevitable. Meanwhile, the economic impact of this financial crisis will slowly be recognized. Watch the job losses and home foreclosures. Watch the national home prices, all of which continue to deteriorate.
You may recall that the US economic recovery that began after the 2001-2002 recession was built on an emerging housing boom in conjunction with falling interest rates and an across the board Tax Cuts. All that and a nice little war tossed in for good measure.
The cracks in the Treasury Bond Market Bubble have already begun and are rapidly getting wider. The debt downgrade of the UK Gilts should have awakened the world to a possible US Debt downgrade as well. The global reserve status of the US dollar is already coming into question and the sheer size of the US economy guarantees that the impact of a down grade will cause tsunami-like shock waves throughout the world’s financial community. It is this fear that has so far kept foreign government’s T bond selling in check. But for how much longer?
A rising US T-Bond yield reminds us that price is always determined by demand and supply. The rising bond supply will be continuing, not just for a month or two, but for years. Trillion dollar projected Federal deficits are expected for as far as the eye can see. And what will ever increasing interest rates do to our carrying costs and projected deficits? You can only fool all the people some of the time.