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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

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

 

Condensed Articles

January 6, 2017

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THE YIELD THAT BREAKS THE RALLY

By Michael Pento

(condensed)

The current business cycle has been the longest economic expansion since WWII. The average expansion is 38 months, and the current one is already 90 months in duration. Therefore, a recession sometime in 2017 is more than overdue. If we did enter an economic contraction next year deficits could explode by an additional $1.2 trillion; just as they did during the Great Recession of 2009.  With deficits more than likely north of $1 trillion dollars – or north of $2 trillion dollars if we enter into a recession – there could be a massive and record supply of debt issuance that will put enormous upward pressure on yields.

Adding to this dynamic is the waning demand for U.S. debt from China. Data from the Treasury shows that China, the largest owner of U.S. government debt, has cut its holdings every month between May and September of this year. And this was before the infamous phone call from Taiwan’s Prime Minister to the President-elect and any Twitter war Trump may start with China. In fact, in May alone the People's Bank of China sold a net $87 billion dollars in Treasury debt. Therefore, not only is the Fed threatening to resume its tightening cycle come December 24th, but the bond market will have to absorb China’s liquidation of its stash of Treasuries as well.

In fact, the only condition still preventing the bond market from an immediate implosion is the QE coming from the European Central Bank (ECB) and the Bank of Japan (BOJ). However, the ECB has just indicated that it will reduce its bond purchases starting in March 2017. But the bottom line is there’s no way the current total of QE coming from the ECB and BOJ can offset the awakening from the 35-year old coma of bond vigilantes. Once they decide the $100 trillion global market is a sell…the game is over.

As the ten-year yield approaches 3%, which is more than double the rate seen just five months ago, all forms of fixed income, along with their proxies, will come under extreme pressure. This means corporate debt, municipal bonds, REITs, CLOs, student and auto loan securities, bond funds, the real estate market, all dollar-denominated foreign debt and equities should fall concurrently along with the global economy. All this should occur while the multi-hundred-trillion-dollar interest rate derivative market gets blown to smithereens.