Mega Girl! Collapsing Bond Market To Suck Air Out Of Stocks!
Writing is such sweet sorrow. Sweet as there is no shortage of things to scribble about. Sorrow as the financial authorities have made such a mess of things that there's no shortage of things to jot down some thoughts about, grand mess ups to reveal repeatedly until we get it. The economy has been on adrenaline for nearly a hundred years and increasingly threatening doses for the previous forty. The crash will be grand and we have to grasp what is happening. If nothing else so that generations to come can learn from the mistakes.
Back from the huge picture to the issues of the instant. When will it end? We all know kind of how, so we must look daily for the time to approach. Is it on the horizon? Your guess is as good as ours so we're going to consider what we all know. Just when you believed that it was clear sailing ahead for bonds and sticks, another wrench is thrown into the works. We've been targeting here at The Mint on the approaching fireworks in the Bond Markets. Not that we know just how or when the market will collapse, we only know that its collapse, in some shape, shape, or form, is imminent. 2 of a myriad of reasons came into focus for us today which we intend to now try to pass along.
The 1st and clear problem comes in the shape of collateral backing the bonds that are at present being issued. The second and more vital problem is that most bonds today lack a feasible repayment agreement to repay the bonds. We define a "doable" repayment schedule here at The Mint as one where the borrower pays back what's due with the future fruit of their works, generally called revenue. The difficulty is that in up to date bond issues, these 2 active ingredients, some would even go as far as to call them irreplaceable as a condition for lending, have been an in short supply.
Take the issue of collateral. There could be assets that were worth a certain quantity in 2006, or maybe 2008, that you can take as your own if you do not get repaid on a bond. The issue is that we are approaching the end of 2010. Regardless of how you look at it, collateral values just are not what they once were. Banks are demanding money as security. Why? The easy answer is there isn't any powerful requirement for the collateral at the moment. In numerous cases, the world is working thru a surplus of finished products and finding that there's a dearth of first products (commodities). Most collateral is as finished products. This is a long trend that would take 10-20 years to fix.
Then move on to repayment. Repayment agreements today typically involve either refinancing the debt when it matures or selling the asset to satisfy the debt. The second bears the difficulty of collateral listed above. The previous relies on similar or better conditions in the future Bond market conditions. And now a 3rd way of paying back a debt has been very hot for the last two years. Print cash to pay for it!
Sound ludicrous? The repayment schedule for the US Government, historically the trustiest borrower in the debt markets, is to print cash to pay the obligations. Brilliant. The pop in this Bond bubble will blow a torpedo in the side of the existing currency regime, which is founded upon debt. There isn't any question the currency regime will stop at nothing to save the Bond markets, an impossible job. So we're about to witness a classic event. The breakdown of the Bond market and currency regime will be equivalent to a finance supernova.
No collateral, no repayment schedule, why write a Bond now? It would seem a downtrend has begun afresh in US thirty yr notes and we also read that bond fund inflows have reputedly topped. To finish it off, today we read a reminder from Richard Russell of the DJX Idea Letters sees a "hard rain coming" in the equity markets and is replenishing his call to desert ship. What does the stock exchange see? It sees an economy that was built on an unsustainable currency system dependent on ever-expanding debt quickly approaching collapse. Hollywood can't do justice to the events the collapse of the most complicated and complicated world economy to date will cause. The disconnects between demand and supply will be amazing.
Gold is first to see these things on the horizon but stocks are catching on. Once the executives and central banking organizations credit is shot by all this money printing, the Bond Market will suck money in from stocks like Mega House maid sucking the air from planet Druidia in the flick Spaceballs. Hang on to your gold, silver, and anything real cause it will be a thrilling ride!
Article Source: FxTradingStock.com
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by: Garry Wittgenstein
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Date: Wed, 9 Mar 2011
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