10/23 market update

[muldoon]

So where are we now?  It's a vexing question, and I try to evaluate it somewhat frequently because I am concerned about the situation were in and where were headed.  Essentially, these efforts by the fed has added some 3 trillion in debt to the fiscal years deficit.  We wont pay it, we cant, were broke.  Treasury auctions have been seeing huge "tails" or premium above market to close a transaction, one was as high as 40 basis, some have been 20 basis.  But overall there has been something amiss in the treasury markets, I havent been able to put my finger on it until today.  The article is a few days old, from the 19th - I just saw it today. 

http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20081019/REG/310209975/1009/TOC&ht

Delivery failures plague Treasury market

The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day).

The outstanding U.S. public debt is $10.3 trillion.

A treasury fail is a failure of the entity selling the treasury of delivering it to the buyer within the identified time.  In the "short" sale list, this is called the REGSHO list, and it identifies sellers that are selling something they do not actually have.  Primary dealers are selling treasuries that do not exist, the "safest" form of safety is potentially worthless. 

There is simply no way this fraud does not end in structural failure. 

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So back to the question, where are we?  We are illegally printing money with the direct intent to ramp inflation in hopes of offsetting the deflation related to the destruction of money and credit in the current crises.  Illegally printing money - yes, I believe so.  And for years I have argued with many on this point, that it doesnt work that way, that money is born from debt.  It's not the case anymore, they are zooming out 1s and 0s with no bondholder on the other end.  Please consider the monetary base:


Or consider the banking borrowing statistics:




Where now?  Who knows, their is a good chance of a bond market collapse in the coming weeks, like 70% chance of it.  I cant see how anyone would buy any debt now.  With or without a US guarentee what good is it if you dont get paid?  Assuming we avoid that, we still have the current track of deflation to deal with, and if we beat that then we would have a hyperinflation condition to deal with.  Law of unintended consequences is quite upsetting. 

Were not through this yet, hell they may still be singing the national anthem before the game really even starts right now. 

[peternap]

Thanks muldoon!

As always, good report.

My unwashed rabble take is that we aren't going to get through it intact. On the surface, the media is starting to talk about a bottom in the stock market and a recovery soon. I do expect to see a rally after the elections and I'm looking at what will bounce. I also expect it to be short lived, so it's another get in...get out ..markets.

It's almost 2:00 Am and I've been watching the Asain markets go down again. The dollar is at a 13 year low and it's Friday. Despite that and the miserable earnings this week and the daily downward movement of the market, gas is down and the Soccer Moms are ignoring the meltdown.

I'm still looking at the country and trying to figure what services people will HAVE to get despite a complete meltdown. I haven't made much progress on that yet because we still are stuck with products that either can't be repaired or need special equipment to repair. The modern automobile for one.

These things will be in demand. How they will be paid for....who knows...Dollars, yen, pieces of eight, buckskins???

Local Government is already starting to slide and Virginia is now doing a massive downsizing. Can't say that upsets me.

I'm not really worried about National Defense, now because the rest of the world is crashing too, If we have another war, I'm not sure anyone will come.

Crime is a consideration. Those that are used to taking what they want will continue to do so and will be joined by many when the food stamps won't buy enough to keep them alive.

I have pretty much written the economic system we have off. Something is trying to form to replace it, I'm just not smart enough to understand it yet. As with all major economic shifts, organized crime will play a major role and the players will become a force in our future politics.

Oh the times, they are a changin!

[glenn kangiser]

George H W Bush already told you in 1991 I think--- When we are successful - and we will be.....

[peternap]

It's been an interesting morning so far!

Limit Down Circuit Breakers tripped!