Tuesday, May 28, 2013

Some Interesting Facts Not Being Reported By The Media

There are forces developing over the next few months that may push the BOJ and the Fed to take some extraordinary actions. That these two big CBs are facing the same potential outcome, at the same time, is troubling for me. I see this evolving story as a possible turning point. The key CB's will have gone from Offense to Defense.  For five-years the CBs have enjoyed being on the offense. They have successfully controlled things so far. But I can't imagine how they can continue to be "successful" when they are forced to defend (versus lead) the bond markets.  - A quote from a Zerohedge source who trades bonds for a big bank, in reference to the fact that professional bond traders are expecting a possible severe sell-off in the bond market.  LINK
Having been an institutional bond trader for nine years, I know what it's like to be sitting on big positions ahead of seeing a big sell-off coming and before the entire market sees it coming.  You can't to protect yourself from what you see by the time the market sees because by then it then it's too late to do anything about it.  When I read the first couple of sentences of the quote above, I knew exactly what that person was talking about.  I can guarantee you that the smart "inside" money sees something really ugly coming and that's why bond yields have been moving higher quickly over the last month, despite the fact that the Fed has been buying over 50% of all new issuance and now owns 30% of the entire Treasury bond market.

Speaking of the bond market, today the Treasury auctioned 2-yr Notes.  The only problem is that it wasn't really an "auction" in the true sense of the word because the Fed-backed primary dealers of Wall Street were forced to buy 65.4% of the bonds issued, otherwise it would have taken substantially higher rates to induce outside buyers.  Make no mistake about it, there will be severe "collateral" damage that will occur systemically as a result of the unprecedented Fed intervention in the bond market via QE - that is exactly what the last sentence in the quote above alludes to...

On Friday, the Government reported durable goods orders for April.  They were reported to be up 3.3% vs. March.  Please note that this is a "seasonally adjusted, annualized" rate that is calculated using some computer model voo doo not open to public inspection.  The decline from Feb to Mar was revised higher from -5.7% to -5.9%.

The reason I bring this up is that if you go through the individual categories that comprise the Government's durable goods report under the "not seasonally adjusted" category, you'll see that nearly every single line item in both new orders and shipments declined, some substantially, from March to April:  LINK  Clearly I'm not making any of this up because the truth is right there in black and white - in the Government's own report.

The point here is that what gets reported in the headlines in the mainstream media is often completely different from the actual facts.  I don't care about "perception" and "expectations management" and all that other nonsense, because eventually over time markets become self-correcting based on facts and truth.  History as spoken many times - and many times loudly - on this matter.  Unfortunately, history is likely on the verge of giving our country a "lesson" in facts vs. fiction that will be extraordinarily painful for most people.  Again, I defer to the quote at the top.

Meanwhile, I thought I would greet everyone to summer with another lesson in truth with one chart - there's really not anything that can be said about this chart that is not conveyed by the chart by the chart itself (I think I sourced this from Zerohedge):

Again, if you need any commentary on this chart, re-read the opening quote at the top...


  1. What is Freegold?

    Published on May 27, 2013
    Freegold in the words of zee Evil gold hoarders, jerks, time misallocators and brainwashed cult members who frequent http://fofoa.blogspot.com/


  2. Dave, I don't think Bruce Krastings' s article makes sense. He thinks the government deficit would shrink in the next few months, which would allow the Fed to taper some bit. Then the bond market would sell off, which would force the Fed to double or triple the monthly purchase. However, I think those guys at the Fed know that bond markets would sell off so why taper in the first place? Besides, I highly doubt the budget deficit would shrink to allow the Fed to taper.
    By the way, since the Fed owns so many treasury bonds. I highly doubt treasury yields could get out of Fed's control.

    1. Govt deficit ain't shrinking. I don't read Krasting. I think he's an idiot.

  3. Michael JacksonTuesday, 28 May, 2013


    This is an Investor's article on Arrow Electronics. To me, it seems that investor's are now analysing companies by how fast they get paid.

    "In this series, we measure how swiftly a company turns cash into goods or services and back into cash. We'll use a quick, relatively foolproof tool known as the cash conversion cycle, or CCC for short.

    Why does the CCC matter? The less time it takes a firm to convert outgoing cash into incoming cash, the more powerful and flexible its profit engine is. The less money tied up in inventory and accounts receivable, the more available to grow the company, pay investors, or both."

    This has big implications. Comapnies will have to drop the typical 30/60/90 days payment-plans in favor of immediate payment for goods and services to satisfy their stock holders. Vendors that buy supplies from them will have to pay for them before they have sold the product. Before, you had some lead way and could even default a little in paying back. Now you end up estimating demands for your goods and take the risk. I'm sure that returns policy will drastically be changed i.e. like Office Depot (14 days to return unopened; otherwise, it's all yours). As these vendors go under, the main supplier will run out of funds. Stockholders will ditch them as fast as they can and the spiral goes out-of-control. Maybe the FEDS might step in and start buying stock in companies to keep them afloat (like the Treasury Bills)?

    An unstable global economy is a sure guarantee that Gold/Silver will go up as it will be the only safe place. Too much debt in the system that needs to wash out and too many dams in place to prevent it. But the dams are breaking.....

  4. Hi Dave, what will the sell-off in bond affect gold and stock? where will the money go?

  5. Hmm just went through the durable Goods report. Cannot See any March 2013 numbers under "not seasonally adjusted".
    There are only April to May 2013 and May YoY Numbers. You might read that wrong.