Watching Paint Dry

Think of Treasury bills, notes and bonds this way - it is an American Express Card.  You know, the stodgy old style AMEX card that had no monthly spending limit?  The card that was issued only to doctors, lawyers, astronauts and Indian Chiefs - serious people.  The one that could be used "to infinity and beyond" because the powers that be saw no problem with it's cardholders' ability to repay any amount and would charge their clients a nominal fee for keeping the ledger straight.

Now, imagine that you as the cardholder and signatory have given your highly prized "AMEX card" to your no account sister-in-law and her equally no account son from her previous marriage and, to sweeten the deal, the son's drug addicted girlfriend because...well, just because.  You were either foolish, overly empathetic, suicidal...who knows why you gave your prized and precious "AMEX card" to those people?  "Those people" are Congress.  Congress is the party that holds the purse strings in our Republic's power structure.  I'm beginning to believe that poor old Ron Paul was out last truly serious Congressman.

Those that provide the funding on that "AMEX card" are becoming concerned.  Considering the risk that they are shouldering, they are no longer satisfied with charging only a nominal fee, particularly at the long end of the yield curve (7 years or longer).  They now want some "juice" to compensate for that growing risk.  Interest rates (represented as yield in the bond market) were far too low for far too long (thanks Bernanke and Yellen and Powell Feds!!) and far too much credit was extended to non-serious people and that will reverse course eventually.  We may be on the cusp of that correction.

In my head, John Lennon's song "Imagine" leaped to mind only in this case the lyric went:

"Imagine there's no buyer...it's easy if you try"

Bond Mania on Deck?

 10 Basis Points in a Day?

We do not normally see these types of swings in long term Treasury bonds and shorter duration bills and notes in normal times but I think we can all agree that we are not living in normal times.  Then again, define normal for me.

Kevin's Mettle Has Not Yet Been Tested

 No change in the overnight rate as of yet but some talk of what a disaster the Bernanke/Yellen/Powell Federal Reserve has been for regular working people when measuring "price stability" for goods and services.

We will not know if Mr. Warsh is just blowing smoke or if he will stick to his conviction that the current situation is not sustainable (it is not) for the largest portion of the country's population.  When I see the overnight rate increased without any "forward guidance" in spite of higher loan delinquency rates, higher unemployment, demand destruction for goods and services that is driven by abundant and artifically cheap credit, higher bankruptcy filings, a (long overdue) stock market correction, etc., then and only then will I know this dude is a serious inflation fighter.  If he caves at the first sign of trouble (a bank failure, a stock market slide lasting more than a few days, a spike in new unemployment claims), we will know that the statement made this month was just more smoke and mirrors.

Hear Me Now and Believe Me Later

Too early in my predictions but not wrong?  I incorrectly assumed that the Federal Reserve would "do the right thing".  Not in my wildest dreams would I have thought that the "Greenspan Put" would morph into "Bernanke Fun Bucks", "Yellen Coddling of the Obama Administration", "Covid-19 Stimmy Checks" and "Powell's Incompetent Policy of Transitionary Inflation".  

But, here we are.  What is not sustainable will not be sustained.   For many over-indebted Americans, the road to recovery goes through the local Bankruptcy Court, just as it has in decades past.

Kevin Warsh was confirmed - we shall see if he follows through with his past convictions on the proper activity of the Federal Reserve.

For many over-indebted Americans, the horse has left the barn.  It is not a question of lower interest rates.  The level of debt that they have voluntarily committed to is simply too great to repay.  Poor loan underwriting and short sighted policies adopted by lenders looking for customers have consequences.

Stay tuned....

Abe said "Where ya' want this killin' done?" God said "Have it out on Highway 61"

 

I took this photograph many moons ago while on a motorcycle trip from Missouri to Mississippi

So many foreign holders of U. S. Treasuries and so little time.  Strangely, some of those investors are Communists.... Talk about a Bizzarro World we are living in today.

When The Wealth Effect Dries Up

 

The Atlanta Federal Reserve recently revised the G.D.P. expectation for the first quarter of 2025 into the negative.  A large part of the economy is being supported by an increasingly smaller and smaller part of the population.  Those with some real wealth continue to spend no matter what the cost.  Those who would like to be presumed as wealthy continue to borrow in order to spend.  A very large part of the population has officially tapped out.  Their borrowing capacity is maxed out.  Their earnings have stagnated against the cost of goods and they purchase only that which is absolutely necessary.

Stocks are said to be "priced to perfection".  The only way to go from here is down.  Housing has "jumped the shark" in many markets and inventory is building.  The only way to go from here is down.  Some people who thought themselves to be bullet proof where their jobs were concerned are having a come to Jesus moment.  A lot of paper wealth is about to go up in flames.  People with gold, cash, silver or easily convertible securities are going to be well positioned to buy some bargains.

It will be interesting to see if the Federal Reserve jumps into the fray again with Q.E., money printing, Z.I.R.P., etc.  If it does, inflation roars.  If it does not, a crash in several areas of the economy as true price discovery takes place.

So Long 2024 - to Better Days to Come