There are many people watching Treasury yields collapse and are believing that this is showing a large underlying weakness in our economy and financial system. Others will say that since the Fed is manipulating the rates that yield curve inversions and other metrics should not be looked at.
My own belief is that there is tremendous weakness in our economy and an obvious problem with bank and hedge fund liquidity. The stock market is also behaving like it is in a bear market with wild swings day to day. This is far more typical in a bear market rather than a bull market. This is similar action to what we saw in 2008. My guess is that the only difference is the trillions being given to the banks and hedge funds giving the illusion of normalcy. If you can call 1000 point moves “normal”!
Let me ask you this: How normal is giving banks, etc. $50 billion to $200 billion per day?
One thing that I noticed today as I was looking at the Fed’s website was this:
On Monday we had a relief rally after the markets got pummeled last week. I believe that should have been expected. On Tuesday the markets fell hard again only to rally strongly on Wednesday. Today, the markets are tanking hard again as I write this. By the end of the day- who knows?
I am going to guess the “markets” end up lower today because of what I noticed this morning. On Tuesday (down day) the Fed lowered rates by .5% and put $120 billion into the “markets”. However, the banks, etc. ASKED for over $179 BILLION (IN ONE DAY!) leaving a deficit of $59 Billion- MARKET DOWN.
On Wednesday the “markets” were way up. The Fed pumped $100 Billion into the “markets” but only $111 billion was requested. $11 Billion deficit- over 5X less of a deficit as the day before. Market RALLY! Today “markets” are tanking again and the banks, etc. asked for $159.8 BILLION and received $107 Billion leaving a funding deficit of almost $53 billion for today. It appears the “markets” will be weak again today. Just a wild guess!
Why is this important? ANY discussion of halting or possibly even tapering back on these cash infusions is pure folly. If the Fed were to seriously pull back in any way- add all of the other central banks in also these “markets” would most certainly collapse. The numbers are getting exponentially larger.
While this “printing and buying” may buoy stocks and bonds higher for a while (or maybe not) the one thing I am most confident in is gold, silver and the companies that mine them.
If the central banks did indeed pull back the stimulus how long do you think Greek, Italian, and other European bonds would be sporting yields near 0%? How long before US yields spike (possibly uncontrollably without massive intervention which if they pull back would not be happening)?
How long before the losses in the bond market and rise in rates would adversely impact most other assets like stocks and real estate?
Of course, the likely commotion caused by this would likely lead to many seeking a place where they don’t have to count on others to pay them back- because MANY will be unable to pay- gold, silver and other hard assets.
On the other hand, if these absurd interventions keep growing exponentially, as they are now, it is likely only a matter of time before the world realizes fiat currencies are not worth the paper they don’t even print the on anymore. Again, the masses will be clamoring for something of tangible value- like gold and silver.
Because of the massive efforts by banks and central banks to keep the gold and silver prices suppressed you still have the opportunity to buy these assets at what I consider to still be bargain prices.
Keep in mind, those who can “print” money and those closest to them (major banks, hedge funds and billionaires) have been buying gold in record amounts while the regular guy chases stocks that are likely going off of a cliff as we speak and others are buying bonds counting on still lower rates even though rates are so low there is no historical precedent.
Who do you think will win this game?
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