tag:blogger.com,1999:blog-41024291956935957502024-03-13T20:10:27.960+02:00Sudden DebtIt is not because things are difficult that we do not dare, it is because we do not dare that they are difficult.Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.comBlogger1144125tag:blogger.com,1999:blog-4102429195693595750.post-87149619665201596402023-10-06T09:56:00.002+03:002023-10-06T10:28:50.237+03:00Bonds And Money<p>The US bond market is getting hammered lately as investors and traders realize that (a) the economy is not collapsing and (b) the Fed will keep rates high for longer than previously anticipated.</p><p>Money creation is THE driving force of consumer spending which is, by far, the most important component of US GDP. </p><p>So, here is a chart of “money creation” via the Fed’s own balance sheet. Assets are now at 32% of GDP, up from 18% pre-COVID and just 6% before the Great Debt Crisis.</p><p>In both cases the government/Fed just threw money at the problem instead of handling it in a more constructive and structural fashion. If the current situation evolves into yet another crisis, this time printing money will definitely create much bigger problems than it solves: to wit, hyperinflation and the end of empire.</p><p>The chart is another way to measure the devaluation of the dollar vs “real” assets and economic activity. The rest of the global economy is also “devaluing” (eg the EU/euro and recently Japan/yen) so as of yet there are no credible alternatives. But watch out for China…</p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSXh4327oK_MDcLNhDOGQpx4267MJZdR81vmXPMRIQtwSvqzzbBKXbL_lwNBcrzrVc17draRs0a46Hb_sr0htjwCCeQtvseNPXABIr7Z4mT_AvHooJBLCppMHhJ-FDA63be2HfRAMdfSenta5rbiDl9GhH8jZfqjAcsfy1cXMrLGcBHgOhQkHzKe-wwZe3/s816/IMG_1148.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="816" data-original-width="750" height="320" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjSXh4327oK_MDcLNhDOGQpx4267MJZdR81vmXPMRIQtwSvqzzbBKXbL_lwNBcrzrVc17draRs0a46Hb_sr0htjwCCeQtvseNPXABIr7Z4mT_AvHooJBLCppMHhJ-FDA63be2HfRAMdfSenta5rbiDl9GhH8jZfqjAcsfy1cXMrLGcBHgOhQkHzKe-wwZe3/s320/IMG_1148.jpeg" width="294" /></a></div><br /><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com6tag:blogger.com,1999:blog-4102429195693595750.post-76862497240871004522023-08-28T10:28:00.009+03:002023-08-29T09:52:13.383+03:00Debt To GDP For The US - We Have A Winner!<p><i>Note: Numbers on Debt/GDP below have been calculated using GDP on a Purchasing Power Parity (PPP) basis. Also, I have removed countries such as Lebanon, Suriname, Sudan, etc. from the chart.</i></p><p><i>__________________________________________________________________________</i></p><p>When it comes to Debt/GDP Japan is the undisputed "champion" - but most all of its debt is domestic. Only 6.5% of all debt is owed to foreigners, while the vast majority (52%) is held by the Bank of Japan. This has significant global repercussions, but <i>Japan is not my subject today.</i></p><p>Number two on the rogues list is Greece - no surprise there - but unlike Japan most all of its debt is owed to foreign official sector lenders. The bad news here is that this debt load exists even<i> after</i> the country went bankrupt a decade ago and plunged its economy into a decade long depression. But <i>Greece is also not my subject today.</i></p><p><i>Numero tre</i> is Italy. A perennial problem child, the only reason Italy can still finance itself at reasonable interest rates is that its Eurozone membership is presumed to preclude a bankruptcy. Let me point out, however, that as recently as 2008 its debt/GDP(PPP) was ca. 70%. But <i>Italy, too, is not my subject today.</i></p><p>My subject today is the USA - not a shock to regular readers of this blog going back as far as 2006. And my main question here is this: how logical, or even safe for the global economy, is it that the issuer of the world's reserve currency is so heavily in debt? Indeed, what does this mean for the US dollar when its issuer is the world's #4 most indebted economy? </p><p>Sure, under our current fiat currency regime, where debt is money and money is debt, it is expected that the availability of the global reserve currency can only come from a country that has a commensurately high debt. </p><p>But at which point does the debt load finances mostly domestic consumer spending of cheap imports (eg China) and defense spending, instead of productive, high value added activities? At which point does the incessant printing/borrowing become a vicious cycle? </p><p><i>Hint: the crypto boom is stoked to a large extent by those who look at such statistics and rub their hands in glee. </i>I do not share their glee because if we go down that route we are opening a much worse Pandora's Box - no need to enumerate all the nasty stuff that will come out from the Crypto Box.</p><p>But... something must be done to contain the US propensity to borrow and spend with abandon as if "tomorrow never comes, la, la, la". Because, unlike in the song, tomorrow always comes.</p><p>Let me try to quantify the debt excess, even if roughly: the US accounts for approx. 16% of global GDP(PPP), but its government debt stands at ca. 35% of global government debt. In other words, <b>the US is twice as indebted when measured against its global economic size. </b></p><p></p><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg6cV_sCKvBr0J-77iR4ItM_JEiM-eeMGsbwmEaRmrBNRA6FcG621YFZhzByFTVro95jtvgw3C9TkxdJ9eeS-MuD5yaJ-t2EmzgzXEbFohcPo6lOw0jFPNEgJIAXK1Up6OTvs0D6O0KwMXfNAgqfYRrfG969uq8-4SKBNJL7GpHzsaZ-HVjlIxlj8hVS5JU" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="614" data-original-width="950" height="414" src="https://blogger.googleusercontent.com/img/a/AVvXsEg6cV_sCKvBr0J-77iR4ItM_JEiM-eeMGsbwmEaRmrBNRA6FcG621YFZhzByFTVro95jtvgw3C9TkxdJ9eeS-MuD5yaJ-t2EmzgzXEbFohcPo6lOw0jFPNEgJIAXK1Up6OTvs0D6O0KwMXfNAgqfYRrfG969uq8-4SKBNJL7GpHzsaZ-HVjlIxlj8hVS5JU=w640-h414" width="640" /></a></div><br /><br /><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com7tag:blogger.com,1999:blog-4102429195693595750.post-1030073241582391082023-08-27T11:10:00.000+03:002023-08-27T11:10:01.921+03:00US Inflation And The Fed<p> The one certainty from Mr Powell’s Jackson Hole speech a couple days ago is this: The Fed remains firmly committed to its 2% inflation target. Corollary: all policy decisions will stem from that.</p><p>I’ve put together a chart comparing headline, core and employment cost inflation - see below. My interpretation of the data is this: headline inflation may have come down sharply due to an outsize drop in energy prices, but core and employment cost inflation are still more than double the Fed’s target.</p><p>Those expecting a quick reversal of high interest rates and restrictive monetary conditions (QT) are going to be very disappointed - unless a severe recession hits. Either way, not ideal for debt and equity markets.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggokf-6ndLnKhVZkZiYXAJm_mao707DeCBHtxOTSqgOQ1I5XcMxc3-llMF6OvpzVUKHBtQLEWLu_wEb34TJuyiLETthVG152OTio72Su_bOrJ7Esjj6SAEwnPzRleB17YCJ9CA57_G4HVzK_C-DhfkXBV48Pei4MAUi_ACD7YwpAxex9cKZxcz71nXVDpK/s961/DB7AFE8D-5BC6-47D0-BE02-ADC0F3689638.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="812" data-original-width="961" height="540" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEggokf-6ndLnKhVZkZiYXAJm_mao707DeCBHtxOTSqgOQ1I5XcMxc3-llMF6OvpzVUKHBtQLEWLu_wEb34TJuyiLETthVG152OTio72Su_bOrJ7Esjj6SAEwnPzRleB17YCJ9CA57_G4HVzK_C-DhfkXBV48Pei4MAUi_ACD7YwpAxex9cKZxcz71nXVDpK/w640-h540/DB7AFE8D-5BC6-47D0-BE02-ADC0F3689638.jpeg" width="640" /></a></div><br /><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com4tag:blogger.com,1999:blog-4102429195693595750.post-47292042755415261822023-08-25T08:07:00.005+03:002023-08-25T08:07:50.005+03:00Charting Tealeaves<p> In my experience, charting as a market analysis tool is as useful as reading tealeaves. But, occasionally it actually works, so when I have nothing better to do I look at charts for those familiar patterns which, purportedly, foretell the future.</p><p>I have nothing better to do right now (dog days of summer), so here's an annotated chart of SP500. The chart pattern is called an inverted flag (a bearish "trend continuation") and, theoretically, a downward breach of the flag signals a continued downward move to at least as low as the length of the pole from the point of the breach.</p><p>How do you take your tea? I recommend large doses of grains of salt... :) . Nevertheless, as I said in my previous posts, the bond market - which I strongly believe is a very good warning indicator - is looking decidedly ugly, so maybe this time the tea leaves are issuing a valid reading.</p><p><br /></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpv2pGwyrt6qW5rFjRaeOqVUld1kUEto8q3GxVVTDOCXE-u6QlRGFfqjpSueUGgwicdgLsvCOWGJEMspv4x1L_qfa8RjnswFQ7sonqMAFl6bOpjJNhzEHoW7VzJwoD76IpDbrF-GK-WxGXsoVihzAMTo7c-x4tljFU6x8SE8R-YB_hLDrTZY4jpBUuNPGd/s1853/flag.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="910" data-original-width="1853" height="314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjpv2pGwyrt6qW5rFjRaeOqVUld1kUEto8q3GxVVTDOCXE-u6QlRGFfqjpSueUGgwicdgLsvCOWGJEMspv4x1L_qfa8RjnswFQ7sonqMAFl6bOpjJNhzEHoW7VzJwoD76IpDbrF-GK-WxGXsoVihzAMTo7c-x4tljFU6x8SE8R-YB_hLDrTZY4jpBUuNPGd/w640-h314/flag.png" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><br /></div><br /><br /><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-32265312614741415732023-08-24T07:57:00.005+03:002023-08-24T10:02:11.391+03:00Maybe The Real Reason Bond Prices Are Dropping Is...<p> Analysts are somewhat baffled by the drop in bond prices. Inflation is moderating and the Fed is sending "hold" messages. So what is driving bond prices to 20 year lows?</p><p>Maybe - just maybe - it's the oldest reason in finance: <i>creditworthiness</i>. After all, Fitch just downgraded the US from AAA to AA+. </p><p>Just how creditworthy is the US? </p><p>In just 4 years the US has raised its gross Treasury issuance from $12 trillion to a projected $21 trillion in 2023. Yes, it's not net issuance (ie after maturities/debt retirement), but bear with me for a bit. Gross issuance has gone from 50% of GDP in 2018 to 77% of GDP in 2023P - <i>see charts below.</i></p><p>Why am I choosing gross issuance instead of net? Because if the US were to become less creditworthy (and it arguably has) some lenders could balk at rolling over their existing bond investments and/or demand a higher return.</p><p>I think this is exactly what is happening right now: increased supply (more gross issuance) is starting to face demand headwinds causing prices to drop.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhumz8yvTwzXydJZc6BkIM5pbD29FgEopeYZGtqp3evKApmXt3tsFShTdyUj1x5y-zTFK9zHHXOBr9YWpieZZr11uJAfMSeGAfx2e-QdhRiC77H6BJG6Sl46hvNacVWia1kKkbel2EsypCXT9hBjuIb2kjZMKgujj7CCJsOfU9KG3Ku1f_gBt7e0fLq0bFj" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="532" data-original-width="870" height="392" src="https://blogger.googleusercontent.com/img/a/AVvXsEhumz8yvTwzXydJZc6BkIM5pbD29FgEopeYZGtqp3evKApmXt3tsFShTdyUj1x5y-zTFK9zHHXOBr9YWpieZZr11uJAfMSeGAfx2e-QdhRiC77H6BJG6Sl46hvNacVWia1kKkbel2EsypCXT9hBjuIb2kjZMKgujj7CCJsOfU9KG3Ku1f_gBt7e0fLq0bFj=w640-h392" width="640" /></a></div><br /><br /><p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgn0PzfRID7Tr2_ZRgoVZWciNQJPHc0_lzyNepQZ3ujGi5SmTY5duCzIpQz6JyndmpGaba0uhwsr_9DE8Bpm50NDLVyJn1sZi4MMiM-qv3KjuASDN6KMA2DlWWZAhL4PL_47OBy1z_U3Qwjb7-khj9cpmUGQlbLCqipCNLnAi8jfotwuUK1uI94HoMxH-RQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="512" data-original-width="832" height="394" src="https://blogger.googleusercontent.com/img/a/AVvXsEgn0PzfRID7Tr2_ZRgoVZWciNQJPHc0_lzyNepQZ3ujGi5SmTY5duCzIpQz6JyndmpGaba0uhwsr_9DE8Bpm50NDLVyJn1sZi4MMiM-qv3KjuASDN6KMA2DlWWZAhL4PL_47OBy1z_U3Qwjb7-khj9cpmUGQlbLCqipCNLnAi8jfotwuUK1uI94HoMxH-RQ=w640-h394" width="640" /></a></div><br />Gross bond issuance is also a measure of debt service stress. Since the government is running massive budget deficits, it has to issue debt to cover that <i>plus</i> interest payments. And as interest rates rise, so does the amount of new debt required to pay just interest.<div><br /></div><div>Take a look at the chart below: in just a few months, the federal government's annual interest payments have soared from $500 billion to nearly $1 trillion. </div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgNC2OBZmWvu0XP_gw6c2iFz0eKCFCrWN3lDyPR2hAUFo3RA_dumi95i8lsyOVnPh1vBUqdXzWcJrGyT8g0FEZcg45a6hHSy0qUoKbzh6BDZvhmVhq69M4PyCDAQ9PKsYISF3oXjAMVfv1jzj-olwos5ThWBNpy1dNJkN_J3Eqsj5LlFkSXyrf_D2VS2Uqb" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="600" height="480" src="https://blogger.googleusercontent.com/img/a/AVvXsEgNC2OBZmWvu0XP_gw6c2iFz0eKCFCrWN3lDyPR2hAUFo3RA_dumi95i8lsyOVnPh1vBUqdXzWcJrGyT8g0FEZcg45a6hHSy0qUoKbzh6BDZvhmVhq69M4PyCDAQ9PKsYISF3oXjAMVfv1jzj-olwos5ThWBNpy1dNJkN_J3Eqsj5LlFkSXyrf_D2VS2Uqb=w640-h480" width="640" /></a></div><br /><br /></div><div><div>Is this sustainable? Is it compatible with even a lower AA+ rating? From one perspective, it is: interest payments as a percentage of GDP have jumped from 2.5% to 3.6% (1Q23), but still well below the highs of the 1980s -<i> see chart below.</i></div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg0DwhtJTxnGYaqdF-nYTpT6Gk-kkFovADelm7d1zle9SH8b8_nbR6BD1RScPT9OoDIYOyHAjpTgh1-Ug6duDkP5-6QTkI9-BdCFIR8mcZHDi2aCpCAOxdmuDdWsatqM2117kG2V655b40AgD_56-RKJJHv5VGbUtIyDZmHzUTwJ6bH3h2D4SRDv25aL5w1" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEg0DwhtJTxnGYaqdF-nYTpT6Gk-kkFovADelm7d1zle9SH8b8_nbR6BD1RScPT9OoDIYOyHAjpTgh1-Ug6duDkP5-6QTkI9-BdCFIR8mcZHDi2aCpCAOxdmuDdWsatqM2117kG2V655b40AgD_56-RKJJHv5VGbUtIyDZmHzUTwJ6bH3h2D4SRDv25aL5w1=w640-h218" width="640" /></a></div><b><div style="text-align: center;"><b>Interest Expense as % of GDP</b></div></b><br /></div><div><br /></div><div>However, when we look at the budget deficit, things become scarier - <i>see chart below. </i>The FY 2023 deficit is projected to reach well over $1.5 trillion, perhaps even reach $2 trillion. In just the first 9 months from October 2022 to June 2023 the deficit stood already at $1.4 trillion, fueled in large part by the soaring interest expense discussed above.</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgFXP1bn3EZ0nqe7JxiG-zBt-scWvSGaUN7Kob2K3QBD4zdjB4m7WMFFdisO9tBsKfL8ZXzLudQyjOYVGTQ6hKvkP8czLcTCeH8CSsPZ9bwrI_40NMIdCvf-_VdZaVPBvoHaZQRQs9fmEGa9gLT7BFKVFN5R4707SACHzXDnvocunIrn-oFY0UsScHXCncc" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEgFXP1bn3EZ0nqe7JxiG-zBt-scWvSGaUN7Kob2K3QBD4zdjB4m7WMFFdisO9tBsKfL8ZXzLudQyjOYVGTQ6hKvkP8czLcTCeH8CSsPZ9bwrI_40NMIdCvf-_VdZaVPBvoHaZQRQs9fmEGa9gLT7BFKVFN5R4707SACHzXDnvocunIrn-oFY0UsScHXCncc=w640-h218" width="640" /></a></div><br /><div style="text-align: center;"><b>US Federal Budget Deficit (FY 2022 Last Point On Chart)</b></div></div><div><br /></div></div><div>In sum, the US government finances are, in a word, <i>unsustainable</i>. Unless:</div><div>(a) the budget deficit is slashed and,</div><div>(b) interest expense comes sharply down</div><div>even the AA+ rating is very generous, optimistic and likely to go lower quickly. In my opinion, Fitch's action is a first warning - I bet they wanted to go lower but chose to be politically cautious, at first.</div><div><br /></div><div><br /></div><div><br /></div><div><br /><p></p><div><br /></div></div>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-77732947758825168142023-08-23T09:13:00.002+03:002023-08-23T15:19:30.585+03:00The Trillion Dollar Question<p>A one question post today:</p><p></p><ul style="text-align: left;"><li>Given its enormous debt load and the spike in interest rates driving debt service closer to unsustainable levels, which is in the US government's interest?</li></ul><div>a) A sharp recession to drive interest rates down.</div><div>b) Robust economic growth.</div><div><br /></div><div>Comment freely.</div><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com3tag:blogger.com,1999:blog-4102429195693595750.post-82517452417084072882023-08-22T14:00:00.012+03:002023-08-22T14:57:41.036+03:00More Trouble Ahead From Bonds<p>I don't think most people realize the massive losses that have been suffered by bond investors in the last year and a half - <i>take a look at the chart below.</i></p><p><i><br /></i></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhMvp6JAuvcTmrOPbPVk-Tw-Qgix-8CKX5jRqwyr00xhnEUJveZYWVhBFTipAlg8XykW-wedK71EcaUA_J6QvMIvdCy3Cj6E9oBhBQojozarvrTcxTktZK6LeqrQOKu8-ubtiTBUaz_dgKsqNNpGiQMjrz0P0b3yrgCTlBPkzeQyWqXsXlOGxsqeWCG3um/s1853/tvc_b31b94a967e822703f3f0fdae0a127a2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="910" data-original-width="1853" height="314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhhMvp6JAuvcTmrOPbPVk-Tw-Qgix-8CKX5jRqwyr00xhnEUJveZYWVhBFTipAlg8XykW-wedK71EcaUA_J6QvMIvdCy3Cj6E9oBhBQojozarvrTcxTktZK6LeqrQOKu8-ubtiTBUaz_dgKsqNNpGiQMjrz0P0b3yrgCTlBPkzeQyWqXsXlOGxsqeWCG3um/w640-h314/tvc_b31b94a967e822703f3f0fdae0a127a2.png" width="640" /></a></div><p><b style="text-align: center;"><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span><span> </span>30-Year Treasury Bond Prices </b></p>The US 30-year Treasury bond was at 156 points as recently as January 2022 (and as high as 180 in mid-2020); today it has collapsed to 118. Ignoring the 2020 COVID-induced high, bond investors are suffering a staggering mark to market loss of 25% in just 20 months. This is not a loss normally associated with the presumed safety of Treasury bond investments. Even worse, it has happened <i>fast - </i>it is the sharpest price drop since at least 1977.<p></p><p>So what, you may ask? Bonds are the preferred investment for banks, insurance companies and pension funds. They usually make up well over 70% of their portfolios, one way or another (eg home mortgages are regularly packaged into long term pass-through securities such as Ginnie Maes). And while such investors may choose to place long bonds into their "investment/hold to maturity" portfolios, to shield them from having to recognize mark-to-market losses in their books, that's just an accounting trick.</p><p>Reality, however, can never be avoided for long. Rating agencies are already downgrading US banks, for example. Given the persistence of inflation, pension funds are coming under uncreased pressure to raise pensions, particularly government entities. And insurance companies must be worried about more natural disaster claims as global climate change is occurring much faster than anyone thought. All of that means that traditional bond investors may have to sell positions in order to meet liquidity demands.</p><p>And I haven't even touched on the subject of much higher borrowing and refinancing costs for governments and businesses. In brief, the entire world had become grossly and unhealthily addicted on ultra-low interest rates for the past 10+ years. It is now discovering that money is not free, or even cheap.</p><p style="text-align: center;"><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com2tag:blogger.com,1999:blog-4102429195693595750.post-21254033790208200132023-08-21T14:42:00.002+03:002023-08-21T16:01:31.975+03:00The Bond Market Is Sending A Warning<p> Those of us who are, or were, active in the professional/wholesale side of markets (eg interbank) know very well that bond markets lord over all other markets. The daily trading volume of the US bond market is simply enormous: just amongst primary dealers daily volume averages around $750 billion for Treasury securities alone. Add the rest of the participants, corporate and muni bonds, throw in repo and you're up to <i>well over $2 trillion changing hands every day. </i>Compare this to the US equity market at around $200 billion per day and you get the picture.</p><p>Therefore, what goes on in bonds is extremely important, not only because interest rates are paramount in our economy but also because <i>size matters! - and it matters alot.</i></p><p>Bonds are now looking rather worrisome. Take a look at the yield on 30-year Treasurys - <i>chart below.</i> At 4.44%, the yield is at, or very near, 12 year highs. I don't care what equity analysts say, the <i>real</i> pros are sending us serious warning signals.</p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0gRfk6Cn92vuVSbWcXDUfSvtTqWCTffFlprr9YEi-gf9kg6MRViBES2beypx82VB3EcWMDUvX7zNrBNSUfmcKE2SF_pZeM__yFoKHCFSfXEI_wiDCpUx-66H5q7aNQ3Ea1Te9_rYTUk-ceKhHS2epH7cMg1uw-u1HGQJtpnPYu_q7VMk4RcxSuuLOH44e/s1853/tvc_f17f5d1d4b0398ed1181ca92a8933678.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="910" data-original-width="1853" height="314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh0gRfk6Cn92vuVSbWcXDUfSvtTqWCTffFlprr9YEi-gf9kg6MRViBES2beypx82VB3EcWMDUvX7zNrBNSUfmcKE2SF_pZeM__yFoKHCFSfXEI_wiDCpUx-66H5q7aNQ3Ea1Te9_rYTUk-ceKhHS2epH7cMg1uw-u1HGQJtpnPYu_q7VMk4RcxSuuLOH44e/w640-h314/tvc_f17f5d1d4b0398ed1181ca92a8933678.png" width="640" /></a></div><br /><p style="text-align: center;"><b>US Treasury 30-Year Bond Yield</b></p><p>The thing that is truly worrisome, from a long term perspective, is that bond prices have broken down from their very long term up channel going back 40 years - see below. If you are a chartist - and many pros are - this chart looks scary. VERY scary. </p><p><br /></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW28HJByDG9mkn1FjDe9RLwAbsuSrk5LaaQtlZfMIQE2CEDjPaV5td63UpCGCsmc6Fdu0d1Wzddd7iixoUepz2QCUYvpOQwLJDzf_GHc-4dl84LviTdvli5NTp9SwOC3uMwWIUHp1kg4Nec6JU0LORGkXpMlx6xUsA067WVvRZm5bfYXn0WZt_wrQvstB1/s1853/tvc_1e8921631057e24ee15d8e1567336eb2.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="910" data-original-width="1853" height="314" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhW28HJByDG9mkn1FjDe9RLwAbsuSrk5LaaQtlZfMIQE2CEDjPaV5td63UpCGCsmc6Fdu0d1Wzddd7iixoUepz2QCUYvpOQwLJDzf_GHc-4dl84LviTdvli5NTp9SwOC3uMwWIUHp1kg4Nec6JU0LORGkXpMlx6xUsA067WVvRZm5bfYXn0WZt_wrQvstB1/w640-h314/tvc_1e8921631057e24ee15d8e1567336eb2.png" width="640" /></a></div><br /><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com5tag:blogger.com,1999:blog-4102429195693595750.post-82173699147324388982023-08-18T11:51:00.003+03:002023-08-18T16:04:39.123+03:00Why, Oh Wise One?<p> Berkshire Hathaway, Mr. Buffett's primary investment vehicle, has investments in 56 publicly traded companies. Yet, just one (Apple) makes up a massive 51% of its holdings by market value. Another seven make up an additional 34%, for a total of 89% (see below).</p><p>So, Berkshire is essentially a proxy for Apple, plus a very, very few more stocks. OK, so Mr. Buffett is not bound by the usual rules for portfolio diversification... but still... WHY has he decided to turn Berkshire into such an incredibly NON-diversified investment vehicle?</p><p>Honestly, I don't understand it. Can any reader please comment?</p><p>Thanks!</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiNnyxeqw4fupqb4lTbVbQm_zHka54keeKEFos-i22MDTVDUM4OsWsBKHuO1dIM6aDP9mreLHNPG7V3Z7xTG3tB9L5GezoX_jIGwlyum6FjFIS35fvO0HvBnLIgY-HR1jEv6UZBW1WbneYhAQrRjoLyiHwzpPLjDNx7yzKuRvqeXec4VxiB-kyW2Mu9UPro" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="484" data-original-width="1085" height="286" src="https://blogger.googleusercontent.com/img/a/AVvXsEiNnyxeqw4fupqb4lTbVbQm_zHka54keeKEFos-i22MDTVDUM4OsWsBKHuO1dIM6aDP9mreLHNPG7V3Z7xTG3tB9L5GezoX_jIGwlyum6FjFIS35fvO0HvBnLIgY-HR1jEv6UZBW1WbneYhAQrRjoLyiHwzpPLjDNx7yzKuRvqeXec4VxiB-kyW2Mu9UPro=w640-h286" width="640" /></a></div><br /><br /><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com5tag:blogger.com,1999:blog-4102429195693595750.post-10932887515432796712023-08-13T16:42:00.005+03:002023-08-13T17:02:03.504+03:00Inflation Warning<p> Inflation has come down fast from its highs… but! It’s all due to sharply lower energy prices - see chart below. If it wasn’t for energy (ie oil prices tumbling) inflation today would be at 5% or higher.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgajyZrUE3VgD9B-HUbsGOFRa0GyG3I9gP59waQKOQZsLCyoKkSvfqnfkjdWLBtFLY192Mn0yuLIE782fTu4Qa_zqEwfuzLnEWxB5wU4NHvAdyRAaYsy0YT-DMfimsgl0E0rC21bhhrX0kJMymjLc1nkE4dMSfbXc6EPj3unhuYYqWIvdjyCYC-xEw4Hyni/s1426/9B1FD929-D05A-410D-9AEE-F0667E843AB4.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1190" data-original-width="1426" height="534" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgajyZrUE3VgD9B-HUbsGOFRa0GyG3I9gP59waQKOQZsLCyoKkSvfqnfkjdWLBtFLY192Mn0yuLIE782fTu4Qa_zqEwfuzLnEWxB5wU4NHvAdyRAaYsy0YT-DMfimsgl0E0rC21bhhrX0kJMymjLc1nkE4dMSfbXc6EPj3unhuYYqWIvdjyCYC-xEw4Hyni/w640-h534/9B1FD929-D05A-410D-9AEE-F0667E843AB4.jpeg" width="640" /></a></div><div><br /></div>And why did oil prices tumble? Almost entirely because the US drained its Strategic Petroleum Reserve down to levels last seen in 1983-84. Within just a few months the government sold a massive 300 million barrels of crude oil, causing prices to tumble - see chart below.<div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5qycs80BteWgTbQ9zKoaraJtZUzlEa_4x0XPBbETnVVQtEY817tQcv1lCpiJMlszwg_pnzXhzjYQAgEnHhsaV2JLOrFeptfpR-JdtTslH3YB68DeYs5rmuXcY7jRnLGQbIufnrg5TGHK_GZs8mlszfSka_pqkpLCj3MDusbxh7jl7YU2p-XdPhbCqzz_F/s1536/9F9D1930-C178-4A04-AFE7-7AEE50BB8520.jpeg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="590" data-original-width="1536" height="246" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh5qycs80BteWgTbQ9zKoaraJtZUzlEa_4x0XPBbETnVVQtEY817tQcv1lCpiJMlszwg_pnzXhzjYQAgEnHhsaV2JLOrFeptfpR-JdtTslH3YB68DeYs5rmuXcY7jRnLGQbIufnrg5TGHK_GZs8mlszfSka_pqkpLCj3MDusbxh7jl7YU2p-XdPhbCqzz_F/w640-h246/9F9D1930-C178-4A04-AFE7-7AEE50BB8520.jpeg" width="640" /></a></div><br /><div>Sales from the SPR have now stopped and - shock! - crude oil prices are climbing once again, going from $73 to $83 per barrel in the last 30 days. Not surprisingly, gasoline futures are trading at $2.95/gallon, the highest level in 12 months. Even more ominously, 30 year Treasury bond yields are at 4.24% very near the highest level in 20 years.</div><div><br /></div><div>It doesn’t take a degree in economics to guess where inflation is headed next…or what this means for markets.<div><p><br /></p></div></div></div>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-21614834709283461982023-08-11T08:26:00.004+03:002023-08-11T08:26:55.447+03:00Tech Voodoo Stuff<p>When I have nothing better to do, I cast a technical analysis eye upon markets. It's voodoo stuff, mind you, but here goes...</p><p>Yesterday, S&P 500 initially cheered the "better than expected" CPI number and rose strongly, only to reverse and close flat on the day (see chart below). Such intraday reversals, particularly on the back of positive news, indicate underlying selling pressure: investors who wish to unload long positions quickly take advantage of the fleeting buying demand and sell into strength.</p><p>And now, back to our regularly scheduled program :) </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEivH-Zc1cLmTLV3lMbGeDRvEEgY3G0A4vqEL7g39HaMm90gPUxNtHuJxH9Dy3__fEENUBNQR3hUtTW7zfYnBSN6pf2eHoZ9rLfhA0HJACqMeosI3-cGUSFtwskKV9Zhxn3SgyYwOzsOrpZsCzhe_rhDUVnxltZB7RtIwt3gXgS1ELBgteAxO5EBpqmjGDYB" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="910" data-original-width="1853" height="314" src="https://blogger.googleusercontent.com/img/a/AVvXsEivH-Zc1cLmTLV3lMbGeDRvEEgY3G0A4vqEL7g39HaMm90gPUxNtHuJxH9Dy3__fEENUBNQR3hUtTW7zfYnBSN6pf2eHoZ9rLfhA0HJACqMeosI3-cGUSFtwskKV9Zhxn3SgyYwOzsOrpZsCzhe_rhDUVnxltZB7RtIwt3gXgS1ELBgteAxO5EBpqmjGDYB=w640-h314" width="640" /></a></div><br /><br /><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-81509011365321774052023-08-09T13:36:00.001+03:002023-08-09T13:36:22.995+03:00Show Me The Money!<p>Sometimes all it takes is a picture or two.</p><p>Oh so much can be explained about inflation, stock prices and housing by a quick glance at the charts below: assets on the balance sheets of the Fed and ECB. </p><p>Just in case you're not 100% percent familiar with monetary matters, within just a few months the Fed printed $5 trillion and the ECB 4.5 trillion euro. </p><p>Enough said... but please note that they are currently attempting to drain the oceans of cash, albeit ever so slowly. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi72V9_hyd7lgnHryjz8K0Veqhj7AGu4uhygsjEds5XnOciuo_1NJ3YaGMkMeKRVAiRH1R92DIDjQG3CVM9PWoaj-G14Ec0MQuAg1OUxXJ74G1Bz9a_t-iT-K55MX5d9L2wYAfGbEtk6vXfKCB5arbKfE68seAM4XLr9z--CXd5oyxdwrCVTXm-s2hNFKQy" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="450" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEi72V9_hyd7lgnHryjz8K0Veqhj7AGu4uhygsjEds5XnOciuo_1NJ3YaGMkMeKRVAiRH1R92DIDjQG3CVM9PWoaj-G14Ec0MQuAg1OUxXJ74G1Bz9a_t-iT-K55MX5d9L2wYAfGbEtk6vXfKCB5arbKfE68seAM4XLr9z--CXd5oyxdwrCVTXm-s2hNFKQy=w640-h640" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgXSV9CO3WFSbhq50BeZzM3wxQuaSGE4wwEElP5Qhgr8l3ihLIiAIowMoACw_tfAOBqGBVv2IJ8msPkEpGAFVs1X1YAeT8dWuCiLCrvNTdmw5Wwb3wgkKiRKXCgFdeChO813FvRG2eVyyepOVlUAn9b9bU40gRcldWidFYxmWShGMQWUeeMDh4mUrVPoRgW" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="450" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEgXSV9CO3WFSbhq50BeZzM3wxQuaSGE4wwEElP5Qhgr8l3ihLIiAIowMoACw_tfAOBqGBVv2IJ8msPkEpGAFVs1X1YAeT8dWuCiLCrvNTdmw5Wwb3wgkKiRKXCgFdeChO813FvRG2eVyyepOVlUAn9b9bU40gRcldWidFYxmWShGMQWUeeMDh4mUrVPoRgW=w640-h640" width="640" /></a></div><br /><br /><p></p><p><br /></p><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-87593843308613650322023-08-02T08:54:00.005+03:002023-08-02T13:04:44.564+03:00FITCH DOWNGRADES US DEBT<p> Yesterday Fitch downgraded US Federal debt to AA+. Everyone in the administration and many economists attacked the decision as baseless, curious, etc.</p><p>But, one chart says it all (see below). US debt as a percentage of GDP is now at wartime levels and has been climbing steadily for decades. Not good...</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiUpXQqW_14DhNBWdGnmv4fTZfOYtzz3CMBPKxv7JEZCenrXAqI06Og-aQNewnVeVux0IdEyzoH-kBsVQYd_8Eq6wv1W4HQNBtfKFmpNthwO9lEn42T_RYp8pJ0Wmtm4o0Y8tRtsyH4sfZ2rP4oiXXl6C-pVuoijyL5_heIXP3S2LIPV6oMHPkx-7tewKNG" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEiUpXQqW_14DhNBWdGnmv4fTZfOYtzz3CMBPKxv7JEZCenrXAqI06Og-aQNewnVeVux0IdEyzoH-kBsVQYd_8Eq6wv1W4HQNBtfKFmpNthwO9lEn42T_RYp8pJ0Wmtm4o0Y8tRtsyH4sfZ2rP4oiXXl6C-pVuoijyL5_heIXP3S2LIPV6oMHPkx-7tewKNG=w640-h218" width="640" /></a></div><br />Ok, Ok... one more chart.<p></p><div>The Fed has been printing enormous amounts of money (debt) ever since the Great Debt Crisis. It has ballooned its balance sheet from 6% of GDP in 2008 to 36% of GDP at the height of the COVID Crisis, and slightly lower today at 32% (see chart below).</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh-j_AqsReQ3CIVqcLzsVzyOOdU3sYOldvfRZCfLbrackeN4jAipbYVCB8oiroFUYkTu4HTWWd0mehzoOAbmLMtvH0t-gyb1EdZK69WCl4Vd3KFuwe36SVuRIpGr633JiOzWnbBzt0HafdrVsFFtyz_P5dguoHyxlG5Us2mMz2rmFSmftksLXtr7PQx_e1C" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEh-j_AqsReQ3CIVqcLzsVzyOOdU3sYOldvfRZCfLbrackeN4jAipbYVCB8oiroFUYkTu4HTWWd0mehzoOAbmLMtvH0t-gyb1EdZK69WCl4Vd3KFuwe36SVuRIpGr633JiOzWnbBzt0HafdrVsFFtyz_P5dguoHyxlG5Us2mMz2rmFSmftksLXtr7PQx_e1C=w640-h218" width="640" /></a></div><br />Basically, the Fed is financing the huge federal budget deficits by printing money and buying Treasurys (government debt). The US economy is being "monetized", to coin a term. Another term, more apt for Roman times, is that the "coin" is being debased.</div><div><br /></div><div>Hence, the downgrade.</div>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com3tag:blogger.com,1999:blog-4102429195693595750.post-87592566408206398872023-07-05T07:47:00.001+03:002023-07-05T07:47:20.725+03:00Persistent Inflation And Its Cause<p> I just read an article about the reasons why inflationary pressures persist despite sharply higher interest rates. Nowhere in the article did I see the one and only real reason for inflation: Money (duh!).</p><p>I mean, here it is in its simplistic form:</p><p>In the entire economy...</p><p></p><ul style="text-align: left;"><li>You have one egg and one dollar. The maximum price for the egg is $1.</li><li>You have one egg and two dollars. The maximum price for the egg just went to $2.</li></ul><div>During the pandemic, and shortly thereafter, the number of "eggs" remained more or less constant. But the number of dollars literally exploded (see below).</div><div><br /></div><div>Raising interest rates does not reduce the amount of dollars, it just makes them harder to borrow and, supposedly, slows down the economy, slows down demand, etc. etc. But for as long as there are "excess" dollars out there chasing a limited amount of goods and services... inflation!</div><div><br /></div><div>Enough said...</div><div><br /></div><div>PS It's the same in the EU and Japan..</div><div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh5edNvq-SYTFjSZZRldJkbYeYUhaio5FAXeI6igaBWenvHObgsIXqxJ4AHmhj1HZkOQvjNC7v4Jxz6vptym_o5ja0tVmG4yKSrYn0AZPATrQcuzxcQopCwoQYCsXliyFCQA3b3Hb8J3KsRLdpazBomD6gPN90SvyveDyyaJgA1-8kNhi2rOkvy15aA4w4S" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="450" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEh5edNvq-SYTFjSZZRldJkbYeYUhaio5FAXeI6igaBWenvHObgsIXqxJ4AHmhj1HZkOQvjNC7v4Jxz6vptym_o5ja0tVmG4yKSrYn0AZPATrQcuzxcQopCwoQYCsXliyFCQA3b3Hb8J3KsRLdpazBomD6gPN90SvyveDyyaJgA1-8kNhi2rOkvy15aA4w4S=w640-h640" width="640" /></a></div><br /><br /></div><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com5tag:blogger.com,1999:blog-4102429195693595750.post-87905976122384588312023-06-02T16:56:00.000+03:002023-06-02T16:56:09.707+03:00Debt Default Averted - Again<p> So, the US has (once again) averted going into default. Good news? Sure, on the face of it... but...</p><p>Is this what should be the headline news for the world's largest economy? For the issuer of the global reserve currency? For the world's largest debtor? That it averted bankruptcy?</p><p>Hmmm... let me think about it... NOT????? </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhzgvuOhkmR3kRtW-OW4H1Ciq9uPWPJm821VFSbu6dFZToOXmh8O3BxR1N9elhfOYUCQY5lVqok_16Tc13hqm8ob0CT0-zrX1djOva-y3L8Q-ByA9fa_5UPHd16LdaIIDpattVrjrSiCz0-8PI4y_OlQJ1qN26-aWKVQ9Hik8uiygjNQl8aOKxMTr4ePQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="872" data-original-width="1200" height="466" src="https://blogger.googleusercontent.com/img/a/AVvXsEhzgvuOhkmR3kRtW-OW4H1Ciq9uPWPJm821VFSbu6dFZToOXmh8O3BxR1N9elhfOYUCQY5lVqok_16Tc13hqm8ob0CT0-zrX1djOva-y3L8Q-ByA9fa_5UPHd16LdaIIDpattVrjrSiCz0-8PI4y_OlQJ1qN26-aWKVQ9Hik8uiygjNQl8aOKxMTr4ePQ=w640-h466" width="640" /></a></div><br /><br /><p></p><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com3tag:blogger.com,1999:blog-4102429195693595750.post-61268686078912057232023-05-25T08:52:00.000+03:002023-05-25T08:52:13.269+03:00Lemme Get This Straight...<p>So, the US is getting closer to defaulting, Fitch threatens to cut its AAA rating on US government debt, the politicians are arm wrestling and...<i> the Fed signals its willingness to intervene in case the worst happens? Seriously???</i></p><p>The Fed previously intervened in the Great Debt Crisis of 2007-10 by bailing out banks, mortgage lenders, insurance companies and foolish speculators (yup, some investment banks were exactly that). The Fed, basically, turned private debt into public by printing a (then) huge amount of dollars (see chart below). In the process, it ballooned its balance sheet from $900 billion to $2.2 trillion within months. It was the very first instance of Quantitative Easing (QE).</p><p></p><ul style="text-align: left;"><li>Round One: The central bank funded the bailout of some speculators and a goodly number of players in the financial sector.</li></ul><p></p><p></p><div class="separator" style="clear: both; text-align: center;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhqX9oT9aOf8PpmRD1D6NOp8GB_fOaV_VNKyVYvyMAiEJGEeL29uypTF-P-aOXx41tXLPGWx00UfAxPMmAYE_Wk7bujMO72q33V_E3fk79rboWqtKD9LwjkXGwF9iN1FYh60DtMMlfOi3xQmhKw6zLafPxG6aFU7ZvW9RcfEcnqUyjAw47__yRD1qY3Ug" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEhqX9oT9aOf8PpmRD1D6NOp8GB_fOaV_VNKyVYvyMAiEJGEeL29uypTF-P-aOXx41tXLPGWx00UfAxPMmAYE_Wk7bujMO72q33V_E3fk79rboWqtKD9LwjkXGwF9iN1FYh60DtMMlfOi3xQmhKw6zLafPxG6aFU7ZvW9RcfEcnqUyjAw47__yRD1qY3Ug=w640-h218" width="640" /></a></div><br /><b>The Fed Bailout (QE1) During The Great Debt Crisis</b></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: center;"><br /></div>The Fed intervened again during the COVID pandemic by, literally, raining money from the federal helicopter (see chart below). Only this time the amounts involved were truly epic: its balance sheet literally exploded from $4.1 trillion to $9.0 trillion. <p></p><p></p><ul style="text-align: left;"><li>Round Two: The central bank supported a portion of household spending for a year or two.</li></ul><p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjhQLkQpNuhkv87LN8zWY7JezjGGfZmxcwpScrk1ZkO8qDermx7xvZhF9VSE-PNLIYV3g3j4Qt-1F7YsR1MlEJT5wPOY06oOuZ_aG_UnYn_BcMLxY0zi1tuFI_5Gr4mzd13oymP-Gl86N-NP17-xoYen7sMa4suIOfOBUpkne5MZMYfYTiIKAyT75GIQw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEjhQLkQpNuhkv87LN8zWY7JezjGGfZmxcwpScrk1ZkO8qDermx7xvZhF9VSE-PNLIYV3g3j4Qt-1F7YsR1MlEJT5wPOY06oOuZ_aG_UnYn_BcMLxY0zi1tuFI_5Gr4mzd13oymP-Gl86N-NP17-xoYen7sMa4suIOfOBUpkne5MZMYfYTiIKAyT75GIQw=w640-h218" width="640" /></a></div><br /><div style="text-align: center;"><b>The Fed Bailout (QE2) During COVID</b></div><p></p><p>So, lemme get this straight: the Fed is now saying that it is ready to intervene again to do what exactly? Bail out the entire Federal Government? What will Round Three look like, if it comes to it? Purchase a portion of the entire federal debt (see chart below) and flood the world with worthless dollars? </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjmEJh65ewfAb_-0fR3cTRXqz5CneGseHuasSfyy-GJXQkF8HpPkvUp1SeP8A3SGR-oh3UQbWNmi-TTOkTgLS-rC-Tw6SnrNSP_c0L6lRtBlTiEWQrbBe1lyz_NkxB5EmPvyHPVZx9UpY338SWpe_6kx1PzskMW0-TyDYiaFJZEuCS9eOC7eIpF0m3_Tw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="600" height="480" src="https://blogger.googleusercontent.com/img/a/AVvXsEjmEJh65ewfAb_-0fR3cTRXqz5CneGseHuasSfyy-GJXQkF8HpPkvUp1SeP8A3SGR-oh3UQbWNmi-TTOkTgLS-rC-Tw6SnrNSP_c0L6lRtBlTiEWQrbBe1lyz_NkxB5EmPvyHPVZx9UpY338SWpe_6kx1PzskMW0-TyDYiaFJZEuCS9eOC7eIpF0m3_Tw=w640-h480" width="640" /></a></div><br /><div style="text-align: center;"><b>The Fed Bailout (QE3)????</b></div><p></p><p></p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; font-weight: 400; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"></p><p></p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><span style="font-weight: 400;">Federal debt held by the public (ie excluding the Social Security Trust Fund) has exploded from $4 trillion to $25 trillion in just 15 years. How much of it is the Fed willing to buy? Some of ? All of it? The Fed already has $5.2 trillion of Treasuries in its balance sheet (ie it owns them) - that's 20% of all Treasuries (excluding the SS fund). Looking at it another way, it owns Federal debt equal to 22% of US GDP. </span><b>How much more can it buy, before it turns the US into Zimbabwe?</b></p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"> OK, OK... I am being an alarmist here, so let me rephrase. </p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b>How much more can the Fed buy before it turns the US into the Weimar Republic. </b>Now isn't that better?</p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEg6TcZyn91S19UheciRBf7JpIbiajWDj1-gUcsDGcfbO0ePCoBME7qrRF1RqcwMpg87O2QgMbiTfwaElcJavZM06UrG2dH28_bXZ3fog9wr4kRRXRebwh1KSn9ovcmxmfbcveIBN3cRlmhxR9BoGz5x6XmEDcotdUGOWajRr5GOVnnpmX1og7DONNzdhw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="415" data-original-width="350" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEg6TcZyn91S19UheciRBf7JpIbiajWDj1-gUcsDGcfbO0ePCoBME7qrRF1RqcwMpg87O2QgMbiTfwaElcJavZM06UrG2dH28_bXZ3fog9wr4kRRXRebwh1KSn9ovcmxmfbcveIBN3cRlmhxR9BoGz5x6XmEDcotdUGOWajRr5GOVnnpmX1og7DONNzdhw=w539-h640" width="539" /></a></div><br /><br /><p></p><p style="-webkit-text-stroke-width: 0px; color: black; font-family: "Times New Roman"; font-size: medium; font-style: normal; font-variant-caps: normal; font-variant-ligatures: normal; letter-spacing: normal; orphans: 2; text-align: left; text-decoration-color: initial; text-decoration-style: initial; text-decoration-thickness: initial; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com0tag:blogger.com,1999:blog-4102429195693595750.post-11815287233564767632023-05-17T09:25:00.005+03:002023-05-18T08:39:27.480+03:00USA Default Warning<p> Very quick post.</p><p>The US is inching towards default because of the debt limit situation, and markets are no longer ignoring the risk. </p><p>Take a look at the 1 year Credit Default Swaps (CDS) for US sovereign debt (ie Treasuries). Prices have soared to 150 bp, up 15-fold since early 2023. </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2hDf7BPP57aIfEHA7rmuSb5pLgfn52x8jn-aZaOChtEv5EpmyC9PLuxiFtrzn4N11DIzlaieqwg7iCp3v4Ue3mvTOSxeP2fygCU8A8ToELSvWJuU-DS0RrArZbp1gCU92yNDxhsQgpnkX9M37tB5afPHvHiDRJMiyySWkE3VZThaR2UV-IR7fy2I3Ow/s1853/1%20y%20cds%20usa.png" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="916" data-original-width="1853" height="316" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj2hDf7BPP57aIfEHA7rmuSb5pLgfn52x8jn-aZaOChtEv5EpmyC9PLuxiFtrzn4N11DIzlaieqwg7iCp3v4Ue3mvTOSxeP2fygCU8A8ToELSvWJuU-DS0RrArZbp1gCU92yNDxhsQgpnkX9M37tB5afPHvHiDRJMiyySWkE3VZThaR2UV-IR7fy2I3Ow/w640-h316/1%20y%20cds%20usa.png" width="640" /></a></div><b><div style="text-align: center;"><b>USA 1-Year Sovereign Credit Default Swaps</b></div><div style="text-align: center;"><b><br /></b></div></b><p></p><p style="text-align: justify;"><span style="text-align: left;">By comparison, 1 year CDS for Germany are at 3 bp, Japan is at 5 bp and the UK is at 8 bp. Worried?</span><span style="text-align: left;"> You bet - literally!</span></p><p style="text-align: justify;"><span style="text-align: left;"><i>PS President Biden declared that "the US will not default". Take a minute to think this through: if the world's largest debtor and issuer of the world's reserve currency is reduced to such statements... the game may not be over, but it is past its half-time, for sure.</i></span></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com4tag:blogger.com,1999:blog-4102429195693595750.post-46108416193265980462023-05-03T14:33:00.002+03:002023-05-03T14:33:18.717+03:00Transiting From Permagrowth To Permaflat - Part Two<p>In the previous post I laid out the context for transiting our present socioeconomic paradigm from permanent growth (Permagrowth) to steady state, a condition I will call Permaflat. In this post I examine the financial/monetary aspects of such a transition. But first, a bit of history.</p><p>The last yoke on unchecked money creation was removed in 1971 when the US went completely off the gold standard (ok, going to zero bank reserves in 2020 is also significant, but in other ways). It was not an <i>entirely</i> bad idea, given the severe pressures created on the monetary system by OPEC's oil price shock. Some ten years later, things got really ugly when inflation spiked to 15% and the Fed (ie Paul Volcker) had to throw the country into a deep recession in order to kill it. </p><p>The relation between excess money creation and inflation is pretty obvious to anyone with a passing familiarity with basic monetary economics: if you create more money than is needed by the underlying economic growth you end up with inflation, created by the existence of money alone. For example, if you create 10% more money but the underlying economy only grows by 5% you could ultimately end up with inflation around 5%. It's really a cocktail napkin calculation, but it's close enough.</p><p>If you need proof look at the chart below: M3 annual growth in blue, CPI inflation in red. The recent huge spike in money supply growth is scary, to say the least.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEh3Y0stBPKoixJ6gWASA53uDS6HgjySQnWknSULpOXCu0bzvDiKgUpc1eZbXEBwidWSbUy6Tu4q8agc5hBx-mCDdaqVoRHPPGFRPNk7eTULUemEC6VRFpwFWLbKEhP3p78uv6JfeGMrACYCGs7vnk8rUcQhxzxhdLQJoA2CSTJ2sEVKh79cIzJbGxtsbA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEh3Y0stBPKoixJ6gWASA53uDS6HgjySQnWknSULpOXCu0bzvDiKgUpc1eZbXEBwidWSbUy6Tu4q8agc5hBx-mCDdaqVoRHPPGFRPNk7eTULUemEC6VRFpwFWLbKEhP3p78uv6JfeGMrACYCGs7vnk8rUcQhxzxhdLQJoA2CSTJ2sEVKh79cIzJbGxtsbA=w640-h218" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">What is of more concern is that authorities/politicians seem to think that most all problems can be solved by running the printing presses. Countries/banks/mortgage lenders become insolvent? Print money. COVID strikes? Print money. A major bank's liabilities need to be backstopped? Print money. A regional bank (or four) becomes insolvent and needs to be taken over by a behemoth? Print money.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">But such money printing is also creating short term excess demand for goods and services, straining the Earth's limited resources. It's as if the enzyme critters are boosting their activity by using money as a catalyst. Yet, the reactor vessel isn't getting any larger and the amount of corn/food is also ultimately limited, no matter how much money is printed. Money, after all, is an artificial construct based on faith alone.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;">Therefore, we could not limit Permagrowth until and unless we also hit the brakes on money/debt creation. <b> A transition from Permagrowth to Permaflat requires zero money growth.</b></div><div class="separator" style="clear: both; text-align: left;"><b><br /></b></div><div class="separator" style="clear: both; text-align: left;">More on that in Part Three.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><br /></div>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com8tag:blogger.com,1999:blog-4102429195693595750.post-8171707915530306932023-04-21T17:27:00.007+03:002023-04-21T19:36:25.793+03:00End Of An Era, Transiting From Permagrowth To Permaflat - Part One<p>This will be a series of posts on a subject that is of great concern to me as a father:<i> how to create a better, more sustainable world for our children.</i> I have long thought about starting the series but I kept putting it off. <i>It is now time to start, no more excuses.</i></p><p>__________________________________________________________________</p><p>Back when I was a chemical engineer (it only lasted 2 years after college) I was involved in the design of a corn-to-ethanol plant. Several such plants were built in the US Corn Belt as a response to the oil crisis in the early 1980s, and were heavily dependent on federal subsidies for gasohol (a blend of gasoline and alcohol). But it wasn't the economics of the plant which created a lasting impression on me - rather, it was the chemistry/bioprocess itself.</p><p>Corn ethanol is produced by fermentation using enzymes, aka yeast, living microorganisms that convert sugars contained in the grain into alcohol. In simple terms, they eat corn and excrete alcohol as their waste. The process takes place in chemical reactors aptly called "digesters", and it relies on constantly maintaining an optimum balance between healthy enzymes (the critters), corn (their food) and ethanol (their waste). </p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjkxNkHIz26mrFWpBaB_3b3jIpJogsREdV-faZINVFD83w8Drurk7CxnoXU8CYES5GJhLar8RbhwJK6b8pGc3GV_9V3Rvy1ko6Vt1bwSGRMhJIhhbRW4FMC_H7C8FE4pZmqRZNyHhDmxZ_0XwMYV8cvKeZe2ou91jDl8oHbbAd03uxmqIbXU1dYRsHGQw" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="407" data-original-width="612" height="426" src="https://blogger.googleusercontent.com/img/a/AVvXsEjkxNkHIz26mrFWpBaB_3b3jIpJogsREdV-faZINVFD83w8Drurk7CxnoXU8CYES5GJhLar8RbhwJK6b8pGc3GV_9V3Rvy1ko6Vt1bwSGRMhJIhhbRW4FMC_H7C8FE4pZmqRZNyHhDmxZ_0XwMYV8cvKeZe2ou91jDl8oHbbAd03uxmqIbXU1dYRsHGQw=w640-h426" width="640" /></a></div><br />And it <i>has </i>to be a balance because if there is too much food the critters will multiply uncontrollably, produce too much alcohol - which is actually a poison for them -and will die from exposure to their own waste. Conversely, if there is too little food they will turn on each other and become critter cannibals. Also, if the fermentation is allowed to run too fast and too hot (it is exothermic) the critters will die off, since they cannot tolerate high temperatures. The trick, therefore, is to introduce food (corn) and extract waste (alcohol + CO2+heat) in a carefully calculated balance to keep the critters healthy and happy. <div><br /></div><div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEhi9e6zNSff6f_Ut_tgDUYw-TTfx9Tm6GiX1a_XI601-eQWe_q3mdeSkpJSi-Dx2e0DKqhPftG7B_qOVXa8rbS7j0DsmL57d_KokuF7ywGPfHBmgPy_-7g9sJ9UPdENiaO_uklRw6pER4DxfZyAcpBGX1X0LAlXTF_mVVFgWow411S9qS8o9eL98ryv5Q" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="800" data-original-width="748" height="640" src="https://blogger.googleusercontent.com/img/a/AVvXsEhi9e6zNSff6f_Ut_tgDUYw-TTfx9Tm6GiX1a_XI601-eQWe_q3mdeSkpJSi-Dx2e0DKqhPftG7B_qOVXa8rbS7j0DsmL57d_KokuF7ywGPfHBmgPy_-7g9sJ9UPdENiaO_uklRw6pER4DxfZyAcpBGX1X0LAlXTF_mVVFgWow411S9qS8o9eL98ryv5Q=w597-h640" width="597" /></a></div><br /><br /><p></p><p><i>Does this sound familiar? </i></p><p>Of course it does: we humans are the enzymes, the Earth is our reactor vessel and we consume its resources to fill it with our waste. But, <i>there is a crucial difference:</i> <b>The Earth is a closed system </b>with limited resources <b>(</b>with the important exception of incoming solar radiation) and no way to extract excess waste/heat. Also, we too are prone to cannibalism (war). </p><p>What's our saving grace? We got critter brains - but even that is a double-edged sword, as we know from the likes of Caligula, Attila, Hitler, Mao and many more such nasty "critters". And no matter how smart, at some point the deleterious effects of exponential growth overcome our capacity to deal with them.</p><p>Signs of such a Tipping Point are everywhere: Global warming, climate change, species and habitat collapse, massive pollution and, very worryingly, a trend towards lifestyle diseases and habits, resulting in poor health and sudden life expectancy drops in wealthy countries like the US. We even got a global deadly pandemic, a war and “critter arm wrestling” between the world’s two largest critter colonies (US vs China). The alarm bells are ringing, that's for sure.</p><p>I think the physical, scientific evidence on the ground is overwhelming. But what about finance - what is happening there?</p><p><i>This will be the subject of Part Two.</i></p></div>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com13tag:blogger.com,1999:blog-4102429195693595750.post-14275153480945182142023-04-11T16:24:00.002+03:002023-04-11T16:24:23.447+03:00Brave New Overleveraged World<p> A loyal reader asked a pointed question: is this the worst market mispricing ever? <i>(Thanks AKOC).</i></p><p>Perhaps it is. Why? </p><p>Because the <b>entire global economy is grossly overleveraged on a fundamental basis.</b> </p><p>When we think of markets and leverage we think of margin debt, derivatives, corporate debt, etc. This was certainly the case in 2007-10 during the Great Debt Crisis, which was "resolved" when the US and EU central banks and governments stepped in and assumed the debt. Private sector debt became government debt, with lots of it sitting in central bank balance sheets. The problem was - literally - papered over.</p><p>Then came deflation (thank you China and you cheap manufacturing juggernaut), interest rates went to zero or lower, and for almost a decade everyone forgot that debt carries a servicing cost (interest). Even the worst serial bankrupt in Europe came back and tapped markets for fresh debt (Greece). It had to mortgage its silverware for 99 years, but.. it did.</p><p>COVID changed everything: American, European and Japanese governments panicked and printed money like never before. They made 2008-10 QE look like a statistical aberration by comparison <i>(see charts below).</i></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEggFU9iP8nNjqNsfFMQYSuZDCIfAeVVS6HYBPwLugNAa7nK3K7B4yrCrCx5espp6CeJLZ1T46rUXmJkqnTEdfuXZCzAK4Dy_p3x6mxWv606uCpUAlUuYnQ2F206AU74q73f5n08BRG8A4OjrT56VPFiJTHIQBWwhbJtHHWlI6pKmBylWDKiBsJqSKQQ2w" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="340" data-original-width="730" height="298" src="https://blogger.googleusercontent.com/img/a/AVvXsEggFU9iP8nNjqNsfFMQYSuZDCIfAeVVS6HYBPwLugNAa7nK3K7B4yrCrCx5espp6CeJLZ1T46rUXmJkqnTEdfuXZCzAK4Dy_p3x6mxWv606uCpUAlUuYnQ2F206AU74q73f5n08BRG8A4OjrT56VPFiJTHIQBWwhbJtHHWlI6pKmBylWDKiBsJqSKQQ2w=w640-h298" width="640" /></a></div><b><div style="text-align: center;"><b>United States Federal Reserve Balance Sheet Assets</b></div></b><p></p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEi37CYhOpy75AdIQ6vGPiULcs0GbYDnoe203W8Ulk6Sfdgen5qNDXuJ1rH041bE5N_CszR-snLup1UpWRoRGufJ2G97m8BCTTDUptNPTWhpdvmciiIZeSSfPUds9sdbF_oOxpggyM24TRCwGWfhEzU7-EjMaR2U_yMjT9FipSADFq-YT4mnKPJSFaNMEQ" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="340" data-original-width="730" height="298" src="https://blogger.googleusercontent.com/img/a/AVvXsEi37CYhOpy75AdIQ6vGPiULcs0GbYDnoe203W8Ulk6Sfdgen5qNDXuJ1rH041bE5N_CszR-snLup1UpWRoRGufJ2G97m8BCTTDUptNPTWhpdvmciiIZeSSfPUds9sdbF_oOxpggyM24TRCwGWfhEzU7-EjMaR2U_yMjT9FipSADFq-YT4mnKPJSFaNMEQ=w640-h298" width="640" /></a></div><b><div style="text-align: center;"><b>European Central Bank Balance Sheet Assets</b></div></b><br /> <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEjdl6n7hUxgmfhG0XjKFaSnA1P6TlsM7WsCmSDVOrRqJPjaaHK9YLXusp45pMtiCj_AjeRP2DLqLeBgjLSYbjnKBn76AfdDpAQslTqRdSAdpZBwSXKjgmjC3NI5KF0TbunQu-tJLHTcwJ45DiBK-f_x7Toa9dNRb8A8FU3v0p6TvLr6jvCEz2PJAAMa9Q" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="340" data-original-width="730" height="298" src="https://blogger.googleusercontent.com/img/a/AVvXsEjdl6n7hUxgmfhG0XjKFaSnA1P6TlsM7WsCmSDVOrRqJPjaaHK9YLXusp45pMtiCj_AjeRP2DLqLeBgjLSYbjnKBn76AfdDpAQslTqRdSAdpZBwSXKjgmjC3NI5KF0TbunQu-tJLHTcwJ45DiBK-f_x7Toa9dNRb8A8FU3v0p6TvLr6jvCEz2PJAAMa9Q=w640-h298" width="640" /></a></div><div style="font-weight: bold; text-align: center;"><b>Bank of Japan Balance Sheet Assets</b></div><div style="font-weight: bold; text-align: center;"><b><br /></b></div><div style="text-align: left;">Looking at the charts we can draw only one conclusion: the West is <i>fundamentally</i> extremely overleveraged. Central banks are financing the economy - take that out and what remains? Let's remember that central banks are regulators and lenders of last resort, not day to day financiers. By trying to stay in the economic race the West is shooting itself in the foot.</div><div style="text-align: left;"><br /></div><div style="text-align: left;">Who is doing things differently? The second largest economy in the world - China. Its economy is growing rapidly - yes, it created a real estate lending bubble of its very own in the process - but, in general, it has kept its central bank's nose clean <i>(see chart below). </i></div><div style="text-align: left;"><br /></div><div style="text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEimrjVHT_KoBeXOYZyaT8SRWs27NCiZkPN42oUJ23WxJ8AMX7L0A568zcukQefnAKLthOlhBqb_CjU0cJg7uGchlb3LW15uhpnupdD-pm9BdMqzfdObxZbJoTQRnO0AFZfxknxsqB-YDFrHKowA9PFPV8AA5ns-OfSwDJoN0m8wy6D6rjScOv7oyeaB8g" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="340" data-original-width="730" height="298" src="https://blogger.googleusercontent.com/img/a/AVvXsEimrjVHT_KoBeXOYZyaT8SRWs27NCiZkPN42oUJ23WxJ8AMX7L0A568zcukQefnAKLthOlhBqb_CjU0cJg7uGchlb3LW15uhpnupdD-pm9BdMqzfdObxZbJoTQRnO0AFZfxknxsqB-YDFrHKowA9PFPV8AA5ns-OfSwDJoN0m8wy6D6rjScOv7oyeaB8g=w640-h298" width="640" /></a></div>Back in 2006-07 I started this blog by posting just a few charts of debt going through the roof. They seemed self evident to me, but it took a couple of years until the doodoo hit the fan. Today, the first three charts seem just as self evident, so I'll leave it at that.<br /><br /></div><div style="font-weight: bold; text-align: left;"><b><br /></b></div><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com27tag:blogger.com,1999:blog-4102429195693595750.post-75752328623331099932023-04-10T16:12:00.008+03:002023-04-11T08:58:59.218+03:00Are Markets Whistling Past The Graveyard?<p> It's the Monday after Easter Sunday and all markets are closed in Europe in deference to Christ's miraculous rise from the dead. In some ways, then, it's apropos - if a bit sacrilegious - to mention graveyards.</p><p>Here's what's been nagging me for a long time now (at least a year): </p><p></p><ul style="text-align: left;"><li>There's a <b>major war in Europe</b> which keeps escalating. People are using the word "nuclear weapons" with increasing frequency.</li><li><b>Tensions between US and China</b> are high and rising. The proximate cause is Taiwan, but the major issue here is nothing less than global supremacy.</li></ul><div>Both of the above are clear and present dangers, and they are here and now.</div><div><ul style="text-align: left;"><li><b>Climate change is accelerating</b> but no one is really doing anything about it in a practical manner.</li></ul><div>The latter is forever talked about as a "future" threat, but I'm increasingly worried that the tipping point is much closer than our society thinks.</div></div><div><br /></div><div>IMHO markets are completely (and willfully?) ignoring these risks when pricing ALL securities, from bonds and stocks all the way to commodities and derivatives. I get the feeling that no one in the mainstream is willing to develop a model to take these into account, perhaps fearing that he/she will be branded a loonie. </div><div><br /></div><div>How about this model, then?</div><div><br /></div><div>Pnwu = Probability of nuclear weapon use(decimal 0.00 - 1.00) </div><div>Pucc = Probability of USA/China conflict </div><div>Ptp = Probability of tipping point within 5 years </div><div><br /></div><div>Enwu = Effect of nwu on equity markets (+/- %)</div><div>Eucc = Effect of ucc on equity markets </div><div>Etp = Effect of tp on equity markets </div><div><br /></div><div><b>Cumulative Effect = (Pnwu)x(Enwu) + (Pucc)x(Eucc) + (Ptp)x(Etp)</b></div><div><b><br /></b></div><div>Plug in your own probabilities and likely effects and you'll come up with something a bit more concrete than "um, let's not worry about it right now".</div><div><br /></div><div>I'm not doing it, they'll call me a loonie - Well, at least I'm not doing it in public (ha, ha).</div><div> </div><p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com4tag:blogger.com,1999:blog-4102429195693595750.post-9506100972605144622023-04-07T11:45:00.002+03:002023-04-07T15:03:41.554+03:00OPEC+ Was Not Amused<p> A week ago OPEC+ (essentially, Saudi Arabia and Russia) announced a wholly unexpected cut in crude oil production and took everyone by surprise. Prices immediately jumped from $75 to $80 per barrel. Why did they do it?</p><p>I think it was a response to the new round of dollar "printing" by the Fed, engineered to salvage (once again) the US banking system. How are the two connected? Simple: crude oil is priced in dollars - when there are immediately more dollars around producers of "hard" goods are encouraged to hike their prices. </p><p>The Fed had started reducing its balance sheet (QT) - but then sharply reversed course and "printed" overnight as many dollars as it had withdrawn in the last 6 months (QE) - <i>see chart below.</i> And a week later... OPEC+ hiked prices. I don't know about you, but I don't believe in coincidences.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgtdbw9ktsM6TbK1zVil0fuAW8n4gkFkZ8CsuxvVkXWqzdtfKmJGBxZXJCyJXLl8JNOmDLW-7Zusl9alHeCNV_rgQHJzkD7iulrxjYycG2LQkrZApqh7N9VGGc0wF9-D4t94pErRHTiWD10YN_OMgZS2zSlZL5iK7VgC1hKo_KTbLXqhPD9LyyiQo-ivA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="650" height="444" src="https://blogger.googleusercontent.com/img/a/AVvXsEgtdbw9ktsM6TbK1zVil0fuAW8n4gkFkZ8CsuxvVkXWqzdtfKmJGBxZXJCyJXLl8JNOmDLW-7Zusl9alHeCNV_rgQHJzkD7iulrxjYycG2LQkrZApqh7N9VGGc0wF9-D4t94pErRHTiWD10YN_OMgZS2zSlZL5iK7VgC1hKo_KTbLXqhPD9LyyiQo-ivA=w640-h444" width="640" /></a></div><br />It seems to me that the negative effects of unwise money creation to the real economy are becoming ever more rapid and obvious, even to the untrained eye. From another perspective, demand for luxury goods and services by even the merely rich (not to mention the HNW and UHNW) is continuing unabated. I can speak from personal experience, observing how American tourist bookings abroad are booming, particularly in the luxury sector. There is just too much money sloshing about and it does not really matter how high interest rates go, until consumer deposit rates go significantly higher than inflation.<p></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com5tag:blogger.com,1999:blog-4102429195693595750.post-7006621444785926442023-03-27T09:31:00.001+03:002023-03-27T09:31:07.205+03:00The Great Financial Crisis I & II<p> Many historians view WWI and WWII as one world war separated by a brief period of peace. The punitive terms imposed on Germany after WWI directly caused the rise of Adolf Hitler and his Nazis to power and, inevitably, WWII - all in a Europe where WWI had not truly solved the underlying power structure.</p><p>Drawing a parallel to the Great Financial Crisis of 2007-10, I believe that the way it was handled by central banks and governments in the US, EU and Japan is now - inevitably - causing the current spate of trouble. Let's call them GFC I and GFC II.</p><p>GFC I was "handled" by - literally - papering it over: Western central banks "printed" enormous amounts of money to save the financial/banking systems in their countries and drove interest rates below zero. This is a parallel to the punitive terms the Entente Powers imposed upon Germany at the Paris Peace Conference in 1919-20, in the sense that a "sane" financial/economic system cannot long operate under zero/negative interest rates without sowing the seeds of its own destruction.</p><p>For example, the ECB drove interest rates below zero from 2015 to 2022 (black line in chart below). It was thus only a matter of time and happenstance until inflation soared (red line) when it expanded QE massively during the COVID pandemic.</p><p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEiFnsN0d2_hsbiC0jq3ZoEBpE05_AO1ePy8cs-ty22XCSGmp1TqrjyiAKSuuUGegFDn_q_XN4gfKdYpyLWfzH4O1brQvpF04pGoJU__EUCliluvcP_1PdnwcPpc2DcSQxJb5QRvC5-WeImbVuIy90TKPUMlLODdpWtGnXxvoyRp4Vji0zJfmwD6LgKQ_g" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="800" data-original-width="1320" height="388" src="https://blogger.googleusercontent.com/img/a/AVvXsEiFnsN0d2_hsbiC0jq3ZoEBpE05_AO1ePy8cs-ty22XCSGmp1TqrjyiAKSuuUGegFDn_q_XN4gfKdYpyLWfzH4O1brQvpF04pGoJU__EUCliluvcP_1PdnwcPpc2DcSQxJb5QRvC5-WeImbVuIy90TKPUMlLODdpWtGnXxvoyRp4Vji0zJfmwD6LgKQ_g=w640-h388" width="640" /></a></div><div class="separator" style="clear: both; text-align: center;"><br /></div><div class="separator" style="clear: both; text-align: left;">The same happened in the US, though interest rates there never went into negative territory.</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgFTCQzYRBfambh-_qbr5jWcop9LuVrG2JLTm2Ok2aXs_hd82SfMdPIn2z8jEWnhVswYc7scAAvF_9Bx3rmQrGGYRX22JjEhLwoinRorL38WgKWOEMaH17AAM1GeItpEDH4T2LcTSDAANXguyUTARbG5T8XEvznBo2WqIZ9RVtSorJ09UHHLXgS09ockA" style="margin-left: 1em; margin-right: 1em;"><img alt="" data-original-height="450" data-original-width="1318" height="218" src="https://blogger.googleusercontent.com/img/a/AVvXsEgFTCQzYRBfambh-_qbr5jWcop9LuVrG2JLTm2Ok2aXs_hd82SfMdPIn2z8jEWnhVswYc7scAAvF_9Bx3rmQrGGYRX22JjEhLwoinRorL38WgKWOEMaH17AAM1GeItpEDH4T2LcTSDAANXguyUTARbG5T8XEvznBo2WqIZ9RVtSorJ09UHHLXgS09ockA=w640-h218" width="640" /></a></div><br />And just like WWII was massively more destructive than WWI, GFC II has the potential to wipe out much more than regional banks, or even global systemic banks. It has the potential of wiping out the public debt of countries like the US and Japan, or even the entire Western financial system. Unless governments and central banks get really serious in averting the fast rising dangers, we may well become witness to the "Nazification" of our Western economic/financial system. For example, look at how cryptos are reacting right now..</div><div class="separator" style="clear: both; text-align: left;"><br /></div><div class="separator" style="clear: both; text-align: left;"><u>We really and truly need to act fast and decisively, before the "Nazis" take over:</u></div><div class="separator" style="clear: both; text-align: left;"><ol style="text-align: left;"><li>We must immediately bring inflation down to as close to 2% (maximum) as possible. There is only one way to do so in a rational manner: QT.</li><li>We must immediately eliminate budget deficits and eliminate the need for more public debt.</li><li>We must immediately start the process of re-balancing socially unjust income and wealth excesses. </li></ol><div>We must do everything necessary before GFC II starts. </div><div><br /></div><div>To draw another parallel from WWI - WWII, it was Winston Churchill, more than anyone else during the interwar period, who warned that Hitler was a dangerous megalomaniac and had to be contained before it was too late. Instead, Hitler was appeased with disastrous consequences. Likewise, we cannot afford to let things get out of hand, we must act NOW!</div></div><br /><br /><p></p><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com8tag:blogger.com,1999:blog-4102429195693595750.post-44169253242617237582023-03-24T13:59:00.005+02:002023-03-24T15:00:12.813+02:00My Shortest Post Ever<p> Today I'm gonna go for a record: Hellasious's shortest post ever.</p><p>Here goes:</p><p><b><span style="font-size: large;">TSIHTF</span></b></p><p>Hint: It's about global banks</p><p>Prize for the first to decipher the "Delphic" initials... free upgrade to Subscriber Status (which doesn't exist, but hey, you never know) ;)</p><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com8tag:blogger.com,1999:blog-4102429195693595750.post-165412213359215252023-03-19T10:37:00.000+02:002023-03-19T10:37:17.416+02:00The Oracle Of Wall Street And The Oracle Of Delphi<p> Warren Buffet’s Berkshire Hathaway has 39% of its holdings in Apple shares and another 11% in Bank of America. Thus, a massive 50% is in just two stocks. In my opinion, not exactly a prudent “widows and orphans” investment stand - but who am I to question the Oracle’s judgement?</p><p>Instead, I will act like the ancient Oracle of Delphi who was famous for prophesies that could be interpreted any which way: here are charts of Apple and Bank of America. Readers are encouraged to read them as they themselves see fit.</p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3JEv9W6xKaqeAXi_csztdPHXZH_bpUQ-DD4DtSrUeu01BjCuMhA5J5jMOae5rk4VKubyf70li9eMmlhUUyvULeIgl1s7WtRRqFrxPExRdzQY-fuc3FNvzSSaQ6UtxANXu3WJdpUBhs1KxoRj3FXs8Ci-l8B7Qu7yKjLbuZBrdb-VcDZELJELEz6d5Hw/s2048/1A47EB51-53A6-4785-9152-46BA308CA927.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1400" data-original-width="2048" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3JEv9W6xKaqeAXi_csztdPHXZH_bpUQ-DD4DtSrUeu01BjCuMhA5J5jMOae5rk4VKubyf70li9eMmlhUUyvULeIgl1s7WtRRqFrxPExRdzQY-fuc3FNvzSSaQ6UtxANXu3WJdpUBhs1KxoRj3FXs8Ci-l8B7Qu7yKjLbuZBrdb-VcDZELJELEz6d5Hw/w640-h438/1A47EB51-53A6-4785-9152-46BA308CA927.jpeg" width="640" /></a></div><br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwyO5RySW08_3Xlz-_K6KO_yjXnbeWA4bvGNJmjFxqmpmzsjkoDy_3eKS4V-zU8Z7RAny2twASGP1lrO0KYDB3oexWiisSN8eBa_sgngi5Ow5Z_jC-7q-LKHSZKAE28D0XsuwHnU97m9HybYbLC2OZVZhvjlraE9nHumNpGTq1zgolXqc3y1bqZltkMw/s2048/7D749D99-F544-4171-A685-51427DE8B578.jpeg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="1403" data-original-width="2048" height="438" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjwyO5RySW08_3Xlz-_K6KO_yjXnbeWA4bvGNJmjFxqmpmzsjkoDy_3eKS4V-zU8Z7RAny2twASGP1lrO0KYDB3oexWiisSN8eBa_sgngi5Ow5Z_jC-7q-LKHSZKAE28D0XsuwHnU97m9HybYbLC2OZVZhvjlraE9nHumNpGTq1zgolXqc3y1bqZltkMw/w640-h438/7D749D99-F544-4171-A685-51427DE8B578.jpeg" width="640" /></a></div><br /><p><br /></p>Hellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.com2