US Fiscal Train-Wreck: Accident Waiting to Happen

CARTOON: Mike Thompson/Detroit Free Press

Central bankers can’t print trillions of dollars and expect inflation to remain contained to asset prices. It’s now seeping into the real economy. They’re in a box. There’s too much debt, markets are severely overpriced and the Fed at 1.5% is well behind the curve. For example, both Empire and Philly’s Prices Paid surveys for businesses shows prices are running hot.

Wild man President Donald Trump’s budget, an annual document that outlines an administration’s priorities, would widen the federal budget deficit to $984 billion in the next fiscal year (ending October 2019) — nearly double last year’s budget estimate for 2019.

Moody’s came out with a negative credit assessment of the U.S. tax bill. Ultimately, the credit agencies will conduct a long-overdue downgrade of the totally undeserved and fictitious AAA credit rating of the U.S. This will impact demand.

Meanwhile, starting in April, the Fed will increase its disengagement from the massive $4.4 trillion holdings they built up to support the bubble economy. The empty suits move from $20 billion a month in reductions to $30 billion. In July, reductions increase to $40 billion and to $50 billion in October.

Typically, they just allow their holdings to mature without a rollover. This means that at each new Treasury auction swelling supply is met with a missing-in-action Fed. The Treasury’s $82 billion a month it needs in additional deficit borrowing is impacted with an additional gap as the Fed rundowns are added on.

To fund this increasing gap, the U.S. has traditionally relied on suckers abroad. One of these is, of course, China. Last week, the Commerce Department accelerated the trade war by proposing new tariffs on steel and aluminum. Adding insult to injury, a top-ranking admiral and candidate to become the next U.S. ambassador to Australia says the U.S. needs to prepare for war with China. Yes, that’s the ticket.

Will China continue to buy U.S. Treasury Old Maid Cards (OMC) in the face of this and the tsunami of fiscal funding gaps? China actually built up its Treasury holdings in 2017, and trade restrictions are their reward. At year end 2017, they held $1,184 trillion in U.S. OMCs. Yes, for dot connectors it’s an interesting dilemma. In a logical world, China would not support this sinking ship.

Japan is the world’s greatest sucker and is a step-and-fetch-it proxy state of the Anglo-American-Zio power structure. Alas, Japan reduced Treasury holdings while the getting was good. Will they step up to cover the fiscal-gap onslaught? As dupes maybe, but would be peanuts compared to the gap.

“Leveraged loans” are extended to junk-rated and highly-leveraged companies, as they are too risky for banks to keep on their books. Banks sell them to loan mutual funds or they slice and dice them into structured Collateralized Loan Obligations (CLOs)

New York Life just sold the top-rated tranche of a CLO at a spread of less than 100 basis over Libor. And Palmer Square Asset Management sold a $510 million CLO at a similar premium over Libor. These are the lowest-risk premiums over Libor since the 2008-2009 Financial Crisis. Some clerk on this front hasn’t gotten the memo at all. My theory is that these are captured and compromised individuals set up to take the fall. As such, this is another dam of Old Maid Cards that’s ready to break.

I no longer dispense investment advice. Primarily, it’s because markets are manipulated by malevolent and criminal elements and by algos conceived by 25-year-old programmers from India who I am in no position to track or monitor. In other words, as a non-criminal outsider, I don’t get the memos — so take that under advisement. Nonetheless, these observations are not just theory, as indeed there have been several major busts that attest to rigging. Here was one recently involving precious metal bullion markets.

Regular readers who pay attention to such things know I have pointed out that VIX (volatility) was being rigged and was an accident waiting to happen. Two weeks ago, we got what I think was just a warning shot across the bow with a market break centering on — you guessed it — VIX futures. Now there is an investigation into that.

For investors, I spotted this item of interest. Again, I offer the caveat that the institution who puts this data out is a hardcore criminal enterprise. Go to any silver forum and all you will hear is howling (correctly) about lies, rigging and manipulation.

Still, it has a certain elegant logic to it. The data below shows managed money being net short silver futures. This is very rare and bullish for silver prices.

Secondly, the silver chart demonstrates a long three-year and a half year basing pattern, which is technically bullish.

Thirdly, if the data is to be believed, a Crime Syndicate insider (JP Morgan) has used the basing period to accumulate for itself (or on behalf of key clients) a large stash of silver bullion [see third chart]. The COMEX vaults hold 213.3 million ounces and more than 133 million is JPM. Thirteen million ounces has been added from just the beginning of 2018. Investment or transparent silver (coins, bullion bars) is a $16 billion market at today’s prices, which is very small in the greater scheme of things. There are rumors that large quantities of silver coins are also stockpiled by JPM.

Fourthly, historically, as a truly rare metal, silver enjoys periodic and powerful speculative runs, the last one being 2010-2011.

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