Britain at risk of worse deficit crisis than Greece in the EU
The Euro has been taking a beating after the news of Greece did not seem to calm investors and now these numbers from the UK showing there deficit is going to be even larger than projected this year. With this waning confidence in all other currencies and strength in the U.S. dollar, it is looking more and more likely that we are not seeing a recovery and instead this bear market rally is over and now it might be time to retest lows set in March last year. Very interesting times.
In surprise news which sent the pound sliding on Thursday, official figures showed that the Government borrowed £4.3 billion last month.
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Morgan Stanley Forecasts 5.5% 10 Year Note as U.S. Faces Deficits
There is a battle taking place right now between the bulls and bears. At this point almost every analysis is extremely bullish on the growth prospects in the U.S. for 2010. I have heard today alone for GDP estimates from 3.5 to 5.5% in 2010. With 10% unemployment, I would be very surprise to see how we would produce those growth targets.
When I hear and read everyone staying the same predictions it makes me think it is now a good time to see if it would be beneficial to be on the opposite side of this trade. Maybe shorting the 10 year bond is the move for 2010???
Bloomberg - If Morgan Stanley is right, the best sale of U.S. Treasuries for 2010 may be the short sale. Yields on benchmark 10-year notes will climb about 40 percent to 5.5 percent, the biggest annual increase since 1999, according to David Greenlaw, chief fixed-income economist at Morgan Stanley in New York. The surge will push interest rates on 30-year fixed mortgages to 7.5 percent to 8 percent, almost the highest in a decade, Greenlaw said.
Investors are demanding higher returns on government debt, boosting rates this month by the most since January, on concern President Barack Obama’s attempt to revive economic growth with record spending will keep the deficit at $1 trillion. Rising borrowing costs risk jeopardizing a recovery from a plunge in the residential mortgage market that led to the worst global recession in six decades.
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U.S. Dollar Markets Left to Runs Its Natural Course
If gold’s jump to a new high during New York is any indication, it looks if the U.S. dollar is on a downward trend at the moment. Don’t let that lull you into complacency either. As we see, if we have a serious downturn, investors turn to the dollar as a safe-haven bet and that makes it rise rather quickly.
I would like to see the Yuan much higher so their exports are as attractive as they have been. I don’t believe we do enough to give protection (yes I said it) to our native producers. We are at double-digit unemployment so encouraging job creation in non-service areas of the economy is what is needed to get the income that is needed to support a middle-class and correct our massive trade imbalance.
Dow Jones, Istanbul - Big ideas failed to gain traction at the International Monetary Fund’s annual meeting, but that was because natural processes have already paved ahead. IMF Managing-Director Dominique Strauss-Kahn’s proposal of making the IMF a global lender of last resort was politely downsized to a research project.
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China alarmed by U.S. money printing
Interesting news piece from the Telegraph. The most interesting part was when Cheng Siwei was quoted with this little tidbit, “Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets.“ He was speaking to an alternative to the U.S. dollar. China is very aware of the fact that any major public gold bullion purchases would “stimulate” the markets, I read this as drive the price to the moon and some. I will close with this little interesting fact that gold as consolidated at $930.00/oz. during the traditionally lower demand part of the year. Unless we see a major correction tomorrow morning in the New York Spot market, I predict we will finally see gold bust through $1,000.00 per ounce. Does the smart money know something the average joe doesn’t? Likely in my opinion.
Telegraph, London - Cheng Siwei, former vice-chairman of the Standing Committee and now head of China’s green energy drive, said Beijing was dismayed by the Fed’s recourse to “credit easing”. “We hope there will be a change in monetary policy as soon as they have positive growth again,” he said at the Ambrosetti Workshop, a policy gathering on Lake Como.
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Federal Reserve’s Balance Sheet Hits $2 Trillion
One of the most important facts of this news piece is the FOMC’s decision to extend their quantitative easing (read: print money) program until October from the September deadline. If we were in a recovery, then why would our central bank need to have more time to buy our own debt from ourselves aka: The U.S. Treasury? You know, the more I think about this, the more I am getting the feeling that things are not in recovery and maybe the media has played up the green shoots recovery angle just a little too much.
Reuters, New York - The U.S. Federal Reserve’s balance sheet expanded in the latest week, thanks to a jump in Treasuries holdings, Fed data showed on Thursday.
The Fed’s balance sheet liabilities — a broad gauge of its lending to the financial system — reached $2 trillion on Wednesday from $1.974 trillion a week earlier. The U.S. central bank’s holdings of U.S. government debt increased to $728.97 billion on Wednesday, up from $705.33 billion a week earlier.
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10-year Treasury yield raises to 4% due to sloppy auction
It can not be a good sign when fixed income trader called the Treasury auction “sloppy”. With the 10-year at 4%, we can expect that the longer portion of the “yield curve” is going to steepen. This does not bode well for future interest rate which will need to go much higher to match future inflation expectations. With the amount of money that has been pumped into our economy through our banking system and with interests at historic lows, inflation is the obvious policy of the day.
News (Reuters):
U.S. Treasury prices fell on Wednesday, sending benchmark yields to 4.0 percent for the first time in eight months, after an auction of 10-year notes heightened concerns over the burgeoning U.S. budget deficit.
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Chinese Increase Gold Bullion Reserve by 454 tonnes on Dollar Concerns
This is a structural change in the perception of Gold’s role in the international finance community. Gold has a track record of providing a safe-haven for wealth in times when governments are taking actions that devalue a countries currency (read: money). This trend is sure to continue as long as these global policies of quantitative easing continue (read: money printing).
The biggest threat is if we see a recovery from this massive stimulus is a heavy dose of inflation that changes the perception of the public’s thoughts on inflation. This can lead an economy down the road to hyper-inflation as the public loses confidence in the currencies’ ability to hold value.
News (Business Wire):
News that China has increased its gold holdings by more than 75% is a clear indication of the critical role that gold plays in central bank reserves, World Gold Council said today.
Welcoming the announcement by China’s State Administration of Foreign Exchange (SAFE) that the country’s official gold reserves have risen from 600 tonnes in 2003 to 1,054 tonnes, the CEO of World Gold Council, Aram Shishmanian, said:
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