Armageddon Scenario Unfolding in Bond Markets – PIMCO Total Return Fund Dumps Treasuries as Congress Plays Chicken with Debt Ceiling Vote

3/11/2011 Portland, Oregon – Pop in your mints…

What seemed an unbelievable yet probable event is beginning to unfold before our very eyes.  You won't see it make any headlines but if you put the pieces together, you will see that what The Mint affectionately calls "Armageddon" in the Bond Markets is beginning to unfold.

Apparently Bill Gross, founder of PIMCO and co-chief investment officer of its Total Return Fund, which happens to be the largest Bond fund in the world, sees Armageddon on the horizon as well.  The Total Return Fund dumped all of its US Government related debt holdings between December and February.  At roughly 22% of fund assets, this was a flood of roughly $53 billion into the already saturated US debt markets.

We use the term saturated loosely.  What we really mean is that the market is saturated at current prices, which are being artificially held up by the Federal Reserve via its various flavors of QE or in layman's terms, money printing.  If the FED were to stop printing money to buy Treasury debt it is anyone's guess what the market's clearing price would be, but we reckon it would be lower.  We do not, however, believe that the market for US Debt will cease to exist as people will always need toilet paper and fuel for fires.

But Mr. Gross's $53 billion bomb is not enough on its own to start Armageddon.  The US Congress and Treasury are doing a whopping one two punch to the nation's credit.

The Congress is doing its part by perpetuating an apparent stalemate on budget talks.  Now we have word that the Republicans want to "see how tax revenues come in" before taking up a vote on raising the Nation's debt ceiling.  This would push the vote out until April 18^th and probably a bit later which neatly coincides with the "MAYDAY" dates given as an ultimatum for action as the current debt ceiling is predicted to be reached sometime between April 15^th and May 31 of this year.  This is significant as both Treasury Secretary Tim Geithner and FED Chairman Ben Bernanke have given dire warnings of "chaos in financial markets" if action to raise the ceiling is not taken.

Mark Faber, author of the Gloom, Doom, and Boom report, sees the future unfolding into hyperinflation and then war:

Sounds like Armageddon to us.  On cue, the FED has already begun to speak of QE3, yet another round of money printing to absorb the unwanted Treasury debt.

While these two events alone would make for merely rough sailing, we believe that Armageddon may unfold primarily due to the sheer size of the deficits that are being run by a Congress that has no ability to act to curtail them.  On Monday came word that the US Treasury borrowed $223 BILLION dollars during the month of February.  This is a record. 

Admittedly, February is traditionally a month that the Treasury runs up the credit card because a majority of American's who are due an income tax refund receive them in February.  Theoretically, the Treasury pays this off in the month of April when those who owe tend to pay their taxes.  Unfortunately, this wasn't the case last year, and with the number of stimulus programs being collected upon by the general public, we have our doubts about the prospects of an April surplus this year.

If Congress cannot agree to act on the debt ceiling, we hold out very little hope that they will reach an agreement on any meaningful budget cuts or even to do something as elementary as pass a budget, no matter how much of a deficit it projects.  These people are truly out of touch with reality.

So with Congress literally unable or unwilling to act, it will be up to the markets to mete out the consequences of their inaction on both fronts.  Bill Gross has already made his move and the FED is preparing to fill the gaping hole with more quicksand.

Armageddon, Here We Come!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Friday, March 11th, 2011

Copper Price per Lb: $4.24
Oil Price per Barrel:  $102.59
10 Yr US Treasury Bond:  3.39%
FED Target Rate:  0.14%

Gold Price Per Ounce:  $1,411

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  8.9%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  11,985
M1 Monetary Base:  $1,932,200,000,000
M2 Monetary Base:  $8,888,200,000,000

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

Say it Ain’t So! High oil prices cause FED Head to utter the words QE3 & The Best Article on Silver in Ten Years!

3/9/2011 Portland, Oregon – Pop in your mints…

Paradox:  A seemingly absurd or self-contradictory statement that is or may be true.

Today we are dealing with a paradox.  At least that seems to be the word that most closely resembles what Atlanta Fed President Dennis Lockhart said in his discourse this past Monday at the NABE. 

First, a lengthy disclaimer from The Mint.  We do not believe that Federal Reserve notes are money.  Therefore, what happens in FED land, while it must be keenly watched because a majority of people on the planet do believe that Federal Reserve notes (commonly called US dollars) are money, is really of little consequence in the grand scheme of things.   

In the grand scheme of things, it is more akin to a passing fad.  For example, the FED has been around longer than Cabbage Patch Kids but not as long as Coca Cola.  Rest assured that it too shall pass.

The current monetary system is based on at best a half truth and at worst and outright lie.  It then follows that those who are charged with perpetuating it must constantly utter paradoxes in order to make it sound legitimate.  These paradoxes are things that make sense on the surface at any given point in time.  However, once one endeavors to piece the puzzle together in the long view, the daily paradoxes which pass as enlightened economic thought become simply laughable.

Speaking of laughable, we now return to our topic, Mr. Lockhart uttering a paradox to the NABE, a group of diehard FED faithful.  According to CNN Money, Mr. Lockhart stated:

"If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation,"

In  FED code, "more accommodation" (or QE / "Quantitative Easing") means printing more money to purchase US Government Bonds, which are proliferating at such a rapid pace that there are not enough purchasers at current prices.  This would be the third such announced counterfeiting adventure undertaken by the FED which would give it the colloquial title QE3.

And now for the Paradox:

Though he doesn't think current oil prices around $106 a barrel are a problem, he said the evidence is clear that oil spikes can bring about a recession.

"I think at the $120 range ... it's a manageable level," he said. "Around $150 it becomes a much more serious concern."

Mr. Lockhart, enlightened as he is, now thinks he knows at what price oil should sell for.  Do you see the Paradox?  Allow us to assist.  The price of oil is not really the price of oil.  Rather, it is an algebraic expression of a ratio.  The price of oil is the ratio of US dollars willing to purchase oil to barrels of oil for sale.  For simplicity's sake, this ratio is usually reduced to one barrel of oil.  Are you still with us?  Good, because there is more.

What Requires more effort?  Drilling for oil...

At this point we must think abstractly about the processes involved in the production of the factors on each side of this ratio.  We will start with oil.  Oil must first be located by a team of highly trained scientists with very expensive equipment.  Once located, negotiations must be made with land owners and the government to obtain the rights to extract the oil that has been located.  Then, highly sophisticated drilling and extraction machinery must be transported to the site to begin extraction while the back end logistics of the transport, processing, and delivery of the black goo to market all must be either negotiated in order to use existing distribution channels or to construct new distribution channels.

The production of US dollars?  Mr. Lockhart and his cohorts vote on a number, one of the FED's minions press a few buttons on a computer, and viola!  Instant "money."

...or Printing Money?

Do you now see the Paradox in Mr. Lockhart's statement?  He thinks that the problem of high oil prices can be solved by creating more FED funny money.  The reality is that the FED funny money that has already been created is what is causing the price of oil to skyrocket!  And these guys are in charge of the money supply?

When oil was selling for $150 a barrel two short years ago, we read a statistic that the US economy at that time was engineered to run on $20 per barrel oil.  We doubt that the required "organic" re-engineering of the economy has been completed in the past two years to allow it to accommodate $106 dollar oil.  Something has got to give.  According to PIMCO's Bill Gross, who indirectly manages $1.2 trillion worth of bond assets, the most recent oil price increase could in fact decrease GDP by 0.5%.

Do you see now how the FED's mission of fostering economic growth, maintaining stable employment, and maintaining stable prices is a complete and utter failure on all counts?

Fortunately, there is an alternative!  While we do not believe in Federal Reserve Notes, we do believe that God gave man Gold and Silver to use as money.  While this fact has been confused and obscured over the past 40 to 100 years, there are roughly 5,000 years of human history which testify to this fact.

The best part of this revelation is that in the US, you can still own physical Gold and Silver!

Along with the skyrocketing price of Silver, which is beginning to become regular headline news, we were further excited that people are starting to understand what money is by reading what is being hailed as "The Best Article on Silver in Ten Years!"  Please follow the link below to read nearly every compelling reason to own silver all in one place:

The Silver Bullet and the Silver Shield

Or paste this link in your browser, it is that important:

http://goldmoneybill.blogspot.com/2011/03/silver-bullet-and-silver-shield.html

While it is never a bad time to shun Federal Reserve Notes in favor of Silver, we recommend buying in the summer months of the northern hemisphere when Silver tends to be relatively less expensive, if you can find it!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Wednesday, March 9th, 2011

Copper Price per Lb: $4.32
Oil Price per Barrel:  $104.27
10 Yr US Treasury Bond:  3.54%
FED Target Rate:  0.14%

Gold Price Per Ounce:  $1,430

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  8.9%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,214
M1 Monetary Base:  $1,876,700,000,000
M2 Monetary Base:  $8,871,100,000,000

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.

US Jobless Rate Prints Lower, Prepare for a FED Target Rate Hike!

3/7/2011 Portland, Oregon – Pop in your mints…

On Friday the world rejoiced as the US Unemployment rate dropped from 9% to 8.9%.  Amazing, right?  Look out, the recovery on main street is underway!  So amazing that the Dow dropped 150 points and Gold rose $12.  Even Treasuries rose mildly, defying all logic.  What does it mean?  Why is this good news immediately followed by action that, in market parlance, is a predominant flight to safety?

For the most part, what happens daily in global markets is rubbish.  It is the product of an insane combination of Investment Banks robbing their clients by front-running their trades, hot money flashing in and out without warning, panicked responses to margin calls, window dressing of mutual fund investment results, and plain old fashioned gamesmanship.  All of this action literally dwarfs the honest investor who is simply trying to "buy and hold" what they think is a good investment.  For an interesting narrative of these phenomena, please check out this link from zerohedge.com:  A Deep Walkthru for Silver Manipulation – Redux.

So we must look beyond the daily grind and grasp at good old common sense to understand what is going on.  Before we begin our rambling explanation, we must let you in on a secret:

We don't know what is going on.  But we take courage, if not comfort, in the fact that neither do Bernanke, Geithner, Obama, Greenspan, Trichet, Merkel, or any of the other people who are paid by the public to know.  Our bumbling ignorance, on the other hand, is done on our own nickel.

Now that the secret is out, we will tell you what we think is going on.

The FED is going to increase their Target Rate.  Ben Bernanke doesn't want it to, for reasons documented here at The Mint.  Neither do the FED's member banks.  To Bernanke, it means that he won't get to test his academic theory that the only reason the Great Depression got the "Great" adjective was that monetary and fiscal stimulus was shut off too soon.

For the member banks it is much more serious, they will need either TARP 2 or a miracle to survive any increase in short term rates.  Given the popularity of TARP, a miracle seems more likely.

Despite their objections, the markets are beginning to trump even the most powerful monetary authority on the planet and his evil legions of member banks.  The trump card?  Skyrocketing gold and silver prices.  People are beginning to understand the scam that is the global financial and banking system and to put their money into hard assets like gold and silver before the monetary authorities can sell the next version of their monetary scam to the public. 

When people get their money out of the banking system and into hard assets, they are no longer fleeced at will by the monetary regime.  They are free!

An economically free people is the last thing that the monetary authorities want, and they are willing to sacrifice the weak among their member banks to assure that the people remain enslaved.

The FED Funds Rate Categorically Moves Inversely To the Unemployment Rate - Courtesy of Calculatedriskblog.com

The decrease in the unemployment rate, as small as it is, gives Bernanke a theoretical basis to raise the FED short term rate.  The increase, or the threat of an increase, is enough to bring the Dow down as money floods out of equities as banks increase cash holdings in anticipation.

More importantly to the monetary regime, the increase will bring down the gold and silver price, making staying in the banking system look like a better option.

Don't take the bait, fellow taxpayer!  Rather, when the price drop comes, our guess is it will arrive in May or June, see it as a buying opportunity for the metals.  If you need proof that precious metals serve as a better form of money and savings than bank deposits, you can investigate the past 5,000 years or so of human history to see which paper currency has maintained its value better than gold or silver over that time period. 

Or, you can save some time if you just take The Mint's word for it!

Stay Fresh!

David Mint

Email:  davidminteconomics@gmail.com

P.S.  If you enjoy or at least tolerate The Mint please share us with your friends, family, and associates!

Key Indicators for Monday, March 7th, 2011

Copper Price per Lb: $4.47
Oil Price per Barrel:  $104.42
10 Yr US Treasury Bond:  3.49%
FED Target Rate:  0.15%

Gold Price Per Ounce:  $1,433

MINT Perceived Target Rate*:  4.25%
Unemployment Rate:  8.9%
Inflation Rate (CPI):  0.4%
Dow Jones Industrial Average:  12,170
M1 Monetary Base:  $1,876,700,000,000
M2 Monetary Base:  $8,871,100,000,000

*See FED Perceived Economic Effect Rate Chart at bottom of blog.  This rate is the FED Target rate with a 39 month lag, representing the time it takes for the FED Target rate changes to affect the real economy.  This is a 39 months head start that the FED member banks have on the rest of us on using the new money that is created.