government bonds
Peter Schiff: ‘Gold Bears Are Making Much Ado About Nothing’
There’s been quite a bit of talk these past couple of years about the Federal Reserve tightening monetary policy due to an economic recovery finally arriving that I’m going to have to agree with “crash prophet” and Euro Pacific Capital CEO/Chief Global Strategist Peter Schiff on this.
The Fed is bluffing.
Unless Fed officials are now starting to worry that growing their balance sheet is not in their best interest anymore.
Schiff, who correctly-called the 2008 global economic crisis, wrote in the March issue of his Gold Letter that was published Friday:
Testifying before the US Senate this past Tuesday, Fed Chairman Ben Bernanke made an extraordinary claim about its bloated balance sheet: “We could exit without ever selling by letting it run off.” What Bernanke means here is that the Fed could simply hold its Treasuries and agency bonds until they mature, at which point the government would then be forced to pay the Fed back the principal amount. Through this process, the Fed’s unprecedented and inflationary position will be gradually and placidly unwound.
Growing rumors last month of a potential “tightening” of monetary policy – seemingly confirmed by the Fed minutes released on Feb. 20th – have spooked the precious metals markets, leading to a 5.8% correction in gold and 10.2% in silver.
However, these fears are preposterous on two counts…
You can read the entire article (“The Fed’s Tightening Pipe Dream”) on the Euro Pacific Precious Metals website here.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
(Editor’s note: I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
Jim Rogers: ‘Short Long-Term United States Government Bonds Right Now’
Thursday afternoon, investor, commentator, and author Jim Rogers sat down with CNBC’s Maria Bartiromo at the New York Stock Exchange. Predictably, the discussion focused on his thoughts about the U.S. economy and larger financial system- and where he thinks there are opportunities to make money. Rogers warned viewers:
It’s all artificial what’s going on right now. The Federal Reserve is printing money as fast as they can. But the Bank of Japan said “We’re going to print unlimited money.” And so you know what the Federal Reserve said? “We’ll match you, we’ll print money too!” I mean, this is insane… You think this is a sound economy?
(Editor’s note: Italics added for emphasis)
The Singapore-based investor, who “retired” at age 37 and proceeded to ride a motorcycle around the world- and then write about it- went on to share the following investment-related nuggets on Closing Bell:
• Rogers is shorting government bonds. Not only did he say “Short long-tern United States government bonds right now,” but he also revealed this was his main U.S. investment.
• Owns Japanese stocks
• Investing in Russia- “I’m buying the bonds, the currency, and stocks.”
• Short Apple
• Short JPMorgan calls- “I’ve been short JPMorgan calls. They all expire worthless. I’m still short a few, and they’re not expiring worthless. I may lose money on that.”
• Sees Russia as the single best investment opportunity right now.
• Or North Korea- “The only way to invest is to buy the stamps or the coins. And your viewers are not going to go out and buy North Korean gold and silver coins. But that’s a fabulous, fabulous opportunity.”
• Wouldn’t buy gold at these levels- unless they were North Korean gold coins.
“Jim Rogers: I’m Short US Government Bonds And Investing In Russia – CNBC 2/8/2013″
YouTube Video
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein.)
Illinois Bond Issue Halted Due To Credit Concerns
Today, residents of the state of Illinois saw the repercussions of having $8 billion of unpaid bills, a $96.8 billion pension funding gap, and falling credit ratings. Karen Pierog reported on the Reuters website:
Illinois yanked a $500 million general obligation bond issue slated for Wednesday because of credit concerns that could boost its borrowing costs, in the latest financial blow to the state, which has failed to fix its bloated public pensions.
Investment banks that planned to bid on the debt indicated investors would demand higher yields on the 25-year bonds, said John Sinsheimer, Illinois’ capital markets director.
“We were getting indications of higher spreads than we were anticipating,” said Sinsheimer, who declined to discuss specific spread levels. “We felt it was prudent to pull the deal for the time being.”
(Editor’s notes: Italics added for emphasis)
Pierog pointed out:
Illinois is already faced with the highest spreads – 137 basis points in the latest week – over Municipal Market Data’s benchmark triple-A scale among states and cities tracked by MMD, a unit of Thomson Reuters.
Over the weekend, I noted Standard & Poor’s downgraded the State of Illinois on Friday to an “A-” rating with a negative outlook- last among all 50 states. I added that among other major credit rating agencies, Moody’s also ranks Illinois last of all the U.S. states and Fitch ranks it 49th but on watch for a possible downgrade.
As for Illinois taxpayers? They may have to pay tens of millions of dollars more in interest when the state looks to borrow more money- like what almost happened today.
By Christopher E. Hill, Editor
Survival And Prosperity (www.survivalandprosperity.com)
Source:
Pierog, Karen. “UPDATE 2-Illinois pulls $500 mln bond sale amid credit concerns.” Reuters. 30 Jan 2013. (http://www.reuters.com/article/2013/01/30/illinois-bonds-idUSL1N0AZ6TQ20130130). 30 Jan. 2013.
Peter Schiff Predicts ‘A Tidal Wave Of Inflation’ For U.S.
Yesterday, “crash prophet” Peter Schiff addressed the Fed’s announcement of QE4 from earlier in the day in the latest installment of The Schiff Report YouTube video blog. Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, didn’t pull any punches when he warned viewers:
Well, the Fed now has come to a point where it can’t do that anymore, so it announced starting January 1- as expected- the Fed is going to begin to expand its balance sheet by an additional $45 billion per month, as it prints new money to buy up long-term government bonds. That’s in addition to the $40 billion worth of mortgages the Fed is already buying with money that it creates out of thin air. So if you take 40 and 45, that’s $85 billion a month, multiply that by 12, and the Fed has announced that it intends to expand its balance sheet by over a trillion dollars in 2013…
So, in other words, what Ben Bernanke said is, we’re just going to print money, and we’re going to buy a trillion dollars worth of paper every year, as far as the eye can see.
The President and Chief Global Strategist of Euro Pacific Capital talked about what inflating the money supply will mean for stocks and precious metals:
This is a very inflationary policy. Which, I guess, from a nominal perspective is bullish for stocks- not from a real perspective. But it is extremely bullish when it comes to precious metals.
Schiff recommended viewers do the following:
The bottom line to all of this is get out of the dollar. Don’t wait, run. Get out of it. Don’t worry if you’re a little bit too early (chuckle). Because believe me, you don’t want to be too late…
But you’ve got to get out of the dollar, and buy some gold. It is amazing that gold is still as cheap as it is…
But given all the money that has been printed- not only by the Fed, but central banks around the world- and all the money that is about to be printed, they are going to unleash a tidal wave of inflation. And the best way to float to the surface, and avoid being dragged under with the tide, is to have a life raft of precious metals. And then, look at other stock markets, where you might have some real growth.
“Ben Bernanke throws the dollar over the Currency Cliff.”
YouTube Video
(Editor’s notes: Info added to “Crash Prophets” page; I am not responsible for any personal liability, loss, or risk incurred as a consequence of the use and application, either directly or indirectly, of any information presented herein)
Moody’s Revises Illinois’ Credit Rating Outlook To Negative
Moody’s Investors Service, a major Wall Street credit rating agency, announced yesterday that it has revised its rating outlook for the State of Illinois from stable to negative. Illinois is already Moody’s lowest-rated state. From the agency’s website Thursday:
Rating Action: Moody’s revises State of Illinois’ rating outlook to negative from stable; general obligation rating affirmed at A2
Global Credit Research – 13 Dec 2012
Action applies to approximately $33 billion of outstanding general obligation and related debt
New York, December 13, 2012 — Moody’s Investors Service has revised the State of Illinois’ credit outlook to negative from stable, while affirming the state’s general obligation debt rating at A2. The state has about $28 billion of G.O. bonds outstanding. We have also affirmed related ratings assigned to state borrowings, including about $2.6 billion of debt issued by the Metropolitan Pier & Exposition Authority, rated A3, and the state’s Build Illinois sales tax revenue bonds, rated A2, of which $2.7 billion are currently outstanding. The negative outlook is linked to ratings on the G.O. as well as the related credits.
SUMMARY RATING RATIONALE
The negative outlook reflects our view that the state’s pension funding pressures are likely to persist and perhaps worsen in the near term. Moreover, fiscal 2014 marks the last year before Illinois’ 2011 income tax increases are partly unwound, putting the state on track to deal with simultaneous growth in pension funding needs and loss of revenue. If the legislature in coming weeks or months enacts significant pension reforms, they are almost certain to be challenged, given the state’s constitutional protection of retiree benefits. Political pressures, coupled with the threat of litigation, may mean that any reforms enacted have only a marginal effect on liabilities. Despite a diverse economy with above-average wealth, lackluster demographic and economic characteristics indicate that, even with continued US economic improvement, the state’s existing tax structure will not provide enough revenue to address the rising cost of pension benefits and other state expenses. In addition, the state’s payment backlog remains high.
(Editor’s note: Italics added for emphasis)
Back on January 13, 2011, Illinois Governor Pat Quinn signed legislation authorizing a 67 percent increase in the personal income tax of Illinois residents and a 46 percent increase in corporate income taxes on Illinois businesses. In 2015, these taxes are scheduled to be rolled back from 5 percent to 3.75 percent and 7 percent to 5.25 percent respectively. However, as I noted that same day:
The last time income tax rates in the “Land of Lincoln” went up in 1989, politicians also claimed it was as a temporary increase to combat a financial “rough patch.” But the rates never came down and by 1993 were designated permanent. Until now, that is.
I won’t be surprised if lighting strikes Illinois residents and businesses twice.
You can read the entire rating action report on the Moody’s website here.
Fed Launches QE4
Yesterday, I took some time off from blogging to watch CNBC’s coverage of the Federal Open Market Committee meeting. Okay, truth is I really felt sick after eating like a third-grader at lunchtime and needed to lie down on my couch. But the FOMC meeting happened to be on TV, and I was curious to hear what Fed Chair Ben Bernanke would say about the highly-anticipated meeting.
Basically, QE4 has just set sail.
Funny thing was, based on the back-and-forth movements in the stock indexes, the CNBC talking heads covering the meeting suggested traders were looking to their pocket protector-armed colleagues to decipher just exactly what it was the Fed Chair said. Yes- Bernanke was laying on the Fedspeak thick and heavy Wednesday. So much so a number of mainstream media outlets today don’t seem to have figured out just what is was the Federal Reserve announced they were going to do. However, I did come across a very good explanation of what went down at the Fed meeting on the website of Chicago-based investment research company Zacks. Neena Mishra, Director of ETF Research there, reported on their Real Time Insight blog yesterday:
QE 4 is Here: Fed Announces Fresh Stimulus
As widely expected by the market, the Federal Reserve announced at the conclusion of their FOMC meeting that they will purchase longer-term treasury securities to replace “Operation Twist”. Initially the purchases will be about $45 billion per month.
Operation Twist—which involves buying longer-term bonds and selling a like amount of shorter-term treasuries—is expiring at the end of this month.
Additionally, Fed buys 40 billion of agency mortgage-backed securities each month, under QE3. In all, Fed will continue to buy about $85 billion of longer-term bonds each month under the two programs.
Per their statement “these actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.
“These actions should maintain downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative”.
Remember what I blogged about recently regarding suspicions the Fed is trying to inflate another housing bubble?
And to quote Monty Python, “And now for something completely different.” Mishra added:
Another important announcement in the release was the adoption of “economic targets” for unemployment and inflation. They decided to keep the target range for the fed funds rate between 0% and 0.25%– as long as the unemployment rate remains above 6.5% and medium-term inflation does not exceed 2.5%
Yep. That was pretty much what I heard Bernanke say.
QE4. Yet another dose of reality for the Pollyannas that argue a U.S. economic recovery is strong and sustainable and that rising interest rates are right around the corner because the economy is humming right along.
Source:
Mishra, Neenah. “QE 4 is Here: Fed Announces Fresh Stimulus.” Real Time Insight. 12 Dec. 2012. (http://www.zacks.com/stock/news/88466/qe-4-is-here-fed-announces-fresh-stimulus). 12 Dec. 2012.
Peter Schiff: Avoiding ‘Fiscal Cliff’ Will ‘Destroy’ U.S. Dollar
Peter Schiff, President and Chief Global Strategist of Euro Pacific Capital, appeared on the FOX Business TV channel yesterday and talked about a growing crisis in the U.S. bond market and its impact on the U.S. dollar. Schiff, who correctly-predicted the bursting of the U.S. housing bubble and 2008 global economic crisis, warned viewers:
If we avoid the “fiscal cliff,” we end up throwing the dollar over the currency cliff because we send the message to the world that America will never pay its bills. We’re just going to keep borrowing money until our creditors cut us off. And that’s when interest rates skyrocket. And the pressure is on the Fed- because if the Fed caves in to the political pressure to buy up all those bonds that nobody wants, then we destroy the dollar. And that’s an even bigger crisis than if we just let the bond market collapse and let it take the economy with it…
“Bond Market Leading to the ‘Real’ Fiscal Cliff?”
FOX Business Video
Michigan Lawmaker: ‘We’re Going To Have To Seriously Consider Dissolving The City Of Detroit’
As I’ve said before, once in a while I hear chatter about Chicago being on the path to becoming the next Detroit. Not the hub of America’s auto industry that “old” Detroit once was, but rather “this” Detroit:
“Scary Movie 4 – Detroit: Before & After the Attack”
YouTube Video
I guess conditions in the “Motor City” are getting so bad one Michigan state senator has gone so far as to say the legislature is going to have to “seriously consider dissolving” the city. From The Detroit News website this morning:
State Sen. Rick Jones has a solution for fixing Detroit’s ongoing political and financial problems: Get rid of the city.
“At some point we’re going to have to seriously consider dissolving the City of Detroit,” Jones told Insider.
You read that right.
Jones, R-Grand Ledge, is proposing the Legislature, which has the power to establish municipalities, should make the city part of unincorporated Wayne County.
Jones was unclear about what good it would to do to turn the city and its services for 700,000 residents over to a county with it’s owns financial and political problems.
But he said outstate lawmakers like himself are growing tired of the City Council delaying implementation of the financial consent agreement state and city leaders signed in April, inching perilously closer to payless paydays and bankruptcy.
(Editor’s note: Italics added for emphasis)
Detroit’s finances appear pretty bleak. According to Reuters last night, not only did Moody’s Investors Service lower the city’s debt ratings deeper in the junk category Wednesday, but:
Moody’s also placed a negative outlook on the lowered ratings, citing in part “the rising possibility that the city could file for bankruptcy or default on an obligation over the next 12 to 24 months.”
(Editor’s note: Italics added for emphasis)
Here’s hoping Detroit can find a way out of their serious financial and political mess.
And that chatter about Chicago becoming the next Detroit doesn’t pan out.
Sources:
“Political insider: Senator says to dissolve Detroit if it can’t fix its problems.” The Detroit News. 29 Nov. 2012. (http://www.detroitnews.com/article/20121129/POLITICS02/211290357/Political-insider?odyssey=mod|newswell|text|FRONTPAGE|s). 29 Nov. 2012.
“Moody’s cuts Detroit debt ratings deeper into junk.” Reuters. 28 Nov. 2012. (http://www.reuters.com/article/2012/11/28/detroit-moodys-downgrade-idUSL1E8MSDCJ20121128). 29 Nov. 2012.
QE3 ‘Officially’ Sets Sail
Once again, the Pollyannas who claimed the U.S. economy was doing so well that more quantitative easing wouldn’t be needed… are wrong.
Which is somewhat amusing since legendary investor Jim Rogers noted earlier this month the Federal Reserve was already carrying out “QE3”- at least unofficially.
Well, it’s official now. From the MarketWatch website around noon:
Fed Launches ‘QE3′
By an 11-to-1 vote, the Federal Reserve’s monetary-policy panel has decided to launch a new program of open-ended bond purchases, saying bank will buy $40 billion in agency mortgage-backed securities each month, starting Friday.
In honor of the perpetual “Glad Gamers” and others who for one reason or another were adamant no more stimulus would be forthcoming, I dedicate the following video, which went viral in my Boom2Bust.com days a couple years back…
“She Wants My … STIMULUS package”
YouTube Video
Yeah, that Russian Paratrooper rap sounds real good after watching that stimulus video, doesn’t it?
Is Illinois Greece?
If California is Greece, then Illinois is Spain.
-Panelist at June’s “State of the Nonprofit” conference in Chicago (hat tip The Greater Good blog)
The proverbial brick wall keeps getting closer in Illinois. And even though the state’s financial woes- and what needs to be done to fix them- are painfully obvious, the politicians carry on as if it were business as usual.
The problem is, it’s not. And years of fiscal mismanagement are really starting to bite the “Land of Lincoln” in its rear-end.
Take the state’s credit ratings, for example. From Karen Pierog on the Chicago Tribune website yesterday:
Illinois lawmakers’ inability to reform a woefully underfunded public retirement system at a special session last Friday is likely to weigh on the state’s already relatively low credit ratings.
“We are in the process of reviewing the total credit picture, including the budget, pensions, etc,” Standard & Poor’s Ratings Services analyst Robin Prunty said on Tuesday.
“But certainly, the lack of action on pensions is not a credit positive.”
Pierog, who is affiliated with Reuters, added:
S&P, which rates Illinois A-plus with a negative outlook, put the state on notice in March that it could face a multiple-notch general obligation rating downgrade if there is no “credible progress” in taming its huge $83 billion unfunded pension liability and on tackling a structural budget imbalance.
Another credit rating agency, Moody’s Investors Service, downgraded the State of Illinois to A2 from A1 earlier this year.
According to the California State Treasurer’s website this morning, California’s S&P and Moody’s credit ratings are A- (lower than Illinois) and A1 (higher than Illinois), respectively.
But it’s not just credit ratings where years of poor policymaking are coming back to haunt the state. Pierog noted:
Investors are demanding higher yields to invest in Illinois’ bonds as its so-called credit spread over Municipal Market Data’s benchmark triple-A scale for 10-year debt is the widest at 157 basis points among major U.S. city and state debt issuers tracked by MMD, a unit of Thomson Reuters. California’s spread by comparison is less than half of Illinois’ at 66 basis points.
Perhaps that panelist got it wrong. California could be Spain, and Illinois, Greece.
Source:
Pierog, Karen. “Illinois’ inaction on pensions in rating agency crosshairs.” Chicago Tribune. 21 Aug. 2012. (http://www.chicagotribune.com/news/sns-rt-us-illinois-pension-ratingbre87k0uj-20120821,0,6367324.story). 22 Aug. 2012.
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