Michael Pento: The Coming Bond Bubble Collapse

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21

snydeman-

Anyway, I knew all about the rates, but didn't realize how much was at play in the background, and what's at play seems to be some big players moving towards the exits....
I didn't come up with the bit about Bunds being a bet on a EZ implosion - that was Martin Armstrong.  I read it, and said, "wow, that's a really clever move."  Money moves in advance of the trouble.  He has said many times that his computer can see wars coming, because the connected insiders always move their money prior to the start of the affair, and the computer watches the money flows.

What "big money" will do when the EU has its real crisis is absolutely key.  It won't just sit there and let itself get "extinguished", it will try to move somewhere it sees as relatively safer, and the price of that thing will explode higher.  This is Martin Armstrong again saying this, but I totally agree with it.

If you lived in Spain, and you knew for certain (from your friend, the FinMin) that Spain was going to leave the EZ, you'd move every penny you have "somewhere else" - where it wouldn't get turned into Pesetas.  You'd park it there for a time, and then move it back once all the fuss was done.  This would allow you to buy up real things back in Spain at half price, maybe better.  And Martin Armstrong's computer can see this happening - from what he says anyway.

This flee-then-return recipe was used when Argentina had its currency trouble; the rich people sucked money out of the country, it snapped the peg, and then when it calmed down they came back and bought up all their favorite things for pennies on the dollar.  This is also why all the gold fled the US immediately before FDR took office in 1933 - rich people who were at least somewhat awake got the message that he'd devalue so they took their gold out of the country, waited for the reprice, and then returned to collect the 40% gain.

This affects us here because the US is seen as safer than the EU, so the prices of our "financial stuff" should pop hard when this event occurs, but once things calm down back in the home country…all that money will flow right back out again…ouch…

 

22

George harrison said it best "all things must pass"
And that includes All systems ( economic, social, political, etc), 

The dialectic of progress is always "good news- bad news"… where the problems of the old paradigms create a shift in thinking …to create new systems

 

http://thenextsystem.org/the-pluralist-commonwealth/

23

Ok, so I've read what the Bank of Japan just did, but my basic reaction was that it has done "nothing much." Dave, Chris, anyone… am I missing a devil in the details?

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I know that the BoJ has always been shooting wildly in the dark, based on my stubborn insistence at looking at things like trade volumes, GDP,  and price deflation, but they've taken it to a whole new level.

The high priests of money are out of ideas so they are wildly doubling down, shaking up the magic incantations in the hopes that this time there will be some sort of appropriate response from the economic and market gods.

In my view, there cannot be any clearer sign that the BoJ is really, truly, and totally out of ideas than last night’s “decision.”

Bank of Japan Fires in Two Directions at Once

Sept 21, 2016

It is a sign that two views are clashing within an organization when it announces plans to do two contradictory things at once.

That is what happened at the Bank of Japan on Wednesday with a policy that amounted to a retreat on unpopular monetary easing, paired with language suggesting no retreat was happening.

The core of the BOJ’s new policy is a pledge to buy as many or as few Japanese government bonds as necessary to ensure that the yield on 10-year bonds is zero. Simultaneously, the central bank said it would maintain its existing policy of increasing its government-bond holdings by about ¥80 trillion ($785 billion) a year and said it was “strengthening monetary easing.”

The two goals are incompatible. Imagine a banana trader who assures growers that he will buy as many or as few bananas as necessary to keep the market price at 50 cents a pound, and simultaneously announces plans to buy 80 tons of bananas a year from them. One day, high demand drives the price up to $1 a pound, before the trader hits the 80 ton target. Then what?

If the BOJ truly tries to carry out both its new and existing policy, it will eventually run into a similar dilemma. The 10-year JGBs are the benchmark of a bond market worth trillions of dollars. If there was a sudden crash in demand, the BOJ might have to buy more than ¥80 trillion a year to keep yields at zero. Conversely, demand for 10-year JGBs among risk-averse Japanese investors could be so strong that the BOJ wouldn’t have to buy any bonds.

Gov. Haruhiko Kuroda explained the contradiction essentially by disavowing the ¥80 trillion target. The actual number could “increase or decrease,” Mr. Kuroda told reporters, handing himself enough wiggle room for a dance party.

In banana terms, he said that what he really wants is the 50 cent-per-pound price, and everything else is secondary.

 

So...bananas are going to be $0.50 a pound.  That's the new magic incantation.  Left completely unsaid is exactly how this time that's going to do something to help something, somehow.  The press has completely given up on asking about the linkage between policy and outcomes; the transmission mechanism is so embarrassingly vague that it's not brought up in polite circles anymore.

Reading between the lines, the BoJ has no more ideas on how to tame the complex market ecosystem.

Truthfully, they should have admitted defeat many years ago.  So now they are just doing MORE of the same, hoping for different results.

The Forex market has already spoken after deliberating for all of an hour and said "Nahhhhh…this was a whole lot of nothing!"

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Ok, my read on the situation wasn't far off then. I mean, I read the official press releases three times, but felt like in the end I was nowhere new.
 

All eyes on Yellen now, I suppose. I almost want them to raise rates today just so we can get this show kicked into the next Act, or to cue the Fat Lady once and for all (so to speak).

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Amazing to see (Bank of) Japan openly admitting to such as a goal.  Think about it…
From the reference Chris quoted;

The core of the BOJ’s new policy is a pledge to buy as many or as few Japanese government bonds as necessary to ensure that the yield on 10-year bonds is zero.
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Interesting.
http://www.bbc.com/news/business-37426559

 

The headline suggests the policies will bring growth, but the article presents lots of counterpoints to that premise. Is the mainstream media finally catching on?

 

Wait. Are those Goths I see? Just over that hill?

28

No rate hike. I'm shocked. SHOCKED​, I tell you.
 

On the plus side, the comments over at Zerohedge are just downright fun to read right now.

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Correct me if I am wrong, but I believe the following statement to be not true:

The Bank of Japan owns 50% of all Japanese government bonds, JGBs.
I recall more than one source where July/August BOJ JGB holdings is somewhere around 38% of the JGB market. I believe that the BOJ is on-track to achieve the 50% threshold. However, as of now it is just not true. Here is just one source of many.
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Good catch.

 

Here's the break down.

The BoJ owns 64% of the JGB 5 + 2 year market (I just ran the numbers myself)

The BoJ owns 34% of the 10 to 40 year market.  

There are also floating rate and inflation indexed bonds…mush it all together and it comes to around 38% at present.

My sources are here (Boj) and here (MoF).

I think the "50%" comment comes from the idea that the BoJ now owns more JGB bonds than the Japanese banks, which is a form of slow death for the market.  The other main holder, pensions (and other private non-banks) are not really market makers for these bonds…they buy them and hold them.  

And here's the other bit of information that matters if we want to toss around %-ownership-by-the-BoJ numbers. :

Thanks for the fact check!

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Good fact catch, although I think the underlying concern with what this represents for the wider system won't be allayed either way. Still, PP aims to keep facts accurate, so this was due diligence on your part!

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Thanks for clarifying, as it really does help to recap on past graphs and other tidbits. So, by "slow death" are you referring to liquidity in the JGB market drying up? Because, as the Fed does, the BoJ is just sitting on these JGB's and rolling them over upon maturity (i.e. not a "market maker")?
Relevant quote: 

“If the BOJ does not sell stocks, then liquidity will disappear,” Murakami said. “As liquidity falls, the number of shares you can buy starts to decline -- the same thing that’s happening in the JGB market.”
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I think everyone is overlooking the elephant in the room as usual - a symptom of increasing denial that infects both pro and contra economic points of view.
Faced with global systemic failure, faced with utter collapse, even the most honest politician, economist or FOMC member is going to break the law.  And the government/senate is going to condone it.

The idea that "the market will decide" is no longer applicable, we're way past basic economic theory now.  In a world where every wall street banker, every senator, every corporate CEO and every economist has a gun to their heads, market motivations can't be compared to anything that has happened in the past.  These people have no choice but to try and keep the system propped up.

Death of money is NOT an option so the big banks, the big wigs, the big money even the man on the street may NEVER be inclined to sell at all.   The end result is that the big banks (Deutsche for example) are probably broke and will therefore be encouraged to fiddle their books (condoned by the worlds SECs) to hide the truth.  Going forward the FED and its banking cronies will simply tell us what the rates are (which the BOJ are already suggesting), perhaps fabricating the bid/sell prices of bonds as necessary.  All very easy to do in a robotised market reliant on digital money.   That kind of numerical collusion is already happening at the BLS and is widely supported by the media and governments already.

In other words, the economic rule of law is no longer based on supply-and-demand or affected by peak debt, fund-rates or gold prices.  Instead it is paralyzed, made artificial by the fear of desolation.  The result is self-preservation, book-cooking and collusion.  Thus manipulation of the message and the numbers is the new normal that even our most respected leaders are now forced to condone.

The real question that needs to be answered before anyone can predict when/if a collapse will happen is:  Just how long can the over-regulations, market manipulations and collusion keep the broken global economy in tact.  Can losses be hidden forever if the SEC and FOMC agree to hide them or print over them in the shadows for the sake of the greater good.   Clearly it can't go on for ever but analysts need to start looking at the problem differently, not like economists but like SEC detectives.  And after burning their economics textbooks.

It's time to start thinking outside the box and grow a pair.  To recognize the possibility that there won't actually be a wealth transfer, that gold might not save us because no-one will be allowed to capitalize on it even if it's price is allowed to "get out of control".  That the collapse will happen but it could take years of misery first.  That short of some kind of accident (like a flash crash, war or terrorist attack or more likely a middle class rebellion) the facade will hold.

Hope like blind faith, the other side of denial, is just gutless ignorance.

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Death.
There is no tomorrow. There never was. Only in your mind.
There is only now.
Let go. And take back your hope.

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Two great points of view!  I'm going to have to brush up on some despairing French existentialists. I've gotten the impression somewhere ( perhaps wrongly ) that the new book:  " At the Existentialist Cafe "  might  actually be an entertaining read.
I've also happened to notice that big words starting with Ex; Exponential is another one - seem to cause great problems in the world. I humbly suggest that only good could come from banning these words… to begin with. 

In gutless hopeful despair,

A local Manic - Depressive

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That patrons of the "Existentialist Cafe", will move to the "Transcendentalist Garden" where there is peace.

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Chris, instead of watching the "debate" tonight I watched a live SFI lecture by Seth Lloyd from MIT on entropy, thermodynamics and negative specific heat as it applies to gravitational and financial systems. He did a neat lecture back in 2010 on "Financial Black Holes".
http://youtu.be/d0kJEAEx-5Q

With the huge amount of money printing since then, his 2010 lecture seems to be very prescient. Tonight was the first of a series and I'm curious to see his current take on the financial system from this angle.

I've been trying to wrap my head around the perpetual motion mentality of central bankers. This is good stuff and the negative specific heat concept was a big piece of the puzzle that had been missing for me. I was wondering if your thoughts had wandered into this area? Would be great to have your perspective.

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The Information Edge: Creation and Destruction in Life, the Economy, and the Universe
(9/26,9/27)
 
http://youtu.be/5He7bYM7beM
 
http://youtu.be/ffAQJ40APcI