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US Bonds: “Best House” in a “Bad Neighborhood”?

19 Oct

Best House is None Too Good [courtesy Google Images]

Best House is None Too Good
[courtesy Google Images]

The Associated Press recently wrote in “Stocks swoon, extending losses; Bond prices soar” that,

“U.S. stocks tumbled in midday trading Wednesday as investor fears of a global economic slowdown intensified, setting the Dow Jones industrial average on course for its fourth consecutive loss.  The Dow plunged as much as 369 points in the first 10 minutes of trading, following steep declines in Europe . . . .”

Insofar as EU stock markets are also declining, the US markets may be less likely to recover on their own.  So long as declines are seen in both US and EU markets, those declines may be viewed as systemic and based more on fundamentals than some recent news report about Ebola or a mathematical glitch in the stock indices.

“Traders dumped risky assets [stocks] and parked their money in investments seen as relatively safe, such as U.S. government bonds.”

If the “bow” (stocks) of the economic “ship” is sinking, short-sighted people may rush to the “relative safety” of the stern (government bonds).

However, if the bow (stocks) sinks, the stern (bonds) will follow.

Likewise, if the markets continue to decline, the public may increasingly understand that the “bow” (stocks) is composed of fiat dollars and the “stem” (bonds) is also composed of fiat dollars.  If so, the public may increasingly understand that the fundamental problem is not with stocks or bonds, per se, but with our fiat currency.   If that understanding begins to penetrate the national psyche, there’ll be a rush to avoid paper debt-instruments (like stocks and bonds) denominated in fiat dollars, and store people’s wealth in a tangible medium like gold or silver.

Rushing from stocks, to invest in US bonds is “a function of the U.S. being the best house in a bad neighborhood,” said Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.

But if:  1) the US economy is a “bad neighborhood”; and 2), within that “bad neighborhood,” US bonds are the “best house”—is that relativism sufficient to prove that either the “bad neighborhood” or the “best house” are desirable and safe?

It’s a like living in Chicago in A.D. 1817 when the city burned.  Some houses may have been better than others, but they all burned, just the same.

If your economic “neighborhood” is on fire, it’s not enough to brag that you live in a mansion that’ll be the last to burn. If you want to survive, you’ve got to find a “house” that won’t burn at all.

In today’s economic neighborhood, that’ll be gold or silver.

•  I was pleased to see the Dow fall from above 17,000 to below 16,000.

Not because I’m a gold bug.

Not because I wish bad luck on those who’ve invested in paper-debt-instruments rather than gold.

I know that in the event of an economic collapse, everyone—including me—will be imperiled.

Still, I’m pleased to see the Dow fall because it represents a return towards truth.  In the context of the Dow’s fall, we might catch a glimpse of whatever the Dow is really worth in a free market rather than in the Fed’s manipulated market.

I don’t like our government.  It’s built on lies and eager to destroy our rights while it creates an overt police state able to enforce its lies.

I am so sick of government lies, that any return to truth—no matter how painful—seems like a blessing to me.

If the Dow continues to fall, it will be create danger, even for me.  But I’m willing to risk that danger, if the Dow’s decline exposes government lies and reduces government power.

A falling Dow will diminish public confidence in a government built on lies and abuses of power.  As public confidence falls, the value of the fiat dollar will also fall.

•  Nevertheless, I don’t expect the Federal Reserve will sit by idly as the Dow drops. Given that the Dow has already fallen from over 17,000 to under 16,000, I’ll bet that before the Dow hits the 15,000 level, Janet Yellen will announce that QE3 will not only continue but expand—or even be replaced by a new round of QE4.

The balance of October may be critical.

Will we see a couple more 300 or 400 point drops in the Dow before November 1st?   If we do, I expect Yellen to announce the beginning of QE4.  That could happen any time in the next two weeks.

On the other hand, if the Dow bounces back and the current fall appears to stop around 16,000, I think Yellen will continue to taper off from QE3.

The next two weeks should tell a very important story about the Dow, the markets in general and our economy.

 
11 Comments

Posted by on October 19, 2014 in Economic collapse, US Dollar

 

Tags: , , , ,

11 responses to “US Bonds: “Best House” in a “Bad Neighborhood”?

  1. Roger

    October 19, 2014 at 11:13 AM

    It looks like the Fed is going to raise interest rates. This would explain why the U.S. Dollar Index (DXY) has been on a steady rise of late. It was at or under 80 for the longest while, suddenly it’s up around 85.

    The DXY is not so much about the strength of the U.S. dollar per se, rather it’s about the strength of the dollar versus other currencies. What the international Money Power, which owns the Fed, likely wants is to maintain the strength of the U.S. dollar compared to every other currency – a situation which has been a main pillar of their global power for 70 years. The easiest way to do this under current circumstances is to raise U.S. interest rates.

    Global markets have a sense of what’s coming (it ain’t rocket science – it’s fairly predictable based on long-standing policies). The response of these markets has been to raise the value of the U.S. dollar in relation to other currencies, as reflected by the recent jump in the DXY.

     
    • Henry

      October 19, 2014 at 12:12 PM

      > “It looks like the Fed is going to raise interest rates.”

      From tapering to tightening, as the current saying goes.

      > “This would explain why the U.S. Dollar Index (DXY) has been on a steady rise of late.”

      It would also explain the recent widespread fall in stock and commodity prices.

      From an article by Bloomberg:

      “Commodities dropped to the lowest level in more than five years after the Federal Reserve raised its outlook for interest rates, bolstering the dollar and reducing the appeal of raw materials as a store of value. The Bloomberg Commodity Index of 22 futures dropped as much as 1.3 percent to 120.46, the lowest level since July 2009…”

      Note that this decline was caused by the Fed merely talking about raising rates. It hasn’t actually done anything yet.

       
      • Toland

        October 20, 2014 at 12:17 AM

        Henry said: “It would also explain the recent widespread fall in stock and commodity prices.”

        Of course. What the Fed is doing at any given time has a HUGE effect on stocks and commodities.

        But don’t expect an objective treatment of the recent adverse policy change by the Fed – toward raising interest rates – in any sales pitch from a CNBC shill dispensing fraudulent “analysis” with an undisclosed conflict of interest.

        Those weasels couldn’t care less that your whole financial future is on the line when you take their selfishly-motivated storytelling at face value.

        In their “free market” morality, if you choose to trust their advice, it’s on you. Meanwhile, they’re only pretending to be your champion, while selling you down the river.

         
      • moon

        October 20, 2014 at 10:38 AM

        LMYIAO…Roger, Henry, Toland, your bovine scatological rhetoric is irrelevant. You bad mouth mainstream propaganda, then you promote it. A bit skitzo, don’t you think?

         
      • Henry

        October 20, 2014 at 2:25 PM

        Yeah, Toland. There’s a saying about not attributing to malice what can be explained by stupidity. But even a plea of stupidity can’t excuse these rascals.

        Anyone in their business can’t help but know about the huge effect the Fed has on stocks and commodities. So if they fail to acknowledge inconvenient Fed policy in their hack “analysis” (which coincidentally leads you to buy exact what they’re secretly selling), it’s because they are deliberately ignoring the “Fed factor”. This borders on fraud, and it’s hurting people who trust them.

        By the way, how’s the troll-b-gone addon working? lol

         
      • Roger

        October 20, 2014 at 9:56 PM

        @Henry

        I hope Toland knows how to install Troll-B-Gone, because the only sure way to avoid feeding the troll is to not read its sadly nonsensical provocations in the first place. Your add-on makes this effortless.

        If we can avoid feeding whatever trolls find their way to this blog, the pattern seems to be that they get starved for attention and turn on Al, who quickly bans them. Problem solved, lulz.

         
  2. skybluehigh

    October 19, 2014 at 11:44 AM

    One would do well to avoid the myth that the Dow is a good measure of markets. The Dow reflects the prices of about twenty five stocks…that’s all. It operates in the realm of fiat currency.

    Buying bonds is another play in the realm of fiat currency.

    Both are plays in fiction and will fail. Don’t get caught in the path of the avalanche.

     
  3. pop de adam

    October 20, 2014 at 12:12 AM

    If you are presumed to be an aged retiree, and I am a mid to late middle aged worker, do you receive the check? Your performance has past, yet my performance is quite important to your performance. I am seeing more people younger than myself incapable of reason and logic, the dilution of intelligence is usually a unidirectional movement to stupid.

    I minimize my exposure to your obligations by specifically avoiding all forms and lies I might be compelled towards. No autographs, signatures.

    Your benefit is framed within what you contributed. There is a nominal increase to compensate for inflation. this manifests as an increase towards these obligations.

    What ever I contribute distorts what is owed and again what is received.

    I think nations are chief among the concepts like original sin. which is only a sin amongst those that would perceive it as such. Grotesque and ugly sex creates a beautiful child and this is abhorrant?

    Despise yourselves.

    Another Idea might be: does a species recognize the moment they have become passé?

    Pop

    .

     
  4. henry

    October 20, 2014 at 2:09 PM

    A storm will eventually hit the neighborhood. The US mansion may look better than the other houses but it is on land that is under sea level. If the Fed raises interest rates significantly, the US won’t be able to make the debt payments. If the Fed take away more of the foundations to build dikes around the house, via QE, we may be able to get by this season but this means that next season we will be further under sea level.

     
  5. T. J.

    October 23, 2014 at 11:50 PM

    The value of the Dollar will continue to increase.
    The cost of goods will continue to decrease (at least it should without any interference from any “outside” source).
    Norman Dodd said it best: We will never see Sound Banking in these united States again.

     

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