Some very strange events have been quietly happening recently. One set that sort of snuck up on me because I hadn’t looked recently is that Italy’s 10 yr. bond rates have now sunk to all-time lows while Spain is now paying less on 5 yr. notes than the U.S. How is this even possible? Both countries have record unemployment, real estate bubbles that have been popped with loan delinquencies at all-time highs and banking systems teetering. Italy’s 3rd largest bank Monte di Pasci (also the oldest bank in the world) is now reported to be selling new stock…and this is after being bailed out 3 times in 3 years. Who in their right mind would be a buyer of this stock?
As for all time low Italian yields and Spain having a lower 5 year rate than U.S. Treasuries, does this make sense? Again, who in their right mind would be buying their paper? Investing is supposed to be “risk versus reward” adjusted, since Spain cannot simply print Euro’s to make payment as we can print dollars…is there not just a tad bit more default risk here? Has China offloaded $50 billion worth of Treasuries in Dec. (they did) and gone on a buying spree of Spanish and Italian paper? I highly doubt it but this is just one of the crazy rationalizations out there. Another theory is that deflation is setting in the Eurozone and this would make “bonds” more valuable…really? Don’t the bonds have to actually pay the interest to make them more valuable? In a true deflation do you believe that Spain or Italy’s economy would be insulated and able to make their payments?
Please remember that it was only 6-9 months ago that both Spain and Italy were on a “death watch” to see if their rates would pierce 7% to the upside. It was thought that mathematically this magic number of 7% would prove to be a line in the sand that if crossed would bankrupt either or both Spain and Italy. Maybe it was, maybe it wasn’t but as it stands now investors cannot get enough of their paper. Spanish and Italian bonds are now being treated as pristine credits with little to no risk. I am curious though, how would we know if some (most?) of this paper ended up hidden somewhere on the Fed’s balance sheet…or on the balance sheets of large banks with the help of Fed “loans?” Just a thought.
We have also had the curtain pulled back ever so slightly and allowed the thought of “fraud” and “market rigs” to be discussed. If you think back 15 years ago, Enron was a fraud and there were prosecutions galore…or even further back to when the Savings and Loan crisis, many went to jail. No one has gone to jail over the current crisis except a couple of hedge fund managers and “inside traders.” Why are we now hearing about Libor rigs, Gold rigs, Treasury and muni rigs, HFT stock rigs etc.? Why has JP Morgan settled 8 or 9 cases and agreed to nearly $30 billion in fines if they “weren’t guilty” which they have not ever admitted? Why are seeing the “suicide of the week” in succession this year and another one this past week from former ABN AMRO CEO? You remember them right? They defaulted on customers last year and refused to ship out “held” gold…or maybe it wasn’t so “held” after all? Why are GOFO rates now again negative for the 5th time if theoretically this cannot ever happen as gold is money? There is something very strange about “paying interest” to lend out your “money” or getting paid to borrow money don’t you think?
It’s even strange when you look at foreign policy and diplomacy. Does anyone ever remember a foreign consulate (other than Iran in 1980) having a checked bounced? To allegedly pay an insurance premium? Or how about the way “we” are forcing Russia to NOT use dollars? Wouldn’t Russia have liked to do this on their own free will in the past…without any threats, sanctions or arm twisting? Can you ever remember London or Frankfurt setting up exchanges with China where Yuan will settle and dollars nowhere to be seen? Do you ever remember Australia cutting deals with China directly without the use of dollars to settle? Or both Israel and Saudi Arabia making public their anger with the U.S.? It has gotten so bizarre that sitting U.S. President Obama even described Paul Ryan’s effort at an austerity bill…as “a stink burger” last week.
None of this is “normal stuff” and these are not normal times. I think that it is important to step back for a moment and ask you “why.” Why is everything different or changed from what we are used to? Why now? Why, why, why? Because we are living in the throes of the greatest financial and social change in at least 100 years that’s “why.” We are living through the greatest financial tug of war of all time…but “they” don’t want you to know it. Who is “they?” “They” are the combatants. They are both sides, they are both the white hats and the black hats. They are those trying to effect the change and those trying to deflect it. Those supporting change want to pre-position themselves ahead of time at the best prices and largest volumes that they can get away with without the public stampeding both the entrance and exit doors. Those supporting the status quo are “hoping” beyond hope that something will come along to save the day, in the meantime they don’t want a public stampede because this would immediately spell the end to the status quo.
By now I think that you know where I stand, the status quo will be broken whether because the “rigs” break or are broken. Please don’t just take the news as is and not question why. As I mentioned above, there are many “why’s” to ask, probably the most important of all is “why has this been made public and why now?” Of course, a hardy dose of skepticism is always a good policy because much of what we are allowed to see or hear is specifically meant for our (mal) consumption. I highly recommend that a “BS” filter be used at all times!