If this (below) were a stock, would you buy it? I would. It's a thirty year uptrend (although only 20 years are shown), and it appears to be on the verge of going parabolic. Granted parabolic blow-offs ALWAYS end badly, however, on a 30 year scale the height of the blowoff top could be very large indeed.
It's actually an inverted chart of long-term (30 year) treasury yields, which if you believe anything and i mean anything on the internet, it's about to collapse imminently due to Ben Bernanke's most recent actions i.e. yet again, everyone expects imminent hyperinflation.
Unfortunately, when it really counts, the Idiocracy never gets it right and whenever there is consensus on anything, prudence dictates to believe and/or do the exact opposite. The masses are looking down the tracks expecting inflation, even as the deflation express is boring down on them from the other direction.
The Global Credit Bubble is Collapsing
As I have said before, what the above chart really shows is that despite his grandest efforts, Ben Bernanke - student of the Great Depression is losing the global battle against deflation. Granted that is not an intuitive conclusion, given that he has monetized $3 trillion in debt with another $1 trillion on the way. Except, the only problem is that the U.S. bond market is $35 trillion, the global market is $82 trillion, and annual issuance of Federal Debt alone is +$1.1 trillion.
If Bonds Collapse, Why Wouldn't Treasuries Collapse Too?
Ah yes, the ultimate recurring question. If something is going to collapse, everyone wants/needs it to be Treasuries. Unfortunately, I don't write this blog based on what I want, I base it on reality. The chart above is exhibit A. Exhibit B is the tsunami of cash that will be heading straight for the Treasury market on the other side of the Minsky Moment which is long overdue - and yes will coincide with the blow-off top in the inverted chart above. Exhibit C is Japan which has twice the magnitude of debt (relative to GDP) as the U.S. and has been monetizing debt off and on for 15+ years, but is still in deflation. Exhibit D is the fact that Treasuries continue to trade inverse to the stock market i.e. they are the ONLY risk off U.S. asset Exhibit E is the fact that in 2008, Treasuries were the only (U.S.) asset that increased in value Exhibit F is probably the most important factoid which is that in extreme deflation, real yields could be heading higher while nominal yields are going lower. Exhibit G is the overwhelming consensus across the Idiocracy that Treasuries must collapse sooner rather than later (and are no doubt betting that way). Ok, this is getting boring...you get the point.
What is Bernanke Really Afraid Of?
I have been a harsh critic of Bernanke's all along, for his role as primary dopium dealer to Wall Street. That said, I do believe that tapping Wall Street's vein is his means, not his ends. This guy really understands deflation and he knows that if he loses this battle (and he will), then we are all fucked company in a way few of us really want to understand.
The scariest chart on the internet is below. What this chart shows plain as day is that despite all of the hand wringing and hyperbole over inflation, the velocity (circulation) of money is collapsing. This means that while there are more dollars in circulation, each one is sitting idle longer and longer and therefore the Fed is pushing on the proverbial string - or as I say, pounding sand up their ass.
Fabricated Rally - Now in Sudden Death Overtime
So for some reason, the vast majority are only considering the consequences if Bernanke succeeds, which they automatically assume he will. That in itself is unfounded belief, since ever-increasing stimulus has been applied in the past decade and all it does is boost risk assets, each time for shorter duration. I updated the chart below to show all of the various monetization programs that have occurred in this cycle - on top of 0% interest rates. It's plain as day on the chart that every time the markets stall out, one or more Central Banks throws more cash at risk assets in a vain attempt to force them higher. It's clearly a lurching uptrend with each leg higher of shorter duration despite ever more stimulus being applied i.e. the marginal impact of each dollar/Euro of stimulus is clearly diminishing. Moreover, this time around, the (HFT) machines substantially priced in the current stimulus, yet volume is just now spiking (lower pane), indicating that hedge funds desperate to make up for lost time, are now embracing the rally. So unlike past market rallies where hedge funds were first and small investors were last (aka. buying at the top). This time, small investors stayed away, machines were first in and hedge funds are showing up late. Lastly, but most importantly, Central Bankers have no control over the most important variable of all - the output gap. As expected, it's a subject that to date is seldom discussed or even acknowledged, but in the fullness of time when the Idiocracy realizes that their ephemeral jobs are more important than their ephemeral gold/silver profits, it will be the leading cause of stained underwear.
INVEST AT YOUR OWN RISK
