Diabolical Debtor's Delusions

By: Rob Kirby & Gale Bullock | Sun, Dec 12, 2004
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US Treasury 10 Year Auctions In 2004 [Amounts in billions]

Date Amt. High Yld. For Bids Ten For % Total Bids B to C
Feb.12/04 16 B 4.06% 7.5 B 23.55 31.85 B 2.00
Mar.11/04 11 B 3.75% 2.4 B 12.1 19.85 B 1.81
May13/04 15 B 4.85% 10.7 B 25.8 41.51 B 2.78
Jun.10/04 10 B 4.83% 3.92 B 13.41 29.24 B 2.93
Aug.12/04 14 B 4.27% 10.77 B 26.43 40.75 B 2.9
Sep.9/04 9B 4.195% 0 0 19.02 B 2.12
Nov.10/04 14 B 4.28% 5.58 B 19.55 28.54 B 2.05

Dear Reader, this is a summary of all US government 10 year auctions so far this year. For your reading enjoyment I have included the date of auction, amount auctioned, high yield accepted, aggregate foreign bids tendered, foreign percentage of total bids tendered, total bids tendered as well as bid to cover ratio [B to C].

Now I would like to draw your attention to the 10 year auction of September 9, 2004. As one can see, Dear Reader, someone apparently forgot to invite the foreigners to the debt bash on this particular date - or they simply forgot to show up? The day these bonds were auctioned, these 10-year bonds were trading in the when issued [wi] market at markedly lower rates than 4.195%. In fact, those very bonds were trading much closer to 4.10% the morning of the auction. It would appear to me, that 4.10 % did not seem very attractive to the kindness of strangers who finance our lifestyles and buy our debt - it appears that they voted with their check books and their money - and stayed home! We wonder if these blokes have been reading too much Catherine Austin Fitts? In fact, in bond circles, this auction was referred to as a complete disaster. I would suggest to anyone who wants to listen that this was a "shot over the bow" by the kind foreigners from Europe and Eastern Asia.

Could this possibly have something to do with a warning that American profligacy [monetary childishness that you can't have a 10 cent ice cream and a nickel Coca Cola, if you only have 8 cents?] will not be tolerated much longer by the kindness of strangers. It appears the foreigners may be on a different streetcar, and it is not in New Orleans or San Francisco. Oh, but there is Desire at the FED to keep the con game going, isn't there!

I would like you to take note that back in March, foreigners bought in excess [no, not the Rock Group] of 21% of the bonds auctioned, while tallying 12% of the total bids - and the bid to cover ratio was an anemic 1.81. What this means, is that the government [of the USA] received 1.81 worth of total bids for every one dollar of bonds they auctioned. Having worked a few years in the bond markets myself, I'm well aware that a bid to cover ratio less than 2 is nightmarish for the entity trying to raise money [Dear Ole Uncle Sam and his compadres]. In the case of the US government, it becomes even more compellingly nightmarish that if a "weak" bid to cover number is coupled with anemic foreign participation in the auction - It has a way of putting the "Fear of God the Almighty" into the bond community as the specter of a failed auction begins to weigh-in on people's minds. In case you don't know, failed auctions are the types of things currency crises are made of - think Latin America or Brazil if you can get your head there.

ShakesBearean Aside: Don't Cry for US Argentina

No, don't cry for US Argentina... you Argentineans will probably be laughing all the way to the bank, when the US Dollar [US$] is again pegged to your 4 to 1 reverse split on the peg to the US Dollar... Welcome to the game of competitive currency devaluation. Everyone can win! You Folks in Buenos Aires, may even then consider purchasing real estate on Wall Street and elsewhere in the States, since your legal tender fiat paper funnie monie may become more valuable than the hegemon US Buck. This is what we Ole Bears call: "Passing the Buck! Where the Buck Stops, nobody knows!" And, Mr. Truman from Independence, Missouri thought the Buck stopped at the Oval Office! I have news for Mr. Truman.

Good Luck in US Real Estate and Financial Markets to you Latinos down there in Buenos Aires. You all might even be able to beat the IMF at their own Fraud, at lending money to countries that can't pay it back. Wonder if the IMF will bail out the USA when it is delegated to Third World Status? Gee Whiz! The reverse split on the US Buck peg destroyed the real estate market in Argentina, since their mortgages were denominated in US Bucks. Gee, ain't paybacks fun!!!

So, instead of Andrew Lloyd Webber and Evita!, I give you Mr. Truman playing the Missouri Waltz in the right hand, and Waltzing Matilda in the left!

As I look at these numbers, I can see that kind foreigners generally buy between 22% and 55% of the bonds the American Treasury usually auctions - with an average somewhere around 40%. What I'm having so much trouble with deciphering is: if kind strangers who usually buy 40% of the bonds you auction fail to show up at the party - would you anticipate a bid to cover ratio in excess of "2"? Personally, if things were really on 'the up and up' - I would have anticipated a bid to cover ratio under these circumstances of something in the neighborhood of 1.5. In fact, I find a bid to cover in excess of "2" for this auction offensive and incredulous! It sticks out like an extremely bloody, swollen sore thumb - and is completely incongruent with the two 'golden goose eggs' denoting lack of foreign participation in the same row! In bond land, Ladies and Gentlemen, a bid to cover ratio of 1.5 with zero foreign participation [when you are the US Government] is a "kissing cousin" to a FAILED AUCTION.

On Friday December 3, 2004, on the CNBC Bubblevision I watched and listened to US Treasury Secretary, Sir John [of Snow job fame] being interviewed by Ron Insana. He was busy chirping away that he is a proponent of a "strong" but flexible dollar. I wonder if he has secretly become a proponent of "strong" but flexible Treasury Auctions? If you happened to see Snow job being interviewed - did he sound believable to you? I know I've met more convincing used car salesmen - none of which I would ever buy a car from.

If the truth be known, this auction, along with other things, like the Bureau of Labor Statistic's reporting on inflation, has served to remind me of the utterances of another infamous used car salesman - none other than Sir Alan of Greenspan. In a speech he gave before the Bundesbank in Germany, on January 13, 2004, he stated,

"There is no simple measure by which to judge the sustainability of either a string of current account deficits or their consequence, a significant buildup in external claims that need to be serviced. In the end, the restraint on the size of tolerable U.S. imbalances in the global arena will likely be the reluctance of foreign country residents to accumulate additional debt and equity claims against U.S. residents."

For the text of Greenspan's speech to the Bundesbank see:

If I were a betting man, Ladies and Gentlemen, I'd say some things, like the difficult measurements he mentions above, are perhaps beginning to get a whole lot simpler for Easy Al. I'd also bet a whole roll of uncirculated 1919-S Standing Liberty Quarters that these auction results were COOKED! What's my question to you? How much do you want to bet they weren't?

The numbers compiled in the table above are all provided compliments of the US Treasury. This trail of burnt breadcrumbs is publicly available at their web site found in these two links:

Give the Messenger a Double Dose of Truth Serum

Amen to GATA and the Internet [as truth serum and the messenger] -- without these fine institutions - stories like this would never be told. We would all be none the wiser. About a year to two years ago, more or less, it took about $1.5 Billion Bucks a day to float the financial markets in the US, including real estate. It currently takes about $2 Billion bucks a day to float our boat and real estate. If foreign investors pull the rug out of $2 Billion a day on investment capital injected to our USA markets, the US Treasury and the 10 year bond [which is what real estate loan interest is based on], [since the 30-year note was assassinated] will have to rise to keep the money spigot flowing. It is only a matter of time before Russia, China, and Japan, the big players in the US Treasury Markets [Federal Reserve Note, aka the US Dollar [US$]] blows up and phones home! This will directly impact real estate in the USA. Predatory loans will go to 20+ per cent, typical home loans will be 10-14%, and we will probably be using terms like hyperinflation, stagflation, recessionary and depressionary monetary policy. The words we could be using for all those non-bubble local micro real estate markets would sound something like "asset price implosion." This surely is Greenspan's Fine Mess. No mess, no matter how small, cannot be accurately measured when it comes to financial and capital markets.

Merry Christmas to all, and to all a good night...

Rob Kirby from Toronto, Canada

Ole Bear, aka Gale Bullock, Columbia, Missouri USA


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