A Normal Market
In the normal world of capital flows, bonds decline when stocks rise. The talking heads that claim lower interest rates are bullish for stocks once again try to reduce everything to a single cause and effect that applies to a single frame in a long movie. Here we can see that bonds declined when stocks rallied into 1929 as interest rates ROSE not declined!!!!!!! The explanations that the Dow is rising because of Fed Monetization and the bonds are rising because of a mismatch in quality, sorry, but that just does not cut it. It is capital inflows into the dollar both bonds and stocks as the dollar is being thrust into the single world currency thanks to the brain-dead decisions of Europe.
The capital inflows to the US were creating a cash shortage in Europe during the 1920s. The Fed in 1927 tried to lower rates to deflect capital inflows back to Europe. This led to hindsight blame being hurled at the Fed claiming the lowering of rates created the Bubble. FALSE!!!! The attempted manipulation of the capital flowsCONFIRMED there was a problem in Europe, which eventually manifested in the wholesale defaults in 1931 where even Britain was forced into a moratorium on debt payments.
The capital flows were pouring into the USA for World War I and then invested in the USA helping to create the Bubble in 1929 precisely what we saw in Japan for 1989. At Princeton Economics, we invented capital flow analysis. Simply put – follow the money!
The whole idea of raising and lowering interest rates is again domestic myopic attempts to manipulate the markets. It never works. It is more than a single one dimensional relationship. It also includes the currency. If the currency is rising with stocks, you get international capital inflows for it will be profitable for the foreign investors. If the stocks are rising and the currency is falling, that is purely a domestic movement absent international capital inflows as the stocks will rise in proportion to the fall in the currency. We just saw this in the Nikkei in Japan – yen down stocks up.
Gold is currently falling in dollars demonstrating (1) there is no pent up inflation and (2) it is capital fleeing into the dollar (bonds & stocks). BEFORE you will see a bull market resume in gold, sorry – you have to wait for the currency to catch up. If you are brainwashed and constantly presume the dollar will collapse any moment because the Fed increased the money supply, I suggest you are married to the mental conditioning you have been subjected to, have a closed mind, and will lose your shirt insisting you are right when the markets are proving you wrong. Gold declined in a basket of currencies, which is why it fell into 1999. This is about surviving – not punishing the world for its sins. Don’t worry. A rising dollar will cause far more damage than rising gold. Gold is a ting, tiny, fraction of the world economy. The capital flows are in trillions of dollars. Even 500,000 contracts at $1500 would be $75 billion. It is way too small of a market to harbor all the refugee cash in the world. That is bond and stocks – the only markets capable of absorbing trillions of dollars.
Primary Dealers – the Truth About Their Iron Grip
QUESTION:
Martin,
On Page A11 of the IBD today (5/29) a statement was made that seems to fit your claims. It is something that having been in the business for 24 years I was unaware of. The entire article is actually quite interesting.
Please clarify the following, made in the 4th paragraph;
…..BNP Paribas in New York, one of 21 Primary dealers that are obligated to bid at U.S. Government debt offerings.
Is this factual???
Are they “obligated”?
Will they be “obligated” when government debt is in free-fall?
You have become my primary source for applying history in today’s world and common sense thinking globally.
I often try to tell my 14 yr old son…if you listen- you can take advantage of the ACCUMULATED wisdom of your grandparents knowledge passed onto me, and my knowledge passed onto you, to learn life lessons You have to be able to put your ego aside and learn…you have 70-100 years of life’s experience to take advantage of. Not many 14 year old boys are capable of grasping that, and if you can, you are way ahead of the game.
I feel this way about the information you are passing onto us….it is decades of accumulated knowledge, experience and wisdom that no single person could ever duplicate on their own…for this I thank you!!!
ANSWER: True. This is why I say the banks are able to threaten the government if they are not bailed out, the government cannot sell its debt. That is NOT saying Paribas does that. It is the big US Investment banks. The Treasury has Primary Dealers. They mustbuy the debt and then they resell it. This is how Salomon Brothers manipulated the Treasury Auctions. ONLY a Primary Dealer bids. You give your bid to them and they buy from the Treasury. This is why I have also been blamed advising that China should buy directly and indeed they informed the US they would no longer go to a Primary Dealer where the game is rigged.
This is why there will be NO HYPERINFLATION! The bankers dictate policy. You raise taxes and defend the value of bonds or we exit the market and the government is dead. It would be like all the branches of Starbucks suddenly refused to sell coffee. What would the company do? How could it survive? That is the real power of New York. It is why they are the UNTOUCHABLES. It is why no court in NY will allow you to sue them no matter what they do. So to those that think the government will print to meet obligation rather than find excuses not to do so, wake up to the real world of finance. These are the people who are in control because the government is broke without them. This is why they accused me of instigating China to refuse to deal with them. I do not care. Nobody should go through a Primary Dealer. That will end their iron-grip over fiscal policy and the new hunt for capital and taxes.
The NY Federal Reserve states:
“Primary dealers serve as trading counterparties of the New York Fed in its implementation of monetary policy. This role includes the obligations to: (i) participate consistently in open market operations to carry out U.S. monetary policy pursuant to the direction of the Federal Open Market Committee (FOMC); and (ii) provide the New York Fed’s trading desk with market information and analysis helpful in the formulation and implementation of monetary policy. Primary dealers are also required to participate in all auctions of U.S. government debt and to make reasonable markets for the New York Fed when it transacts on behalf of its foreign official account-holders.”