Interest Rates Starting to Soar Even in Europe
Too many people are simply confused by the talking heads on TV who honestly cannot articulate anything that is real in the analytic world. So many people commented that demand should collapse for real estate with the first uptick in rates and that we were dead wrong. The average person is not that stupid. Even in Europe, borrowing money for a house has been virtually free. People bought bigger houses because they saved on interest rates. But the giant short position out there has been against (1) the dollar and (2) long-term interest rates.
The bulk of loans on real estate in Europe have been basis LIBOR floating. With the shifting trend, demand to lock in has soared in Europe and rates there as well have jumped 50% on the first uptick. People are scrambling to lock in mortgages everywhere. This is causing long-term rates to become spring-loaded.
We have been warning that rates would rise by mid year. Here we are in June and we are off and running as if this were an Olympic race. Even the talking head are starting to talk to themselves. Once again, they did not see this coming as if they ever do.
Interest Rates – Just Amazing
There is a tremendous degree of hidden order behind everything. Here is a chart we have been publishing for decades. We created a continuous chart of the US government 30 year bonds back to inception. Look at the uptrend line. We reached our target objective here and it was a retest of that technical line. This is the kiss-of-death. The government bonds look like absolute disaster long-term. The good news – the US is the best of the entire group of nations.
How was this created? Here is the chart showing each series of bonds used. In creating this view it enables us to see the broader trend that even refects the confidence within government.
Our computer models suggest that rates will rise into 2017. This uptrend appears to be set in motion thanks to the short-term nature of the national debt.The Fed is so Short they need a High-Chair
QUESTION:
Dear Mr. Armstrong,
What does it suggest when Governments decide to switch from issuing long-term bonds to short-term bonds? Does this occur because of such a collapse in confidence the country/government that even high yields don’t attract investors any longer?
I have read that recently, several South American governments/corporations are having difficulty selling their debt. The Mexican government cut the issuance of long-term bonds (20 and 30 Years) and is instead increasing the amount of short-term bonds. Colombia is doing the same. What is your take on this?
I have read that recently, several South American governments/corporations are having difficulty selling their debt. The Mexican government cut the issuance of long-term bonds (20 and 30 Years) and is instead increasing the amount of short-term bonds. Colombia is doing the same. What is your take on this?
Best Regards
ANSWER: Government first moved short-term because rates were cheaper to say money. Clinton did that and this was to a large extent a major factor in helping to reach a balanced budget with smoke and mirrors. I actually wrote an Op-Ed for the Wall Street Journal on that very issue.
We are preparing a special report because not only do we have this problem, but moving short-term was also done in their mind to stimulate the mortgage industry they thought buying 30 year bonds would create a shortage of long-term so mortgage rates would decline. They failed to understand that they backed themselves into a corner. No they cannot get out. Mortgage rate jumped 1% in 30 days. They are seriously screwed and have now introduced tremendous volatility for the future.
These people are the Demigods of Finance. They screw up absolutely everything perfectly each and every time. The Fed is now advising banks they have to change their models because banks would normally hold Treasuries as the flight to quality but the Fed is warning there may be no such flight because they are so short they cannot even reach the plate on the table. They need a high-chair.
Yes – confidence will collapse in government bonds. This will propel rates higher faster on the long-term. So those refinancing in the States, you better lock-in ASAP. We have been warning rates will rise by mid-2013. They are doing so right on cue.
Why Does History Repeat?
QUESTION: Why does history repeat?
ANSWER: Machiavelli said history repeats because the passions of man never change. But there is something even more. There is the Complexity Masked by Simplicity. The entire universe is structurally designed upon a cyclical model from the molecular level all the way up to the fundamental design of the universe. Everything around us is cyclical designed upon fractal structure, There is tremendous complexity masked by simplicity that disrupts our entire social structure.
How to Distinguish Among Banks & What Will Be Insured
It is starting to become critical regarding what bank to trust. The Bank War of Andrew Jackson just may be reemerging at last with the target being this time the “club” led by the New York Investment Bankers. The dangerous bankers in NYC and elsewhere are those who are proprietary traders. The NY Investments Bankers are the ones who are actively manipulating government to stay out of jail when their manipulations blow up. Then there are the custodian banks that are conservative such as Brown Brothers and Bank of New York. If you have deposits at the high flyers, I would recommend moving to the more conservative custodial banks.
We are preparing a special report on this subject of banks and interest rates. This may be one of the most important reports ever to be written in the field of finance. Why? Because what is at issue are standard old theories that will be responsible for the increase in confusion and total chaos 2015.75-2020.05.
There is a storm brewing on the horizon that this time the Fed is warning the bankers about and is at the core of why Bernanke wants to get out of town fast. Amazingly, it is the Fed now telling the banks they better prepare for the bizarre. The Fed has effectively carved out of the banks what will be bailed out and what will not for their next fiasco. They are restoring Glass-Steagall indirectly. They have dissected the banking business into the core traditional business and the investment banking trading with other people’s money shit ushered in by Goldman Sachs thanks to Rubin.
The traditional core in banking is regarded as loans and deposits. That is the extent of any future bailout. Proprietary trading will not be bailout again. The Fed has stated this point-blank to all bankers. The banks have been informed there will not be another $700 billion blank check petitioned for by Goldman Sachs’ Hank Paulson. There is no doubt that the two worst Treasury Secretaries in history were both from Goldman Sachs – Rubin and Paulson. The first eliminated Glass-Steagall and the second grabbed $700 billion while forcing Bear Sterns and Lehman to collapse in hopes of culling the herd to increase market-share for Goldman Sachs.
There are a lot of rumblings in Washington about Corzine and why he was not indicted or prosecuted for anything. The international heat is building about the “UNTOUCHABLES” and if there is going to be sacrificial lamb, it could be Corzine who is criminally prosecuted for the sins of Wall Street. This is the rumor mill behind the scenes for it appears he was even personally trading. Corzine’s bet on Europe failed because of the collapse in liquidity – no bid. But this is sufficiently separate from the Mortgage CDO crisis there will not be spill-over into Wall Street. Thus, criminally prosecuting Corzine will signal that the politicians are acting at last in their own self-interest meaning they are wising up and starting to separate themselves from Goldman and the club.
The pressure on government is building on a global scale. It is clear that there will be no new bailouts for the bankers and the carve out redefining the “core” nature of traditional banking is interesting is effectively restoring Glass-Steagall. The NY Investment Bankers have blown up the world too many times with their crazy trading that the tide has turned against them. They have been scolded in public, but always embraced behind the curtain. That may be starting to change. This is critical, for it is essential if we are to save the day at all – the “club” has to go. Banking should be compelled back to the conservative custodian model. That was historically the purpose of a bank.
This new realization in Washington that will not be discussed in mainline newspapers yet, has been matched by a change in trend within the Federal Reserve. Instead of asking the bankers what they should do next, the role is starting to switch. The nonsense coming from the Investment Bankers has been nothing but advice based to further their profits. This is why I say that the “club” has been successfully destroying Western Civilization.
We are actually at the dawn of a rising new age in central banking a return to the old days of Biddle and the Bank of the United States. Jackson destroyed the central bank and ushered in the crazy period of Wildcat Banking where countless banks issued money and this led to the complete meltdown of the banking system during the Panic of 1837. Jackson did not taking into consideration that eliminating the central bank only led to a free-for-all among bankers at the state level. States then issued bonds trying to bailout the banks and they went bust defaulting permanently on their debt. Banking bailouts are not new. Politicians have been in bed with the bankers and spawned offspring in the form of numerous panics and bond defaults.
This time, the Fed is giving advice to the bankers that their primitivemodels are likely to fail once more. Namely, the Fed strikingly realizes that the financial system is in trouble. It has shortened the maturity on the national debt with no exit plan. Buying in 30 year bonds has introduced the risk of tremendous volatility. The Fed is starting to listen to outside sources other than bankers.
The greatest risk on the horizon is an exponential rise in rates and this will make the Treasuries FAIL to be the object within a FLIGHT TO QUALITY. Illustrated here is the failure of bonds to offer the traditional FLIGHT TO QUALITY. This is what we see after 2015 and the Fed has been telling banks that they had better re-calibrate their models, which are inadequate to cope with a serious economic decline that we face on the other side of 2015.75.
We are preparing a very important special report on interest rates around the globe. This report will provide the road-map for what lies ahead. This is serious. This is not speculation or personal opinion. This is the trend at work.Stay away from the Investment Bankers/Proprietary Trading Bankers and move any assets to the Custodian Bankers.