Saturday, March 27, 2010

US Debt Worth Less Than Toilet Paper

Eurozone agrees on bailout plan for Greece
BRUSSELS (AP) -- Heavily indebted Greece won a major pledge of financial support from the other countries that use the euro and the International Monetary Fund in a deal that aims to halt the government debt crisis undermining Europe's currency union.

The joint eurozone and IMF bailout program comes with strict conditions, making no money available to Greece right now. It could be tapped only if Greece -- or other financially troubled eurozone members -- cannot raise funds from financial markets and would require the unanimous agreement of the 16 eurozone countries to release the loan funds.

The agreement at a Thursday meeting of European Union leaders was a clear victory for German Chancellor Angela Merkel, who demanded that a rescue for Greece only come when the country runs out of other options. She also insisted that any backstop must include the IMF.

It was also a comedown for the French and the European Central Bank, which had opposed turning to the IMF out of fear it would damage the euro's prestige and show that Europe was unable to solve its own financial woes. The eurozone has never turned to the IMF.

ECB President Jean-Claude Trichet said he had wanted a program that emphasized governments' "maximum responsibility" to limit debt, praising the program as a "workable solution" that would "normally not need to be activated."

He said Greece should now "progressively regain the confidence of the market" and be able to borrow at lower interest rates. Trichet said that he assumes markets will end recent volatility. "That's my working assumption," he said.

Greece To Benefit As ECB Extends Easier Collateral Rules Into 2011
(RTTNews) - European Central Bank President Jean-Claude Trichet said Thursday emergency collateral rules will be extended beyond this year, helping to relieve the mounting pressure on debt-ridden Greece.

The ECB will keep the minimum credit threshold in its liquidity-providing operations at investment grade level (BBB-) beyond the end of 2010.

"Until today, the minimum was set to revert back to A- at the start of next year as conditions were judged to be improving. This would have been particularly damaging to Greek banks due to their heavy reliance on ECB funding and because Greek Government debt (currently rated BBB+) would no longer be eligible as collateral under the new requirements," said Jennifer McKeown, Senior European Economist at Capital Economics.

"Today's announcement is an encouraging sign that the ECB will proceed gradually in removing its unconventional support for the banking sector," McKeown added.

The move represents a divergence from the ECB's current exit strategy, as the temporary widening of eligibility criteria was supposed to be phased out this year.

So, German Chancellor Angela Merkel blinks and ECB President Jean-Claude Trichet extends ECB quantitative easing all in an effort to put out the flames of fear engulfing Greek Debt. Toss in a week of dreadful US Treasury Bond auctions and the Dollar appears poised for a good ass whupping. [see chart above]

Treasury 10-Year Yield Rises Most in 2010 After Note Auctions
By Cordell Eddings

March 27 (Bloomberg) -- Treasuries fell, pushing 10-year note yields up the most since December, as lower-than-average demand at $118 billion in note auctions raised concern that investor interest is waning as the deficit climbs to a record.

U.S. interest-rate swap spreads plunged to the lowest levels in more than two decades as investor focus shifted from the plight of financial institutions to the ability of nations to finance rising fiscal deficits. Bill Gross, manager of the world’s biggest bond fund, said the almost three-decade bond rally may be ending. Two-year notes dropped for a fourth week in the longest stretch of decreases since August before next week’s March payrolls report.

“Supply and the realization that there is more to come is starting to weigh on Treasuries,” said Larry Milstein, managing director of government and agency debt trading in New York at R.W. Pressprich & Co., a fixed-income broker and dealer for institutional investors. “Swap spreads turning negative forced investors to cover shorts and dump Treasuries going into the auction, exacerbating the weakness.” A short is a bet that a security will decrease.

The 10-year note’s yield rose 15 basis points, or 0.15 percentage point, to 3.85 percent, according to BGCantor Market Data. The price of the 3.625 percent note due in February 2020 decreased 1 7/32, or $12.19 per $1,000 face amount, to 98 5/32.

The increase in the yield was the biggest since an advance of 27 basis points for the week that ended Dec. 25. The yield touched 3.92 percent on March 25, the highest level since June 11. The two-year note’s yield rose 5 basis points to 1.04 percent and reached 1.12 percent this week, the highest level since Jan. 4.

The Day Of Reckoning is fast approaching. The anti-Euro bid in the Dollar has peaked. Now fundamentals will begin to sap the life out this corpse as the reality that the USA has a debt problem exponentially worse than Greece. Within weeks, the "great Bernanke exit plan" will be exposed for the dead end that it is and always has been. There is no exit plan, only continued money printing in a pointless effort to prop up dead banks and try and deceive the public further that a "recovery is just up ahead". Confidence in the currency cracks leading up to the November elections...

Bernanke: Record-low rates needed to aid economy
WASHINGTON (AP) -- Record-low interest rates are still needed to rev up the economic recovery, Federal Reserve Chairman Ben Bernanke told Congress on Thursday.

Bernanke, in testimony to the House Financial Services Committee, essentially repeated the rationale behind the Fed's decision last week to hold rates near zero. He cited still-fragile economic conditions, and noted that inflation is low, which gives the Fed leeway to keep rates at rock-bottom levels.

The Fed chief didn't offer new clues about when the central bank might reverse course and start tightening credit. He said that would need to happen when the "expansion matures." Some investors and analysts think higher rates could come in the fall.

Deciding when to tighten credit is the biggest challenge facing Bernanke, whose second term started in February. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation and sow the seeds for new speculative bubbles in stocks or commodities or other assets.

One of the reasons the Fed is holding rates so low is because of stubbornly high unemployment, Bernanke said. It's now at 9.7 percent, a potential restraining force on the economy's rebound.

Bernanke said the Fed "will not be able to wait until things are completely back to normal" before it starts to boost rates. But the Fed wants to make sure that the economy is on a sustainable growth path and that jobs are being created, he said.

The Fed also wants to see more lending by banks before it starts tightening credit, Bernanke said.

"The key point ... is that the Fed is no closer to implementing its exit strategy," said Paul Dales, an economist at Capital Economics. Bernanke's remarks suggest "he is in no hurry" to raise rates, Dales said.

CBS Poll: 62% of the Country Want the Republicans to Fight the Healthcare Bill
Too bad democracy is dead:

"A CBS News poll released Wednesday finds that nearly two in three Americans want Republicans in Congress to continue to challenge parts of the health care reform bill" Here's the news link: Americans to Congress: Get rid of this bill

Please note that 41% of those who want the fight to continue are Democrats. Anyone who thinks that the CBS poll is biased toward the right is nothing more than a blind Obama follower. Please note that CBS is controlled by Sumner Redstone, a big Democratic supporter.

"This is what change looks like," Obama said later in televised remarks that stirred memories of his 2008 campaign promise of "change we can believe in."

"We proved that this government -- a government of the people and by the people -- still works for the people."

Hmmmm...I guess not Mr President...the "people have spoken"

Bond Market Verdict: Treasuries Riskier Than Toilet Paper!
by Mike Larson
I have a lot of respect for Warren Buffett. As Nilus has noted before, he’s one of the world’s best long-term investors. He has a knack for buying low and selling high. And his Berkshire Hathaway holding company has been a great multi-year performer for investors.

It has amassed stakes in everything from the Geico insurance firm to the manufactured home company Clayton Homes to the Dairy Queen restaurant chain.

But Buffett can’t levy taxes on Americans. He can’t wage war in far corners of the world. He isn’t responsible for your Social Security checks. He doesn’t operate the National Park System or make sure the drugs we take are safe. That’s the job of the federal government.

And yet, a remarkable thing occurred recently in the bond market …

Berkshire’s cost of borrowing fell BELOW Uncle Sam’s! Ditto for Procter & Gamble, the company behind brands like Tide detergent and Charmin toilet paper … Lowe’s, the home improvement retailer … and Johnson & Johnson, the firm that makes Band-Aids, medical devices, and baby shampoo, according to Bloomberg.

Bottom line: Bond investors are now viewing Treasuries as riskier than a vast array of corporate debt. They’d rather own bonds backed by sales of toilet paper than the full faith and credit of the United States. If that’s not a sign of how low we’ve sunk, I don’t know what is!

U.S. Is Riskier Than Euro Zone; So Says CDS Market
NEW YORK -- Something troubling has occurred in the market for default protection on the debt of the world's biggest borrower.

As the folks at Standard Poor's Valuation and Risk Strategies division noted in a research note Monday, the difference between the spread on U.S. sovereign credit default swaps and an equivalent benchmark for AAA-rated euro-zone sovereigns flipped into positive territory March 12. As U.S. CDS spreads expanded to their widest levels in two years, that cross-region gap blew out to 5.7 basis points last Friday before narrowing to 4.7 Tuesday.

Wider CDS spreads indicate that sellers of insurance against a particular issuer's default are charging more for it. In effect, the positive U.S.-versus-euro zone spread means investors think the risk of a U.S. default--however remote--is greater than that on euro-denominated sovereign debt.

So much for the view that low inflation and loose monetary policy make for a rosier debt outlook for Treasurys than for the debt of crisis-hit euro-zone sovereigns.

"We've seen CDS on U.S. Treasurys break with euro CDS before, but never to the degree we have here," said Michael Thompson, head of research for S&P's

Valuation and Risk Strategies group. "If we sit on this precipice for a time, I think a lot of market participants would see this as a bit of a shot across the bow, a bit of a wakeup" for anyone who's complacent about U.S. debt.

Wouldn't it also challenge U.S. Treasurys' status as the so-called "risk free" benchmark? S&P didn't go there. But the report did say the trend "reflects increasing market anxiety surrounding the U.S.'s credit quality." In other words, a fiscal deficit worth 10% of gross domestic product--in the absence of a clear plan to reduce it -- matters.

Unemployment benefits set to expire April 5
By Ben Pershing
Friday, March 26, 2010
Unemployment benefits are set to expire for at least a week on April 5, as Congress plans to break for two weeks without agreeing on an extension of the program.

Last week, the House approved a $9 billion measure containing one-month extensions of unemployment insurance, COBRA health benefits and federal flood insurance. Senate Democrats hoped to have their chamber approve the same bill Thursday. But Republicans refused, complaining that the bill is not offset with spending cuts elsewhere.

They said the same thing in early March, when Sen. Jim Bunning (R-Ky.) brought the chamber to a halt for five days over another extension that wasn't offset.

Senate Democrats and Republicans spent hours negotiating among themselves and with each other to find a compromise. Senate Majority Leader Harry M. Reid (D-Nev.) and Senate Minority Leader Mitch McConnell (R-Ky.) discussed the possibility of a one- or two-week extension of benefits that would be fully paid for, but Speaker Nancy Pelosi (D-Calif.) was opposed to the idea, according to two Senate aides.

As a result, the House and Senate will leave town without further action. COBRA and flood insurance will expire March 30, and unemployment benefits will expire April 5. The Senate will return to session April 12.

Funny how they found all kinds of time to shove a health care bill up the country's collective ass that half the country can't afford. Repeat after me: "VOTE THE BUMS OUT IN NOVEMBER"

OK, the REAL news for all of us this week was the CFTC hearings in Washington Thursday regarding position limits in the futures markets. I congratulate anyone that sat through the entire five hour hearing. It was indeed fascinating AND revealing. The bad guys have been fingered and they know it. The question now is will the CFTC do anything about it.

Harvey Organ, whose Harvey Organ's - The Daily Gold I reference often, has a great collection of prose in his Saturday March 27th offering that I believe everyone should take the time to peruse in it's entirety. Harvey was a panel member at the hearings and his insight into the proceedings is priceless.

Make a particular note of the GATA revelation of a whistle blower purporting to have revealed the truth about Precious Metal manipulations by JP Morgan to the CFTC, being refused a seat at the table for these hearings, and his subsequent decision to go public with his knowledge after receiving the cold shoulder from the regulators. Can you say deja vu all over again Bernie Madoff? This is fascinating stuff and you can [and I urge you to] read it all here:

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