{"id":35880,"date":"2013-02-07T10:10:52","date_gmt":"2013-02-07T15:10:52","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=35880"},"modified":"2013-02-07T09:12:27","modified_gmt":"2013-02-07T14:12:27","slug":"slip-slidin-away","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/02\/07\/slip-slidin-away\/","title":{"rendered":"Slip Slidin’ Away"},"content":{"rendered":"

By Bill Bonner, billbonnersdiary.com<\/a><\/strong><\/p>\n

“US Economy Slips into Reverse,” was the headline in yesterday’s Financial Times<\/em>.<\/p>\n

The economy didn’t move ahead in the last quarter of 2012. Instead, it contracted by an annual rate of -0.1%.<\/p>\n

That didn’t seem to bother anyone. Investors hardly noticed. The Dow slid a little, but not much.<\/p>\n

In the bar car, journalists generally dismissed the whole thing. It
\nwas a kind of optical illusion, they said, caused by the fact that the
\ngunslingers had been a little slow on the draw in the waning months of
\n2012.<\/p>\n

Perhaps on the South Bank of the Potomac they had heard that the
\nworld was going to end on Dec. 12 and decided that further security
\nspending might not pay off. They had no defense against the end of the
\nworld, after all.<\/p>\n

Or maybe, as the press reported, they were just preparing for the
\ncurtain to come down on their freewheeling, free-spending ways. That
\ntoo was on the calendar during the darkening days of last year.<\/p>\n

Maybe morale among the terror fighters fell into a terror of their
\nown… and their generals, with downcast eyes, went around the Pentagon
\nswitching off the lights and turning down the heat.<\/p>\n

We don’t know what happened. But it didn’t seem to matter anyway.
\nEveryone said it was a fluke. The rest of the economy was OK.<\/p>\n

Spinning in the Wrong Direction<\/h3>\n

Nobody seems to care about the increase in U.S. Treasury bond yields either. Since Ben Bernanke<\/span><\/span><\/a><\/strong>
\nannounced his “QE to Eternity” program, bond prices have gone down
\n(and yields have risen). This is the opposite of what was supposed to
\nhappen.<\/p>\n

Everyone seems convinced that the economy is moving forward, even
\nthough it is not. They’re also persuaded that we have the Fed’s “QE to
\nEternity” program to thank, even though the drive shaft — bond yields
\n— is spinning in the wrong direction.<\/p>\n

Bernanke is buying $85 billion worth of agency-backed mortgage bonds and Treasury<\/span><\/span><\/a><\/strong> bonds every month — trying to increase demand and push down yields.<\/p>\n

If successful this will bring down long-term lending rates —
\nespecially important to the housing industry — which will help people
\nborrow with the wild abandon they showed in the 2005-07 spree. Then —
\naccording to the theory, at least — the economy will grow.<\/p>\n

Go figure.<\/p>\n

Collision Course<\/h3>\n

What we’re trying to figure is where this clunky old machine ends up.<\/p>\n

We’ve just seen how spending slippage at the Pentagon can put U.S. GDP<\/span><\/span><\/a><\/strong> into reverse. Reports suggested that top brass wasted $40 billion less than planned in the quarter.<\/p>\n

But $40 billion is only a tiny fraction of the feds’ $1 trillion
\ndeficit. What would happen if they cut out the entire $1 trillion in
\ndeficit spending to bring the budget in balance?<\/p>\n

Theoretically, GDP would race backward 25 times faster… surely crashing into something.<\/p>\n

No one seems worried about it. Which is probably because they see ol’ Casey Jones Bernanke at the controls.<\/p>\n

Never mind that there doesn’t seem to be a direct link between
\nBernanke’s gearbox and what actually happens to the wheels below. He
\nputs bonds into high gear — buying $85 billion a month… roughly the
\nsame amount as the U.S. government offers for sale.<\/p>\n

With that kind of buying power, you’d think the bond market would
\nget so hot you’d need to put your bid in an asbestos envelope. But no.
\nInstead, it cooled down. The yield on the 10-year T-note broke above 2%
\nyesterday.<\/p>\n

What do we make of it? Don’t know yet. But at some point, observers
\nare going to notice that the train is going in the wrong direction and
\nthat the conductor should have his license revoked.<\/p>\n

All Pain, No Gain?<\/h3>\n

Michael Hasenstab is arguably the most successful bond investor of
\nthe last 10 years. He runs the portfolio of Templeton’s $67 billion
\nGlobal Bond Fund.<\/p>\n

Of U.S. debt, he asks, is that really a “safe asset”?<\/p>\n

It’s not paying you anything and you have the risk of principal losses when rates rise.<\/em><\/p>\n

There’s the potential for pain. Bu where’s the gain?<\/p>\n

And the risk is huge. Bonds are near the top of a mammoth 33-year
\nbull market. Investors buy them for safety. But what safety is there?
\nThe Fed is buying, trying to boost them up. And still they go down.<\/p>\n

And so we have to wonder: Has QE reached its limit? If the Fed
\nannounces another “QE to Eternity Plus,” will bond prices go up in
\nanticipation of more Fed buying? Or will they go down in anticipation
\nof more risk?<\/p>\n

We don’t know. We’d like to see the Fed do it just to find out what would happen.<\/p>\n

But this is a train we don’t want to be aboard when the word gets out.<\/p>\n

Regards,
\nBill<\/p>\n

billbonnersdiary.com<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By Bill Bonner, billbonnersdiary.com “US Economy Slips into Reverse,” was the headline in yesterday’s Financial Times. The economy didn’t move ahead in the last quarter of 2012. Instead, it contracted by an annual rate of -0.1%. That didn’t seem to bother anyone. Investors hardly noticed. The Dow slid a little, but not much. In the … <\/p>\n

Continue reading “Slip Slidin’ Away”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-35880","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/35880","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=35880"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/35880\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=35880"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=35880"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=35880"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}