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Monday, March 7, 2011

Bond Smokers Please Stand Up

Ben Bernanke is hitting the bong and blowing the smoke in your face to get you high, and he hopes that your stoned ass can’t see through the smoke cloud.
I have seen some craziness in my life.  I grew up in Winter Park Colorado and when I was 7 years old I went to a class to learn how to ski jump.  This class was one of those intro classes to get mountain kids to pay big money to sign up to learn how to get into the large scale Olympic ski jumping where athletes fly through the air for hundreds of feet.  Our jumps were tiny in comparison to the Olympic jumps—the biggest one being a 5 foot drop.  I never even took my first jump.  In front of me, my friend Sean flew down the mountain, jumped off the entry level jump and broke his femur.  You could hear the leg snap and echo in the white nothingness of the mountain backdrop.  It was horrifying.  Dude screamed bloody murder for an hour as the Ski Patrol tried to get him moved into the medical center.  If Ben Bernanke was his doctor, he would have told him something like:
‘You landed on your leg in an awkward way, but it is not broken.  You should take some very ineffective and questionable drugs and we will look at the recovery of your leg in the future.  In the meantime I will pump you full of deadly levels of morphine so you don’t notice the reality of your situation.  At some time in the future I will most likely recommend more of the same ineffective treatment even if your wounds have festered and become overcome by gangrene.’
I think it is fair to say that Ben Wizzie is on drugs—high as a kite these days on his own ‘treatment’ to stimulate the economy.  I’m guessing that Ben Wizzie shoots up QEII before his speeches.  That would explain him repeating himself every single time he talks.
The treasury market has been behaving like a caged animal in the last few weeks.  The range-bound nature of the long bond and the 10-year bond have to make you wonder… When you let the animal gets out of the cage, will the next move be strait up, or will it be strait down? 
The feds now control 70% of the treasury bond market purchases.  Following a chart of the 10 year bond over the last 5 months we should have dipped into a yield of 3.10-3.30 due to the Middle East conflicts, but QE inflation scares have kept yields higher. 

Wait a darn minute...

Did you notice that the Feds are now buying 70% of treasuries to keep rates down (or up if you see the accent from the QE2 MUCH announcement).  With the Feds being the majority buyer in the bond market, I have only one question:

Simple answer:  The Feds. 
There is no end to QE in sight. Lockhart says more QE may be needed  

Get used to it now—bonds are going to stay lower for a while.  Does anyone think they can just quit the drugs cold turkey?  Sure… and let rates shoot to 18% overnight.  That is just silly and it is not going to happen.  
If the Feds are buying 70% of the bonds,
How will this affect inflation?  Ben Wizzie sees no inflation…  If a master wizard does not see something, it is not real.  Excuse me for a minute—I have to sell a kidney to buy gas for my subcompact…
Pass the Joint Ben Wizzie.  Let’s you, me and Whitney Houston go and smoke some Econom-EASE (street name for QEII) in a former model home in the suburbs that is now part of a foreclosure moratorium experiment. 
Feds control 70%?!?  When this ends it is NOT going to end well...  
Picture taken from Pimco Article:  PIMCO ARTICLE ON BOND INCREASES


  1. MinyanVille Buzzed some time back that Fed might be acting as a buyer of last resort. If that is true, it is scary..

  2. If the Fed buys the majority of the bonds, then the Fed absorbs the majority of the losses. The Fed's QE policies are putting the Fed's own balance sheet in danger.