Saturday, November 29, 2014

Why I'm So Confident

You might have noticed that I haven't posted in awhile.  Is there any reason to?  I lived in San Diego for awhile but having been born and raised in the Midwest, I could never really get my arms around the "forever the same" weather.  I could never understand what purpose the television weatherman had.  Nothing really changed - ever.

Totally bored with the lack of seasons, after two years, I returned to the North, where during the summer, it was hot and the winter cold.  In Chicago, where I grew up, there is a saying, "if you don't like the weather, wait 24 hours." 

As the chart above shows, for some 30+ days now, the market has done nothing but go up, almost every day.  We certainly hit new records in number of days above the 5-day moving average.  Many of the days appeared to be down days, but in the final minute or two, a big surge of volume would come in, probably more than the entire day's worth of volume, pushing the market back to the highs.

So, being as useless as a San Diego weatherman, with the market being 100% predictable, there is no need for commentary.  I was somewhat amazed (no not really), that despite the huge selloff in energy stocks, the Dow still managed to close at a record high.  Albeit, based on the final minute of activity.

Everyone who trades the market sees this.  I'm sure that the regulators see it too.  Don't they?  It seems to be a given that since many receive bonuses based on how stocks close out the year, one can expect that this pattern will continue through the end of the year so that the "players" and CEOs can maximize their bonuses.  And then of course, all of the new IRA money comes rolling in throughout January.  By then we will see that the economy is still weak.  Europe and Asia will probably be in depression, so Central Banks will continue printing money and goosing the markets ever higher.  It is the reality that we live in and the governments sit idly by, while the players game the markets.


One thing that caught my interest today is a story about the Ponzi scheme that governments  are pulling off.  Well, if you didn't realize this, then this will be interesting reading.  If you are a market trader and are aware of how things work, well, it's an interesting story none-the-less.

Ponzi: Treasury Issues $1T in New Debt in 8 Weeks—To Pay Old Debt

November 28, 2014 - 2:37 PM

Treasury Secretary Jacob Lew
Treasury Secretary Jacob Lew (AP Photo)

The Daily Treasury Statement that was released Wednesday afternoon as Americans were preparing to celebrate Thanksgiving revealed that the U.S. Treasury has been forced to issue $1,040,965,000,000 in new debt since fiscal 2015 started just eight weeks ago in order to raise the money to pay off Treasury securities that were maturing and to cover new deficit spending by the government.

During those eight weeks, Treasury took in $341,591,000,000 in revenues. That was a record for the period between Oct. 1 and Nov. 25. But that record $341,591,000,000 in revenues was not enough to finance ongoing government spending let alone pay off old debt that matured.
Record Revenue through Nov. 25, 2014

The Treasury also drew down its cash balance by $45.057 billion during the period, starting with $126,568,000,000 in cash and ending with $81,511,000,000.
The only way the Treasury could handle the $942,103,000,000 in old debt that matured during the period plus finance the new deficit spending the government engaged in was to roll over the old debt into new debt and issue enough additional new debt to cover the new deficit spending.
This mode of financing the federal government resembles what the Securities and Exchange Commission calls a Ponzi scheme. “A Ponzi scheme," says the Securities and Exchange Commission, “is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors,” says the Securities and Exchange Commission.
“With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue,” explains the SEC. “Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out.”
In testimony before the Senate Finance Committee in October 2013, Lew explained why he wanted the Congress to agree to increase the federal debt limit—and why the Treasury has no choice but to constantly issue new debt.

“Every week we roll over approximately $100 billion in U.S. bills,” Lew told the committee. “If U.S. bondholders decided that they wanted to be repaid rather than continuing to roll over their investments, we could unexpectedly dissipate our entire cash balance.”
“There is no plan other than raising the debt limit that permits us to meet all of our obligations,” Lew said.
“Let me remind everyone,” Lew said, “principal on the debt is not something we pay out of our cash flow of revenues. Principal on the debt is something that is a function of the markets rolling over.”
The vast amount of debt that the Treasury must roll over in such a short time frame is driven by the fact the Treasury has put most of the debt into short-term “bills” and mid-term “notes”—on which it can pay lower interest rates—rather than into long-term bonds, which demand significantly higher interest rates.
At the end of October, according to the Treasury’s Monthly Statement of the Public Debt, the total debt of the federal government was $17,937,160,000,000.
Of this, $5,080,104,000,000 was what the Treasury calls “intragovernmental” debt, which is money the Treasury has borrowed and spent out of trust funds theoretically set aside for other purposes—such as the Social Security Trust Fund.
The remaining $12,857,056,000,000 was “debt held by the public.” This part of the debt included $517,029,000,000 “nonmarketable” Treasury securities (such as savings bonds) and $12,340,028,000,000 in “marketable” Treasury securities, including bills, notes, bonds and
Treasuring Inflation-Protected Securities.
But only $1,547,073,000,000 of the $12,857,056,000,000 in marketable debt was in long-term Treasury bonds that mature in 30 years. These bonds carried an average interest rate of 4.919 percent as of the end of October, according to the Treasury.
The largest share of the marketable debt--$8,192,466,000,000—was in notes that mature in 2,3,5,7 or 10 years, and which haf an average interest rate of 1.807 percent as of the end of October.
Another $1,412,388,000,000 of the marketable debt was in Treasury bills, which carry “maturities ranging from a few days to 52 weeks,” says the Treasury. These $1.4 trillion in short-term Treasury bills had an average interest rate of 0.056 percent as of the end of October, according to the Treasury.
The continual rolling over of these short-term, low-interest bills helped drive over the $1-trillion mark the new debt the Treasury had to issue in the first eight weeks of this fiscal year.
The Treasury has taken out what amounts to an adjustable-rate mortgage on our ever-growing national debt.
If the Treasury were forced to convert the $1.4 trillion in short-term bills (on which it now pays an average interest rate of 0.056 percent) into 30-year bonds at the average rate it is now paying on such bonds (4.919 percent) the interest on that $1.4 trillion in debt would increase 88-fold.

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