Happy Thanksgiving FROM NOTES : WE ARE GRATEFUL FOR OUR READERS AND THEIR THOUGHTS

The markets were riddled with all sorts of political news today as North Korea felt neglected and found a way to move center stage. The North Koreans like to have the spotlight shine on them when they need something from the world. I figure they must need food and heating oil for the winter so they upped the tension on the PENINSULA by lobbing some artillery shells into a South Korean military exercise. It is sad that SOUTH KOREANS had to die while Pyonyang played their typical games. A boycott of the North cannot work as the corrupt dictatorship just raises the temperature on hostilities until the world provides them with what they want and need. It is time to start bringing the U.S. troops home. Let the Chinese and Koreas resolve the problems that result from the arrested development of the North Koreans. Let the South Koreans be under the U.S. NUCLEAR UMBRELLA and start cutting back on U.S. global overreach. Oh by the way, don’t forget the bread and the heating oil so the North can get on with its goal of sucking the life out of its “citizens.”

As usual, we had more news from Europe and it is hard to believe that it has been exactly a year since we started writing about the sovereign debt crisis in Europe. The PIIGS have muddled on for a year and nothing has been resolved. It is interesting that it began with CHINA walking away from GREEK DEBT ISSUES and we are coming back full circle with the Chinese promising Portugal that it will buy its bonds, yet the yield continues to rise. I warned that the Irish government would probably fall and its impact would actually be negligible. I still believe that is and will be the case. It will take real leadership to guide the Irish nation through this crisis. The present Cowan government is basically going to abdicate as it falls in a no confidence vote. The damge to European DEBT MARKETS continues on regardless of what the EUROCRATS and the media lapdogs report. The European leaders are deaf to the cries of citizens of its separate nations and the markets are left to wonder what the ultimate price will be.

Things to be aware of from the release of the Nov. 2-3 FOMC minutes:

1. “Activity in the housing market remained exceptional weak;

2. recent indicators of foreign economic activity suggested that growth abroad had slowed appreciably after mid-year…”

3. “The spread between the staffs estimates of the expected real return on equities over the next 10 years and anestimate of the expected real return on a 10-year treasury note–a rough measure of the equity risk premium–narrowed a bit but remains at an elevated level.”

4. “Most participants judged that a program of purchasing additional longer term securities would put downward pressure on longer-term interest rates and boost asset prices.”

The bottom line is that the FED wants to do everything it can to put into play Bernanke’s PORTFOLIO BALANCE CHANNEL. The market participants most peeved about the DOLLAR rally during the last five days is the FED. Rev up the TREASURY PURCHASES AND BID ACCORDINGLY. THE FED IS ON A MISSION. LET’S SEE WHERE IT TAKES US.

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11 Responses to “Happy Thanksgiving FROM NOTES : WE ARE GRATEFUL FOR OUR READERS AND THEIR THOUGHTS”

  1. Arthur Says:

    So, if the impact of Irish government fall is negligible. What is really relevant to the markets in Europe?

  2. Arthur Says:

    Yra, do you still believe there is not “bond bubble”? Speaking at the CFA Institute’s European Investment Conference in Copenhagen, James Montier, a member of GMO’s asset allocation team, warned of US government bond bubble.

  3. yra Says:

    Arthur–I just can’t see the bubble when the highs of dec.2008 bond and note futures have held—-are the bonds a good value-absolutely not but lack of value doth not make a bubble –in fact as points 3 and 4 in the minutes show the FED is doing its utmost to correct the relationship in the equity/debt ratio—but a bubble i just don’t see it,but overvalued for my thoughts they are.As for Europe the answer is Spanish or Italian for a rapid rise in spanish debt would create a disasterous negative feedback loop

  4. Arthur Says:

    Understood, makes sense. Thank you so much.

  5. Paul Says:

    Yra,

    How big is the Portugese sovereign bond market? Why the Chinese wouldn’t back it up in mass by, say, buying everything north of 5% in yield?

  6. yra Says:

    Good question Paul—the market is very small .The chinese seem to talk a great deal but don’t back it up—If they bought Portugese debt it seems as if it has had no effect.Last year at this time they talked and then walked on the Greek 25 billion bond offering—-sending the PIIGS debt into a downward spiral—I guess upon further review there is not yet value in them thar debt instruments

  7. Arthur Says:

    I believe that Chinese state entities generally have been conservative about investing in foreign financial markets and the Chinese government faces domestic political criticism over losses incurred by these entities during the global financial crisis.

  8. Ron Says:

    Yra,

    My brain is sometimes to small to handle the simplest questions, a few questions for you, forgive if they are very basic…

    Why on earth did the Irish government guarantee the senior bondholders 100 cents on the dollar on senior debt of these banks in Sept 2008?

    Did these banks have some sort of implicit guarantee like Fannie? If not, why on earth would the Irish government take on to guarantee such staggering debt?? (the Equivalent for the U.S. would be $3 Trillion Ive read)

    If the Irish had just let these banks fail and just guaranteed deposits, then the Irish govt would not be on the hook at all, and Ireland could still borrow as a sovereign no problem right? I mean, the government wouldnt be the defaulter, so the markets couldnt blame them like Argentina?

    Legally, how can the government really be on the hook anyway. I guess now the bondholders cant say anything because the Irish govt DID impose austerity for the last two years and its CLEAR Ireland cant pay, so what do the bondholders expect?

    Question 2: If the bonds are defaulted on, does the banking system really collapse? What is the problem with allowing bondholders to lose money? Isnt that capitalism? Why are all these governments bankrupting themselves to pay these debts? These werent government debts implicitly, except MAYBE Fannie Mae.

  9. yra Says:

    Ron—good point and right on target.The Irish elite seems to have had a desire to show themselves more beholden to the European State and wanting to appear to be more noble then needed–also so much of that debt was held by European banks and they wanted to let everyone know that they would indeed make good to their “brethren” at the expense of the state and their Brethren.The bondholders in Germany ,france and others wanted to be paid no matter what the cost.This is actually a redo of the third world debt crisis’ of the late 70’s as money was advanced to countries solely to maintain interest payments and thus keep the debt current—and the Irish elites signed on so as to keep the money flowing.
    The banks will not collapse but borrowing costs will rise even more dramatically causing even more stress.The Germans are forcing the issue of bond holders taking a hit on everything post 2013 that is issued –but their timing is suspect to say the least.

  10. Arthur Says:

    Ron and Yra, very good points.

    Very interesting comments from Larry Fink, BlackRock (FT Weekend)…

    · get ready for a $1,20 euro. The european crisis is likely to fall further
    · best investment would be investing in a large portfolio of dividend equities and then go on vacation for five years
    · the US definitely is healing thanks to a cheap dollar.

  11. yra Says:

    saw that arthur–larry fink has a vested interest i guess.Better for him to stick to fixed income

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