Capital Flow Reflect Intensifying Currency Induced Cost Push Inflation

Currency Induced Cost push inflation (CICPI) is well defined by a system that continuously balances reward relative to risk. This is the lesson from history that requires no "belief". A lesson discussed in Adam Smith's Wealth of Nations.

The trends continue to reflect the intensifying effects of CICPI. Gold, silver, commodities, stocks, and soon bonds (from a US dollar perspective) show the signs of capital balancing reward against risk. The smaller markets such as gold, silver, art, rare collectibles are far more sensitive to CICPI. Thus, they move first with great amplitude. Bigger markets, such as commodities and stocks, tend to lag but will also receive safe haven capital flows. The whole sequence ends with a rejection of bonds. This is why the trend in bonds and bond auction results are so important.

10-Year Note Auction Results:


30-Year Note Auction Results:


Auction participation for the 10-year and 30-year continues to illustrate deteriorating demand from primary dealers and steadily increasing demand from direct and indirect bidders since 2009. These trends reflect waning demand for US treasury bonds through traditional outlet of 18 member banker and broker/dealer network.

There are three main classifications of buyers in Treasury debt sales.

(1) Primary Dealers - Primary dealers as submitters bidding for their own house accounts.

(2) Direct Bidders - Primary dealers as submitters bidding for their own house accounts.

(3) Indirect Bidders - Customers placing competitive bids through a direct submitter, including that yield. There are Foreign and International Monetary Authorities placing bids through the Federal Reserve Bank of New York.

Direct bidders are generally domestic non-primary dealer banks and large institutional investors. Their presence at Treasury auctions had been relatively small prior to the financial crisis in 2009 as direct bidders tend buy debt through the primary dealer network.

The trend towards increasing direct bidding participation rates suggests waning demand from the primary dealer and indirect buyers. It also suggests that a large investor is looking to accumulate Treasuries anonymously.

Source: treasurydirect.gov
Source: treasurydirect.gov

Rise in jobless claims boosts Fed easing expectations

Follow the money people! While such headlines support the political rhetoric heading into the elections, it is not consistent purpose of the liquidity injections. Liquidity injections support asset prices and balance sheets within the financial system. A breakdown of commercial banking credit suggests that "liquidity injections" has done little to support investment through commercial & industrial and real estate loans since 2009. Investment rather than liquidity creates jobs.

Average Weekly Initial Claims State Unemployment (AWIC) And YOY Change:

New U.S. claims for jobless benefits rose last week, hardening the view the central bank will pump more money into the economy, and keeping pressure on Democrats poised to lose congressional seats in November 2 polls.

Source: finance.yahoo.com
Source: edegrootinsights.blogspot.com

NYSE Breadth's Bullish Setup Suggesting A Retest Of The April Highs

Stocks, an important movable asset, are following historical precedent during periods of devaluation by trading higher. My primary breadth indicator has already breached its April 2010 high as price lags. This bullish setup suggests that the April price highs will be retested soon.

NYSE Composite and NYSE Breadth Measures:

Trade deficit widens sharply to $46.3 billion

The August up tick in imports relative exports goods reflects an up tick in consumption. The 2009-present yellow box continues to reflect a liquidity induced recovery that is bouncing along the bottom.

Imports to Exports Ratio (Census Basis):


The decline in net exports will place downward pressure on next quarter’s GDP (America's domestic economic output).

Net Exports (Census Basis) As A % GDP:

The U.S. trade deficit widened sharply in August, reflecting a surge in imports of consumer products as businesses restocked their shelves in hopes of a pickup in consumer demand.

The politically sensitive deficit with China climbed to an all-time high, a development that was certain to increase pressure on the Obama administration to take a tougher line on trade issues including China's tightly controlled currency.

Source: finance.yahoo.com

Google Plans Alternative Inflation Index Using Web Data

Bob, a news finder, is a smart man. The basis of control in its various forms utilizes difference in knowledge (also wisdom) between two groups. Men and women throughout history have been denied access to reading, writing, and various forms of higher learning as means of maintaining what I have come to see as the 'knowledge spread'. The dawn of the Internet, like the introduction of the Colt Peacemaker to the West, is certain to be recognized as another great equalizer for humanity. Still, knowledge without widsom, means that this gap will not close easily.

Google is using its vast database of web shopping data to construct the ‘Google Price Index’ – a daily measure of inflation that could one day provide an alternative to official statistics.

Source: cnbc.com

Mailbox

Eric, isn't that ratio already down to the 1980 low?

Thanks,
Larry

US 30 Year to Gold Ratio:

Hello Larry;

My long-term U.S. government bonds total return index to gold ratio, which I often publish to reflect the secular trend in bonds, cannot be compared with your analysis (chart). This index, a one-bond portfolio with approximate maturity of 20-years, includes interest payments into the index calculation. Interest payments are an important component of capital flows decision making.

Long-Term U.S. Government Bonds Total Return Index (LTGBTRI) to Gold Ratio:


The long-term U.S. government bonds capital appreciation index to gold ratio more closely tracks your trend analysis. This index which ignores interest payments in its calculation is a one bond portfolio with 20-year approximate maturity.

Long-Term U.S. Government Bonds Capital Appreciation Index (LTGBCAI) to Gold Ratio:


Regards,

Eric

Robo-signers: Mortgage experience not necessary

As I have said before, robo-signers, as well as other tactics, are a byproduct of greed-induced cycle. As long as the illusion of the plateau of prosperity could be maintained, “the mortgage game” was defined by maximum profit. The overseers knew that once the illusion broke, the consequences of the game would carry a cost that must not exceed the maximum profit.

The scramble began when the game broke in 2008. Public bailouts, massive liquidity injections, and accounting flexibility arose from the ashes of crisis to save the market value of “structured” loans. Now the linkage to the collateral (property and structures) that stand behind these loans has been questioned. This raises serious concern to the valuation of the “structured” loans the banking system is trying desperately to preserve.

Why? The revaluation of structured loans has played a critical role in recapitalizing the financial (banking) system. Anything that raises further concerns as to their value would have to be recognized. This recognition would be extremely difficult in an environment where loan demand, particularly in the influential business and real estate sectors, continues to contract sharply. The red boxes in the table below highlight the year-over-year collapse in business and real estate loans.

Break Down of Total Bank Credit:


Frustration and rage is certain to grow as more details emerge from the “mortgage game.” This process, however, also places increasing strain on an already fragile financial system that’s beginning to stumble. If second or shock wave crisis materializes as the collateral linkage is broken, will the taxpayer stand behind another bailout?

Gold is answering this question right now.

In an effort to rush through thousands of home foreclosures since 2007, financial institutions and their mortgage servicing departments hired hair stylists, Walmart floor workers and people who had worked on assembly lines and installed them in "foreclosure expert" jobs with no formal training, a Florida lawyer says.

Source: google.com