Is This the Next Crack in the Treasury Bubble?

By Ashish Advani

If you get your trading tips from the President, then we have every reason to be confident about the economy.

According to the most recent news, President Obama is cautiously optimistic about the latest job numbers we all heard on Friday.

As a country, we only lost 11,000 jobs. Granted, we’re still losing jobs. But we all clearly remember what it was like earlier this year when we were losing 700,000 jobs a month.

Yes, we have come a long way since the depths of the dark days February / March of 2009. And yes we have ways to go. But at least we’re heading in the right direction, according to the President. 

If only I shared President Obama’s overly simplistic view on the economy. Unfortunately, I know the world does not work in a unilateral way.

For starters, those “overly optimistic” numbers are just that – overly optimistic. Or to be more precise, these numbers are far worse than they appear to be.

We don’t even know how many unemployed people are truly being counted because these numbers only count people ‘looking’ for work or are collecting unemployment benefits. Anyone who has fallen off the unemployment benefits is simply cast aside. 

Frankly, I could write a whole article on why these numbers are grossly overestimated, but let’s set that aside for now.

Even if you take the data at face value, there is a whole barrel of problems brewing that demand our attention. And it all plays back into the Treasury Bubble my colleagues and I have been warning you about…

A Ticking Bomb Ready to Explode…that We Made Ourselves

For over two years now, our government has been in crisis mode to jumpstart the economy. But now that we’re “headed in the right direction” (at least according to President Obama), we now have collateral damage to clean up.

That collateral damage is the very problem I want to address. It’s taken a lot to get us here, and that collateral damage from all the bailout tricks is now a ticking time bomb sitting at the middle of this so-called recovery.

So what is that collateral damage? In a word, debt.

The massive amounts of debt that the U.S. has undertaken can knock the steam out of any recovery process in a heartbeat.

And we saw a glimpse of that on Friday.

You would think that with such a good unemployment number, the stock market would have rallied 200 points, maybe 300 points… Wrong! The stock market went up 22 points and at one point was down nearly 100 points.

You see what the CNN and CNBS folks didn’t tell you is this 800 pound gorilla of debt hanging over our heads just got worse…

That 800 lb Gorilla Is About to Reach Godzilla Status

On Friday, we got the first rumblings of debt trouble brewing in Japan.

As we all know, Japan has been facing deflation for over a decade now. Growth has been tepid to negative for a very long time. And the fiscal deficit has been growing steadily and now picking up steam.

But regardless, Japan still is the second largest buyer of our Treasuries in the United States. In other words, Japan helps finance our debt.

That’s what made Friday so important.

The rumor going around the debt markets on Friday was that Japan is considering selling $100 Billion of U.S. Treasuries from its reserves.

Now it’s still a rumor at this point. But regardless, this still has huge implications for both the U.S. and an already inflated Treasury Bubble. Central banks have been threatening to dump Treasuries for some time. But we’ve had very few rumors that they’re actually doing it.

If foreigners stop financing our debt, Americans will have to finance our 800 lb gorilla of debt. The market knows this. That’s why the whole fixed income market sunk faster than an anchor on Friday.

Treasury prices slumped, so the yields rose. In fact, the 10-Year Treasury Note yield jumped from 3.3% to 3.5% in one day. It closed at 3.47% by the end of the trading day.

The “Official” Media Reason for Higher Yields Doesn’t Make Sense

The media dolts are telling us the better job numbers are the he official reason for yields rising. They reasoned that traders were selling treasuries to enter into riskier trades like stocks and key foreign currencies.

But here’s the thing. That didn’t happen. Instead…

• The Dow Jones rose 22
• The “risky currency” Euro fell 150 Pips
• The dollar index surged 1.7%.
• Gold dropped by $60

So where is to so called risk rally that led to the Treasuries decline? Oh wait, sorry it didn’t happen.

Folks, do not let the media hoodwink you again. The crisis in the debt market is brewing and will raise its ugly head in various places as time ticks along.

Plus, keep in mind. It was just a rumor that moved the markets this much. Imagine if China, India or Japan were to come out and announce they were really dumping their Treasuries. Imagine what that would do to our stock markets…interest rates…and the Treasury Bubble itself.

The Treasury Market bubble is beginning to show signs of real fatigue.

Short Treasuries, stay long gold and foreign currencies and stay protected!

Ashish Advani, Portfolio Director,
Currency Capitalist

P.S. You should know that the last time the Treasury Bubble popped the Dow plummeted an incredible 28%, while a few key assets like gold and oil skyrocketed. To get the full story on how to cash in on the Last Great Asset Bubble, read our most popular special report:

Average rating
(0 votes)