Jim Cramer Calls This A Bad Rally!

How can I not upload this video clip!!!

For once Jim Cramer talked some sense! oO

ps: I wonder what he smoked! LOL!

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Nassim Taleb Says Dump Your Shares

On Uk Telegraph: Investors told to sell shares

• .... He has poured scorn on the economic recovery, claiming that the global economy is in worse shape than it was during the subprime crisis and warns that the US could yet lurch into a Greek-style meltdown.
  
  In an interview with Bloomberg TV, Taleb said the fragility in the banking system that he spotted in 2007 is still there and the bail-out of the financial sector has encouraged bankers to continue their 'casino' operations by increasing moral hazard.
  
  "Look at all of the money they made with our backing- it is like they spat in our faces," he said.
  
  His main concern is that the transferal of debt from the private to the public sector has seen the risks within the financial system increase and 'take a much more vicious form.'
  
  Western governments have been issuing record levels of debt to keep the recovery afloat, but Taleb says that it is inevitable that at some point they will struggle to find buyers of these assets.
  
  "It is clearer than ever that we are going to have a failed auction [of government bonds here in the US that will cause contagion," he said. "There will not be enough buyers of Treasuries and the government will have to print money and before you know it you wake up with hyperinflation without having had any inflation."
  
  So how should investors position their portfolios for such a doomsday scenario? Taleb, who made millions betting against financials during the credit crunch, recommends investors dump long-term government bonds and only hold short-dated debt. He also warns against viewing the dollar as a hedge against the ailing euro, pointing out that both currencies face the same underlying problems.
  
  He dismisses the stockmarket, which would be expected to perform badly in a period of hyperinflation, completely,
  
  "I recommend not thinking about the stockmarket," he said. "It is a big hoax that has disappointed people over the last decade making their retirement plans, thinking it would appreciate."
  
  "Use it as something to play with for entertainment and nothing more."
  
  He favours moving into hard assets and advises investors to build exposure to a basket of metals rather than try and second guess which individual hard commodity will outperform. He also likes agricultural land, but said avoid 'speculative real estate'.
  
  Taleb is certainly a controversial figure in investment circles, but he is always intriguing and even if you do not agree with his outlook, he is difficult to ignore.
  
  The managers of the top-performing Schroder Income fund are to leave the group and move to investment boutique RWC Partners.
  
  Under the stewardship of Ian Lance and Nick Purves, the fund became a firm favourite with investors and has grown into a £1.5 billion giant.
  
  It is easy to see why. The fund is one of only two to have delivered a positive total return over the last three years in the 89-strong UK equity income sector and has consistently topped the charts.
  
  The pair will be replaced by Nick Kirrage and Kevin Murphy, who will run the portfolio alongside the Schroder Recovery fund, which they have co-managed since 2006.
  
  Like Lance and Purves, the new team also sit within the fund house's specialist value team, which will provide a continuity of approach that is leading financial advisers to recommend sticking with the fund.
  
  "Lance and Purves have a very good track record but they are part of a bigger team," says Hilary Brown, investment strategist at Alexander Forbes. "It is a loss, but we are not too worried because Schroders has enough depth to cope and the incoming managers will be using the same investment process and investment philosophy."
  
  Underlining this point, the Schroder Recovery fund has 80pc commonality of holdings with Schroder Income, suggesting the incoming pair will make smaller than wholesale changes to the underlying portfolio.
  
  
  

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What Do You Expect After Greece Is Declared Junk?

What do you expect after S&P downgraded Greece's credit ratings were slashed to junk? (What took them so long to make this downgrade?)

Here is snippet from S&P:

------------------

Overview

• We have updated our assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to place Greece's public debt burden onto a sustained downward trajectory.
• We are lowering our ratings on Greece to 'BB+/B' from 'BBB+/A-2' and assigning a negative outlook.
• The negative outlook reflects the possibility of a further downgrade if the Greek government's ability to implement its fiscal and structural reform program materially weakens in our view, undermined by domestic political opposition at home or by even weaker economic conditions than we currently assume.

....

Rationale

The downgrade results from Standard & Poor's updated assessment of the political, economic, and budgetary challenges that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory. We believe that the government's policy options are narrowing because of Greece's weakening economic growth prospects, at a time when pressures for stronger fiscal adjustment measures are rising. Moreover, in our view, medium-term financing risks related to the government's high debt burden are growing, despite the government's already sizable fiscal consolidation plans. Our updated assumptions about Greece's economic and fiscal prospects lead us to conclude that the sovereign's creditworthiness is no longer compatible with an investment-grade rating.

As a result of Greece's rising commercial borrowing costs, the authorities have requested extraordinary support from the Eurozone and the International Monetary Fund (IMF). We anticipate further information in the coming weeks from EU members regarding the terms and duration of support for Greece. We believe that a multiyear European Economic & Monetary Union (EMU)/IMF support program is likely, which should, in our opinion, significantly ease Greece's near-term liquidity challenges. Nevertheless, in our view, pressures for more aggressive and wide-ranging fiscal retrenchment are growing, in part because of recent increases in market interest rates. In our revised projections, we forecast Greece's net general government debt-to-GDP ratio reaching 124% of GDP in 2010 and 131% of GDP in 2011.

We continue to believe that the size and scope of the Greek government's fiscal consolidation program, and the government's political will to implement it, are the main drivers of our sovereign ratings on Greece. Sustained success in this regard could, in time, be reflected in lower market interest rates on Greece's debt. Early indications show that the government is likely to meet its 2010 deficit target. The authorities are also moving ahead with their
structural reform agenda, adopting tax reform in April, while proposals on pension reform are expected in May.

Nevertheless, we believe that the dynamics of this confidence crisis have raised uncertainties about both the government's administrative capacity to implement reforms quickly and its political resolve to embrace a fiscal austerity program of many years' duration. Based on our updated assessment, we estimate that the adjustment needed in Greece's primary fiscal balance relative to that of 2008 in order to stabilize the government debt burden amounts to at least 13% of GDP--a very high level compared with that which other sovereigns have been able to achieve. The government's resolve is likely, in our opinion, to be tested repeatedly by trade unions and other powerful domestic constituencies that will be adversely affected by the government's policies. At the same time, we expect official lender support to be highly conditional and revocable, and as such, we do not believe that it provides a floor under Greece's sovereign ratings.

As previously noted, the government's multiyear fiscal consolidation program is likely to be tightened further under the new EMU/IMF agreement. This, in our view, is likely to further depress Greece's medium-term economic growth prospects. Under our revised assumptions (see below), we expect real GDP to be nearly flat over 2009-2016, while the level of nominal GDP may not regain the 2008 level until 2017. Moreover, we find that Greece's fiscal challenges are increasing pressures on the banking and corporate sectors. In particular, we see continuing fiscal risks from contingent liabilities in the banking sector, which could in our view total at least 5%-6% of GDP in 2010-2011.

....

Outlook

The negative outlook reflects the possibility of a further downgrade if, in our view, the Greek government's ability to implement its fiscal and structural reform program is undermined by domestic political opposition or materially weakens for other reasons, including even weaker economic conditions than we currently assume.

We could revise the outlook to stable if we perceive that political support for government economic policies remains robust and Greece's economic growth prospects prove to be more benign than we currently anticipate.

---------------

On Bloomberg Businessweek: RBS Says Medium-Term Outlook for Euro Is ‘Extremely Challenging’

• April 27 (Bloomberg) -- The medium-term outlook for the euro remains “extremely challenging” because of risks the Greek debt crisis persists and extends to other countries in the region, according to Royal Bank of Scotland Group Plc.
  
  Regardless of how Greece “is resolved in the short term, investors will remain underweight euro for the foreseeable future and a short-covering rally on a short-term resolution would be limited,” Greg Gibbs, a currency strategist in Sydney, wrote today in a report. The euro is “defying gravity,” which is “at odds with European sovereign debt markets,” he said.

On the UK Telegraph, Ambrose Evans-Pritchard reports: ECB may have to turn to 'nuclear option' to prevent Southern European debt collapse

• “We have gone past the point of no return,” said Jacques Cailloux, chief Europe economist at the Royal Bank of Scotland.“There is a complete loss of confidence. The bond markets are in disintegration and it is getting worse every day.
  
  “The ECB has been side-lined in the Greek crisis so far but do you allow a bond crash in your region if you are the lender-of-last resort? They may have to act as contagion spreads to larger countries such as Italy. We started to see the first glimpse of that today.”
  
  Mr Cailloux said the ECB should resort to its “nuclear option” of intervening directly in the markets to purchase government bonds.
  
  This is prohibited in normal times under the EU Treaties but the bank can buy a wide range of assets under its “structural operations” mandate in times of systemic crisis, theoretically in unlimited quantities.
  
  Mr Cailloux added: “This feels like the banking crisis in late 2008 post-Lehman, though it has not yet spread to other asset classes. The ECB will have to act it if does.”
  
  Yields on 10-year Portuguese bonds spiked 48 basis points to 5.67pc, replicating the pattern seen as the Greek crisis started.
  
  Portugal’s public debt will be just 84pc of GDP by the end of this year, far lower than that of Greece, at 124pc. However, its private debt is much higher and data from the IMF shows that its external debt position is worse.
  
  Interest payments on foreign debt will be 8pc of GDP this year. Portugal’s net international investment position is minus 100pc of GDP, the worst in the eurozone.
  
  The interest rate on a €9.5bn (£8.2bn) issue of Italian notes jumped to 0.814pc, up from 0.568pc in March. The bid-to-cover ratio was wafer-thin, falling to 1.02. Italy has the world’s third biggest debt in absolute terms.
  
  The issue of the ECB buying bonds is a political minefield. Any such action would inevitably be viewed in Germany as a form of printing money to bail out Club Med debtors, and the start of a slippery slope towards in an “inflation union”.
  
  But the ECB may no longer have any choice. There is a growing view that nothing short of a monetary blitz — or “shock and awe” on the bonds markets — can halt the spiral under way.
  
  The markets are already looking beyond the €40bn to €45bn joint rescue for Greece by the IMF and the EU, questioning whether some form of debt restructuring or managed default can be avoided over the next year or two, or even whether the rescue plan can work at all in a country trapped in debt deflation with no way out through devaluation.
  
  Professor Willem Buiter, a former member of Britain’s Monetary Policy Committee and now global economist for Citigroup, said there may need to be a “voluntary restructuring” of debt.
  
  “It is quite likely that a haircut of, say, 20pc to 25pc will be imposed on creditors as parts of the deal,” he said.
  
  The bond markets are already “pricing in” a default of some kind in Greece, where rates on 2-year debt spiked close to 15pc in panic trading yesterday. The European Commission and the International Monetary Fund both insist that restructuring is out of the question but investors have become cynical after months of EU rhetoric and foot-dragging by Berlin.
  
  The ECB cannot lightly risk a second sovereign crisis erupting, with dangers of a spillover into Spain.
  
  The exposure of Spanish-based banks to Portuguese debt exceeds $80bn, according to the Bank for International Settlements. There were early signs of strain in the Spanish banking system yesterday.
  
  Banks were forced to pay a premium in the domestic “repo” market on fears of counterparty risk, although the Bank of Spain has so far won plaudits for ensuring that banks have large safety buffers.
  
  It is unclear why the markets are becoming skittish over Italian bonds. Public debt is 115pc of GDP but this is offset by very low household debt.
  
  Italian citizens are among the most frugal savers in the OECD club of rich states. Moreover, the government has weathered the financial crisis with a budget deficit in remarkable good health.

Portugal ratings were cut too.

• Portugal’s Rating
  
  Portugal’s long-term local and foreign currency sovereign issuer credit ratings were cut yesterday to A- from A+ at S&P, which cited “fiscal and economic structural” weakness and also gave the nation’s debt a negative outlook.
  
  “The downgrade was more aggressive than expected,” said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, referring to the reduction in Portugal’s debt rating. “If Portugal comes under attack, you get to Spain pretty quickly. ( source: here )

And of course with Greece debts no considered junk, I would ass-u-me that banks holding these Greek debts would soon need to replace those debt with capital.

And the markets tumbled. FTSE 100 suffers worst fall since November

How?

Have you check at the implications of last night events? Did you see what the charts are showing? Are you looking at the relevant charts?

Arrrghhhh... terrible way to start the morning eh?

Some light humour based on Goldman Sachs. (in case you need to ask, remember the movie 'A Few Good Men' starring Tom Cruise and Jack Nicholson?)

• "You want the truth? You can't handle the truth. Son, we live in a country with an investment gap. And that gap needs to be filled by men with money. Who's gonna do it? You? You, Middle Class Consumer? Goldman Sachs has a greater responsibility than you can possibly fathom. You weep for Lehman and you curse derivatives. You have that luxury. You have the luxury of not knowing what we know: that Lehman's death, while tragic, probably saved the financial system. And that Goldman's existence, while grotesque and incomprehensible to you, saves pension funds. You don't want the truth. Because deep down, in places you don't talk about at parties, you want us to fill that investment gap. You need us to fill that gap. "We use words like credit default swaps, collateralized debt obligation, and securitization? We use these words as the backbone of a life spent investing in something. You use 'em as a punchline. We have neither the time nor the inclination to explain ourselves to a commoner who rises and sleeps under the blanket of the very credit we provide, and then questions the manner in which we provide it! We'd rather you just said thank you and paid your taxes on time. Otherwise, we suggest you get an account and start trading. Either way, we don't give a damn what you think you're entitled to!" ( Source: here )

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Which News Version Would You Want?

It's incredible really.

Here's the Business Times version.

• Stocks still offer good growth: Prudential
  
  Published: 2010/01/14
  
  PRUDENTIAL Fund Management Bhd, which manages RM17 billion, said global stocks still offer good growth even after a rally in world stock markets last year from multi-year lows in March.
  
  The fund manager remains bullish on China, India, the Philippines and Thailand, but Hong Kong and Malaysia are likely to offer limited growth this year.
  
  "We have been saying this for years and (will) once again (say) Malaysia is a good story, but not enough in a world of great stories. There's much better value elsewhere from a global fund perspective," said Robert Rountree, head of investment marketing at Prudential Fund Management Services, in Kuala Lumpur yesterday.
  
  "Last year, we were overweight on Indonesia because it was due for a major re-rating. We were very bullish on the Indonesian banks then. Then there was the rally. But eventhough the valuation in Indonesia has risen sharply, we can still find value there.
  
  "Comparatively, Malaysia is never cheap," Rountree told a media briefing on global market outlook.
  
  Prudential has a neutral stance on Indonesia this year, along with Australia, South Korea, Singapore and Taiwan.
  
  Meanwhile, its head of investment services Bernice Leaw said more positive policy surprises from the government could drive up Malaysian stocks this year.
  
  Foreign investors will also likely see bigger initial public offerings such as Maxis last year coming to the market, she said.
  
  "The market has reacted positively towards Prime Minister Datuk Seri Najib Razak's liberalisation measures so far, it will be good if there's continued efforts in that area.
  
  "The government has a lot of good policies, but as always, the implementation is key. Investors usually will give it six to eight months to see the results," Leaw said.
  
  It was reported that Asian stocks helped lead 2009's global rally as unprecedented government stimulus measures and economic recovery sent investors back to the region's markets en masse.
  
  With the exception of Japan, stock markets in Asia rocketed after touching lows in March with some gaining 80 per cent or more for the year.
  
  
  
  

How would you interpret that article?

Don't you think the TITLE of the article is rather misleading? Yes, stocks still offer good growth but if you are a Malaysian stock market player and you just read only the headline news that 'stocks still offer good growth', won't you be mislead? Further more, Mr. Roundtree said "Comparatively, Malaysia is never cheap"!

Yup, the danger of reading just the headline or the title of the article.

Now the Edge Financial Daily also carried the same story.

And unfortunately, it (the tone of the article) comes out different!

Prudential: Equities expensive but not in ‘bubble territory’

• Prudential: Equities expensive but not in ‘bubble territory’
  Written by Daniel Khoo
  Wednesday, 13 January 2010 22:16
  
  KUALA LUMPUR: Share prices which have enjoyed a good run-up since the first quarter of last year looks "expensive" in the short term and might be vulnerable to a correction, according to Prudential Fund Management Services' head of investment marketing Robert Rountree.
  
  However he added also that at the moment, "equities don't appear to be in bubble territory" implying that in the longer term, equity valuations are still considered cheap, compared to the years before the TECHNOLOGY [] bubble burst in the US.
  
  He said at a regional market outlook briefing titled Bonds & Equities 2010 Malaysia, that among external factors that could possibly spark a sell off in equities are if the US Federal Reserve decides to raise interest rates in the US.
  
  "The carry trade is coming back. So, a lot of the money that has been created in the central banks in the US and in Europe is coming into Asia. So if we do see a tightening of interest rates, then we could see money coming out of Asia in the short term," he said.
  
  Low interest rates in the West fuels the currency carry trade where international investors borrow in the lower yielding currency to invest into another country's higher yielding currency for higher gains — some of the borrowed money is then invested into equities for quick short term gains.
  
  Prudential had this suggestion for investors to look at purchasing corporate bonds instead in Malaysia because yields will continue to remain suppressed for the foreseeable future on the back of the expectation that interest rates will continue to remain at the same levels at least in the first half of this year.
  
  Suppressed bond yields mean that bond prices is expected to continue to stay at their present levels.
  
  However, at the same briefing, Prudential's Head of Investment Services Bernice Leaw said that "over the long term, equities will always give better returns than bonds," adding that she was bullish on Asian economic growth — led by China and India.
  
  The fund manager is overweight on China, India, Philippines and Thailand. Prudential is however underweight on Malaysia because from an international point of view, there is better value in markets elsewhere.
  
  "In other words, Malaysia's perennial problem, a good story in a world of great stories," Rountree said implying that Malaysia now has to compete with other rapidly industrialising countries like India and China.
  
  He added that this year there may be another shift towards the trend where Asian economies "delink" from the developed West — where "Asian economies start to generate its own momentum", Rountree added.
  
  Asia's actual declared profits seemed to have kept up so far with profit forecast expectations. However, actual profits declared by US companies show a different picture altogether, with profits only staying flat while historically, profit forecasts have gone up higher than that. He noted that the run up in equities so far in the US is due to high expectations of a recovery.
  
  A realisation of this stark reality could also be another contributing factor to a possible correction in world equity markets. "However, (any potential correction) would be viewed as a buying opportunity," Rountree said.

LOL! So how? Just as expected eh? So which news versions would you want to hear?

:P

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Eric Sprott Reckons SP 500 Could Plunge

Well... here's a 'bearish' outlook for twenty ten.

Ah.. if you do not wish to continue reading, perhaps clicking away is the best solution. :D

On Bloomberg News Sprott Says S&P 500 Index Will Plunge Below March Low

• Sprott Says S&P 500 Index Will Plunge Below March Low (Update3)
  By Matt Walcoff
  
  Dec. 29 (Bloomberg) -- The Standard & Poor’s 500 Index will collapse below its March lows as an expected rebound in economic growth fails to materialize, according to hedge fund manager Eric Sprott.
  
  The Toronto-based money manager, whose Sprott Hedge Fund returned about 496 percent in the past nine years as the S&P 500 lost 32 percent in Canadian dollar terms, said the index’s 66 percent rally since March 9 reflects investors misinterpreting economic data. He’s predicting the gauge will fall 40 percent to below 676.53, the 12-year low reached on March 9.
  
  “We’re in a bear market that will last 15 or 20 years, and we’ve had nine of them,” Sprott, chief executive officer of Sprott Asset Management LP, which oversees C$4.3 billion ($4.09 billion), said in an interview Dec. 18.
  
  Investors in Sprott’s funds have been rewarded by his holdings in gold, which has climbed 48 percent since the S&P 500 peaked in October 2007. The stock has since fallen 28 percent and declined 0.1 percent to 1,126.20 today for its first loss in seven sessions.
  
  Sprott said the Federal Reserve has kept bond yields and interest rates artificially low through its program to buy agency debt and mortgage-backed securities. The central bank expects the securities purchase program to finish by the end of March.
  
  Expiration of the program would reduce demand for fixed- income securities, forcing up bond yields and interest rates and hurting economic growth, Sprott said.
  
  Loss of Faith
  
  Should the Fed renew the programs while the U.S. government continues to run record deficits, investors will lose faith in the U.S. currency, he said.
  
  “If they announce another quantitative easing, trust me, the gold price will go up another 50 bucks that day,” he said. Gold futures fell 0.9 percent today to $1,098.10 an ounce in New York.
  
  Sprott has been bullish in gold and gold stocks, which are used as a hedge against inflation, since at least 2001, when the precious metal was trading below $300 an ounce.
  
  Gold futures have slipped 7.2 percent this month in New York as the U.S. dollar has rebounded on data that signaled a recovery in the U.S. economy.
  
  American payrolls fell by 11,000 in November, the fewest since the recession began, while retail sales gained 1.3 percent, twice the rate forecast in a survey of economists by Bloomberg, according to government reports released this month.
  
  Unjustified Optimism
  
  Sprott says investors have been too eager to see the data as signs of recovery. While the S&P 500 added 0.6 percent on the day of the employment report, a 23rd consecutive month of payroll contraction was no reason for optimism, he said.
  
  “We don’t have employment gains,” he said. “We have less of a decline. That’s a sign of weakness. The data is weak.”
  
  Sprott said gold is the only asset about which he remains positive in the short term. His C$1.42 billion Sprott Canadian Equity Fund -- which is up 23 percent in five months -- has 34 percent of its portfolio in mining stocks and another 39 percent in bullion as of Nov. 30.
  
  He said though he has no target price for the metal he doesn’t think it has reached a ceiling after quadrupling over the past eight years.
  
  “If you get into this thing where you’ve got to keep printing more and more and more, who knows about the price of gold?” he said. “It will be the new currency in due course.”
  
  Growth Potential
  
  Within the mining industry, Sprott prefers companies with smaller market capitalization, which he said have greater potential to grow.
  
  Since last year, Sprott’s firm has become the biggest shareholder of Avion Gold Corp., which mines in Africa, and East Asia Minerals Corp., which explores in Indonesia. Avion is undervalued for its projected 2010 production, he said. According to a Dec. 16 note from analyst Eric Zaunscherb of Canaccord Financial Inc., Avion was trading at 2.9 times its estimated 2010 earnings, compared with a multiple of 10.5 for its peers.
  
  Regarding East Asia Minerals, Sprott said, “I just get the feeling that these guys could find a multi-double-digit-million- ounce property.”
  
  East Asia completed a 2,000-meter, 14-hole drilling program at its largest Indonesian property that Canaccord analyst Wendell Zerb called “encouraging” and indicative of a large zone of gold mineralization. Over the next two quarters, East Asia is to drill 45 more holes at the site and begin drilling in four more locations in the country, Zerb said.
  
  Outside of the gold industry, Sprott owns shares of Wavefront Technology Solutions Inc., a TSX Venture Exchange- listed company whose products are meant to increase oilfield production. Its technology could be used on at least two-thirds of the world’s oil wells, he said.
  
  Sprott, 65, founded his current firm in 2001 after divesting Sprott Securities, now Cormark Securities Inc., to its employees.

This is the link to Sprott Asset Management's December newsletter, in which Sprott is effectively asking "Is it all just a Ponzi scheme?"

And of course this newsletter was featured by Jesse Who Is Buying All These US Treasuries (And Can They Keep It Up in 2010)?

• So what does all this mean?
  
  The bottom line is that the data seems to indicate that the foreign sector traditional buyers (at least for the past 20 years or so) of US sovereign debt are walking away from the market as they had said they would do, and are moving their reserves into other instruments.
  
  This may not be such a great problem if the US trade balance continues to narrow, but it certainly is not healthy to see the Fed and the US household sector as the major markets for US sovereign debt.
  
  If 2010 is not a year of recovery for the average American, the ability of the Treasury and Fannie/Freddie to keep expanding their debt offerings is going to become quickly constrained. How can Joe Sixpack keep saving and buying Treasuries, and at the same time consume at a rate sufficient to grow GDP? All on a stagnant median wage and a contracting housing market? Think the rest of the world is suddenly going to grow a taste for US exports? Will the US retreat into isolationism and trade barriers? That might not be Price Index friendly.
  
  The US is marshaling its ratings agencies and multinationals to cast doubt on the European union, their currency, and their solvency, and threaten to take them down first to maintain an equilibrium of failures.
  
  But in fact, the US is much closer to the point of a serious debt crisis than one might imagine from what is being put out by most US based financial analysts. There is a nasty convergence of constraints bearing down on the Fed and the Treasury that look to push the ability to market dollar debt to the breaking point. If a couple big States go under next year, the dominoes may start falling very quickly.
  
  I see the problem, but I have to confess that I do not yet see how the Bernanke Fed intends to dodge this collision. And I know that they must see this as well, and have a game plan. Could counting on an exogenous event that would provoke an artificial demand and neo-isolationism (something like a regional war, or at least a trade war) be called a plan? Can they possibly be in denial, and just looting the capital before the Empire falls? It is hard to see how the resolution of this will unfold just yet, but I am pretty sure that many of the simple scenarios that people are laying out so nicely with such fine rhetoric are more fantasy than probable outcomes. This is going to knock our socks off default-wise.
  
  If you think that this crisis will be deflationary, then you might be a bit surprised to see what happens if and when a US sovereign debt offering fails in the market. It will not be pretty. And it will not be dollar friendly in the longer term. But who can say what will happen, when there are so many possibilities.
  
  The market may likely reveal to us what is coming, if we are observant, and lucky, and have the willingness to listen to what we may not wish to hear.
  
  There are some definite gaps and assumptions in the case that Sprott makes, raising more questions than providing answers. It is possible that Americans have shifted an enormous amount of capital out of consumption and stocks into Treasuries. It is also possible that this is just masking something else, as Sprott suggests. But this does not affect the argument we make, that something has got to give, as the US consumer is tapped, and cannot sustain this type of sovereign debt purchasing given the offerings that the Treasury must make in 2010. And if it is something else, then that will be revealed 'when the tide goes out' next year. The Fed and its enablers are the buyers of last resort, increasingly so. And that means increasing monetization, and a stretching of the value basis of the bonds and the dollars.

See also: Brace For Impact: In 2010, Demand For US Fixed Income Has To Increase Elevenfold... Or Else

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