The Bond Bubble, Mortgage Rates, Stocks & Dollar Fall, IPOs, A Gold ATM and More!

by Addison Wiggin & Ian Mathias

  • What’s that hissing? Bond bubble shows signs of a slow leak
  • Rob Parenteau on why mortgage rates might not be low for long
  • U.S. employment hits a new low… another government arm says worst yet to come
  • Despite stock sell-off, one sector showing sudden signs of life
  • Frank Holmes with a compelling reason to hold onto your gold


  Hmmm… is this it for the bond bubble?

Above is a new page in the credit crisis playbook. You’ve no doubt heard the old routine: When stocks plummet, flee to U.S. Treasuries — bond prices go up, bond yields go down.

But yesterday, stocks fell… and Treasury bond yields soared. Instead of selling U.S. stocks and buying American debt, traders decided to sell both. At 3.38%, the yield on a 10-year note is at its highest level since November.

Why? Standard & Poor’s served the bond market a stiff glass of reality when it threatened to strip Britain of its coveted AAA rating. Oddly still relevant, the rating agency gave the U.S an implicit shot across the bow… if the U.K. can lose its AAA, the U.S. can too.

At the same time, the Federal Reserve purchased fewer Treasury securities than the market expected. During an auction yesterday, the Fed purchased “only” $7.3 billion in U.S. debt, or about 16% of the total debt offered. At a similar auction earlier this week, they bought upwards of 30%… not exactly the buyer of last resort.

And nearly simultaneously, the U.S. Treasury quietly announced it will pump another $162 billion worth of U.S. debt into the market next week. Total marketable U.S. debt will soon exceed $6.36 trillion. It’s no wonder traders are finally pushing up yields… who the hell is going to buy all this stuff?

  Is this the bond bubble popping or just a pause in a longer trend? Who knows… but that doesn’t mean you shouldn’t be prepared. This bond dilemma is the focus of our latest edition of The Retirement Recovery Series — a completely free supplement to your Agora Financial subscription. If you want specific advice on trading this event, all you have to do is sign up, here. Remember… it’s free.

  “New Treasury bond issuance may become more challenging,” warns our resident macroeconomic sage Rob Parenteau, “not just because of the huge supply forthcoming, but because the quantitative easing measures adopted by the Fed and other central banks are designed in part to force investors out of the risk spectrum and away from cash and default-free Treasury holdings.

“We are especially concerned the large buildup of long Treasury positions at primary dealers is unlikely to be sustained and there may be a rout in the Treasury market reminiscent of 1994, when Goldman Sachs had to borrow from the Japanese in order to stay afloat after getting caught the wrong way round in yield curve carry trades.

“With 10-year Treasuries hitting 3.36% and passing through their 200-day moving average earlier this month, our concern is looking less and less theoretical.

“Unless U.S. macro data start to get more alarming soon — and auto production cuts could dampen the Institute for Supply Management’s numbers, while the minor consumer bounce in Q1 was really mostly over in January and could cool further in Q2 — Treasury yields are likely to surge higher. So far, the backup in Treasury yields has not taken 30-year fixed mortgage rates higher, but this is the type of challenging setup in the Treasury market that could squash attempts to stabilize the U.S. housing market.

“If you were planning on refinancing your mortgage this year, you may wish to consider acting sooner, rather than later.”

That’s a typical Richebacher Society morsel — macroeconomic analysis that not only shapes the way you think, but also offers useful financial advice. Rob’s doing a bang-up job carrying on Dr. Richebacher’s legacy… if you’d like to follow along, learn more here.

  As U.S. bonds give way, so too does the dollar. At barely 80, the dollar index is down more than a full point from yesterday’s high, to its lowest level of the year.

Conversely, the euro is sitting pretty at a 2009 high of $1.40. Even the miserable pound has beaten the dollar this week — up 8 cents since Monday to $1.59 as we write. The yen’s growing stronger too, now at 94.

  The unemployment scene hit a new record lousy this week. A bestial 6.66 million Americans are currently filing for unemployment benefits, the Labor Department reported. That’s an all-time high… for the 16th week in a row.

  “The unemployment rate will probably continue to rise into the second half of next year and peak above 10%,” forecast Congressional Budget Office director Doug Elmendorf yesterday. The CBO issued prepared testimony to the House Budget Committee, to which it forecast unemployment in “the neighborhood of 10.5%” sometime in early 2010. That’s a full percentage point higher than the CBO’s forecast in March.

The constantly straightforward government arm expects economic recovery to be “painfully slow.”

  The FDIC suffered its biggest bank failure of 2009 yesterday. BankUnited FSB, Florida’s biggest regional lender, bit the dust yesterday With over $20 billion in assets and deposits, BankUnited is easily the biggest failure of the year, and the second biggest of the whole credit crunch (IndyMac still has that title).

BankUnited’s failure will take a $4.9 billion chunk out of the FDIC’s war chest. It is the 34th bank to fail this year.

Stocks fell yesterday, given all the news above. Major indexes fell about 1.5%, almost entirely because of the whole U.K. credit rating/U.S. bond market debacle.

But hope is not lost yet… the Dow and S&P are up about 0.5% as we write, ahead of the holiday weekend.

  The Nasdaq managed to pull off its first IPO of 2009 this week. OpenTable Inc., a Web company that allows customers to make restaurant reservations online, floated for an initial price of $20 a pop on Wednesday. That’s a bizarre success for the Nasdaq’s first IPO of the year… OpenTable’s shares priced 10-20% higher than Wall Street anticipated, even though the company operated at a net loss for all of 2008. Even stranger, shares soared another 60% Wednesday on the open market, up to $31.

Regardless, that’s only the seventh successful IPO in the U.S. this year, and just the second backed by venture capital. Ironically, the first VC-backed offering of 2009 was the day before — SolarWinds, a network management company, went public Tuesday. Before this week, venture capital hadn’t been able to get an IPO off the ground in over nine months.

  After all the drama you’ve read about today — bond woes, the dollar’s decline, yesterday’s stock sell-off — you can’t be surprised to see gold on the up and up. The spot price has risen $20 in the last 24 hours, to just over $955 as we write.

  “The World Gold Council trade group,” says fund manager and friend of Agora Frank Holmes, “reported today that investment demand for gold hit an all-time high in the first quarter of 2009.

“The WGC said investment demand for gold reached nearly 600 metric tons, more than triple its level during the same period of 2008. The vast majority of those additional tons went to gold exchange-traded funds, which grew from 73 metric tons in the first three months of 2008 to 465 metric tons in the latest quarter.

“Overall, gold consumption of 1,015 metric tons in the first quarter of the year was up 38% from the same period in 2008. Total gold supply was up 34%, with much of that increase coming from recycled gold.

“Normally prices rise when demand growth exceeds supply growth, particularly when speculative demand is soaring. But that wasn’t the case in the latest quarter — gold averaged $908.21 in the three-month period, down 2% from a year earlier.”

Frank will be one of many distinguished speakers at this summer’s Investment Symposium in Vancouver. If you’re planning on attending, time to pull the trigger… the show starts in less than 60 days. Details here.

  Last today, we knew it would come sooner or later, but… seems a little early, no?


That’s right… a gold-dispensing ATM

Behold “Gold to Go,” the brainchild of German asset management company TG-Gold-Super-Markt. The company plans to station 500 of these gold ATMs throughout Germany, Switzerland and Austria by the end of 2009. The only functional Gold to Go is in the railway station in Frankfurt, where it dispenses one gram bits for $42 a pop, or about 30% above the spot price.

So if you’re in Germany and have a sudden need for very small amounts of psychical gold, or if you simply want to be a pawn in an ill-conceived marketing scheme… you know where to go.

  “Let’s do some back of the envelope accounting,” a reader writes, responding to our “what a mess” labeling of social security and Medicare, “on government debt to determine exactly “what a mess” it is:

Unfunded SS and Medicare Debt  — $65 trillion

U.S. Treasury Bond Debt  — $12 trillion

FY 2009 Budget Deficit  — $2 trillion

Total Debt  — $79 trillion (give or take a few trillion)


“What’s the revenue for this year? Drumroll please… $2 trillion. The total fiscal year 2009 federal budget is $4 trillion, which we it will support with $2 trillion of revenue and $2 trillion of newly issued debt. Obviously, one cannot support $79 trillion worth of debt with $2 trillion worth of revenue while borrowing as much as that revenue just to cover expenses — not even if one is the federal government of the United States.


“So the greatest Ponzi scheme in human history has done more than the average Ponzi scheme does, which is squander all of the investors’ money. It’s gone way above and beyond that. It’s bankrupted the greatest empire the world has ever known; it’s burdened the futures of all those who haven’t even paid into the scheme yet, as well as most of those who are currently paying into it… coerced to do so by the brute force of a central government — Ponzi on steroids.


“The trillion-dollar question is where will they get the money to pay future Social Security and Medicare benefits? The answer is…STICK ’EM UP!!!”

The 5: Heh. We’ll let that settle our entitlement debate, for now. If you feel compelled to continue this conversation, post a comment or two on the ol’ 5 Min. blog.  

  “I get "scads" of economic and financial opinions, data, charts,” a reader writes, “most with no real substance. I especially look forward to the 5, as it concise and gives me a great insight into investment matters — with great charts! Keep up the good work!”

The 5: Scads, eh? Sounds… uncomfortable.

Thanks for reading, and please enjoy your holiday,

Ian Mathias

The 5 Min. Forecast

P.S. Have you signed up for the latest installment of our Retirement Recovery Series?

No? Why not?

It’s one of our most up-to-date recommendations — an up-to-the-minute, detailed way to recover from 2008 losses. And best of all, it’s completely free of charge. All you have to do is sign up in time for its release… right here.



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