Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

[EJ]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The gold price may be telling us that the ECB stimulus that I expect before the end of Sept. to round out the $1 trillion in global Q3 stimulus that I forecast for Q3 earlier in the year may be announced soon.

China, the U.S., and Japan have already announced this month.

[Chomsky]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The gold price may be telling us that the ECB stimulus that I expect before the end of Sept. to round out the $1 trillion in global Q3 stimulus that I forecast for Q3 earlier in the year may be announced soon.

China, the U.S., and Japan have already announced this month.

Sweden announces stimulus:

http://www.presseurop.eu/en/content/...-not-austerity

[Slimprofits]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Thanks Metalman!

[gugion]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The gold price may be telling us that the ECB stimulus that I expect before the end of Sept. to round out the $1 trillion in global Q3 stimulus that I forecast for Q3 earlier in the year may be announced soon.

China, the U.S., and Japan have already announced this month.

Any ideas for a short-term trade surrounding your expectation of ECB stimulus announcement, or has the market already priced it in and it's too late? Thanks.

[vt]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Short term trading is difficult and fraught with danger.

EJ gave a series of expected ranges for gold this year and next, as well as potential targets for the rest of this decade. That was great advice to plan intermediate and long term plans for whatever gold holdings one would consider.

[rogermexico]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Any ideas for a short-term trade surrounding your expectation of ECB stimulus announcement, or has the market already priced it in and it's too late? Thanks.

My best idea for the short term is to make sure you have an appropriately large core position of gold for the long term. If you don't now is a good time to buy more and hold it no matter what it does in the short term....

[jiimbergin]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

My best idea for the short term is to make sure you have an appropriately large core position of gold for the long term. If you don't now is a good time to buy more and hold it no matter what it does in the short term....

+1

[Chris]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Paul Volker agrees that QE3 is pointless:

http://www.telegraph.co.uk/finance/e...l-Volcker.html

The Bank of England to pursue more QE. Or should that be QED?

[nonlin_dynamics]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Hi all,

Has Part II been already published?

[Chris Coles]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

Hi all,

Has Part II been already published?

As far as I can make out, no.

[nonlin_dynamics]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

As far as I can make out, no.

Thanks for the reply.

I did hear EJ speak with Financial Sense and he was mentioning about 3 triggers for a bond market crisis (alluded to at the end of Part I of this article).

1. The Fed itself (gradual transition planning going wrong similar to early 1990s, inadvertently starting a stampede)
2. Disruption among major foreign buyers (Japan/China being at odd with each other on supporting US government spending policy)
3. ?? probably energy induced crisis?

Can't wait to read Part II.

[Polish_Silver]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The UST bull market ended in 2001. From 2001 until the crash in the market for securitized mortgage bonds the UST market was manipulated by rate policy and accelerated foreign UST sales. Since Q2 2009 when short rates effectively hit zero prices of UST have been fixed by policy across the yield curve. Not coincidentally that is when foreign central banks became net gold buyers.

--EJ


Why is "repression" not a good word for that? I would call it "interest rate suppression".

[jabberwocky]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

I, for one, believe EJ's trust in the sincerity of the major players is misplaced, and quite surprisingly so. Why he thinks , having met them, he can read their minds, like Bush of Putin, (NOT that I am comparing EJ to Bush in any literal sense) seems oddly out of place here. "The banality of evil" comes to mind, or the old line about having someone change their opinion on an issue, the outcome of which, determines their income.
This is systemic psycopathy, with fellow travelling attendents.
If Larry Summers, for instance, "believes" what he writes and says, I will be shocked, just shocked!
No offence meant to anyone, and to be clear, I know none of these folks, so my opinion is worth nothing.

[EJ]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

--EJ


Why is "repression" not a good word for that? I would call it "interest rate suppression".

We have been as successful as we have been here over the past 14 years largely because we are careful in our use of language. The financial media often gets things wrong simply because the language used in the "debate" on economic issues is too imprecise, and the language is imprecise because the concepts are sloppy. For example, the financial media talks about the economy as "weak" and the weakness as due to "the recession" when in fact the actual period of economic contraction, the recession, started Dec. 2007 and ended Jun. 2009, more than three years ago. The recession created an output gap, the difference between real potential GDP if the recession had not occurred and the actual GDP of the recovering economy. All recessions create output gaps. They typically begin to close right away as the economy recovers and close completely within three to four years so that the economy is growing again at the rate it would be at if the recession had never occurred. But the output gap created by the last recession was so large and recovery so slow that the gap has not even started to close yet and at this rate will not close before a new recession makes the gap even larger.

We call this stuck condition of the economy an Output Gap Trap because the economy is not growing fast enough to escape before a new recession opens the gap wider, making escape even more problematic. The implications are for even higher unemployment, an even weaker housing market, and even more dramatic policy measures to try to get the economy growing again. Since we have developed this unique understanding of the condition of the economy and have concise language to use to refer to it we have a foundation to build on to determine its future direction and the precise language we need to use to discuss it conceptually. Out Output Gap Trap concept explains why cost-push inflation from high energy prices are not being transmitted to wage rates in a typical price-wage spiral: demand is still too weak to produce demand-pull inflation. Instead the inflation that the Fed is creating shows up as declining product and services quality. We were able to forecast this outcome here in 2008 because of our understanding of the consequences of reflation policy in the context of an Output Gap Trap. Careful use of language to describe the processes involved keeps us from losing our way in the economics conversation de jour, such as about financial repression, the new normal, or what have you. The entire framework of discussion of economic policy is flawed because it is based on the erroneous assumption that if the Fed just keeps inflating enough and if Congress keeps raising the debt ceiling to allow the government to continue to stimulate the economy via deficit spending that eventually the output gap will close. The "debate" is over what kind of policy should be used. The fact is that none of the policy options currently on the table can possibly work because if and when the economy falls back into recession before the output gap closes from the previous recession the impossibility of escape and the implication of this will become apparent to the bond markets.

To develop a valid theory of the future of the UST bond market we have to be clear about the events that led to this point and we have to be clear and concise in our use of language to describe the circumstances of the UST market.

The market for the Treasury bonds of a country whose economy is stuck in an Output Gap Trap and kept afloat by government borrowing cannot be called a "bull market" despite historically low interest rates. If corn prices increased for 20 years we'd call that a bull market in corn. If subsequently corn prices crashed and the government then stepped in to support corn prices at an even higher price than they were at before the crash, because the economy ran on corn and the government was afraid of the impact on the economy of a lower market price for corn, we would not call the resulting rise in corn prices a bull market in corn. We would not say that corn prices had been repressed. The concise term is price fixing.

Note the long end of the yield curve in Q1 and Q2 2009 before price-fixing operations started.

Of course our economy doesn't run on corn. At this time and since 2009 it runs on money borrowed against the Fed's and Federal government's balance sheets. The borrowing is done by issuance of UST bonds. The Fed by creating demand for the bonds issued by the Treasury has produced an artificial and temporary shortage of a wide range of bond maturities. The Fed thinks it can safely extricate itself from this role in the future. History says otherwise.

[A Dub]

Re: Election as Forcing Function - Part I: On Track for a Bond Market Panic - Eric Janszen

The "debate" is over what kind of policy should be used. The fact is that none of the policy options currently on the table can possibly work because if and when the economy falls back into recession before the output gap closes from the previous recession the impossibility of escape and the implication of this will become apparent to the bond markets.

EJ, 2 questions for you:
1. Have you sold every last one of your Treasury's yet?
2. If not, why not, given your forecast of a bond market crisis?

Thanks