Inflation Unwind?

Because I am short the US Dollar, I watch US Treasury auctions very carefully. They continue to be under subscribed requiring "Primary Dealers" to buy what is unsold. This is the downside of the normally positive edge you get for being crowned a Primary Dealer.

The problem I see is that the amounts being bought month after month by these primary dealers exceed the cash on hand in the balance sheets. This means that the transactions are being conducted off balance sheet and someone is giving them the money to do the purchase. There are only two entities large enough to fund such actions: (1) the Federal Reserve itself could print the money and give it to the PDs off-balance sheet or (2) The CBO China could do it (but I doubt it).

Action (1) above is essentially quantitative easing [printing money] but being performed in a way that is invisible. This is becoming too big to unwind with annual US debt approaching $2T/year. This means inflation.

While I strongly feel that Action (1) is happening, I was is a discussion group with a fairly intelligent Conspiracy Theorist who believes Action (2) is happening. His idea is that Countries conquering other countries through war is passe'. He believes the 21st Century conquering is done by one country simply purchasing another. It is bloodless, doesn't destroy valuable assets and allows the respective economies of both countries to stay intact. He laughs when I point out that I think the US should sell Alaska to China by saying that I am only partially right. He contends that the whole country is being sold for the purpose of creating a New World Order, elimination of the United Nations, a the formation of a "Mega Country" [China US merger] which will control the world.

When I hear stories like this it makes me think my assessment of the situation is very rational. I think off-balance sheet is happening in a very big way.

Keep an eye on UDN, it is a method for US Citizens to short the dollar.

Customer Relations

This post is an addendum to:
http://tedbits.blogspot.com/2009/06/customer-segmentation-on-global-scale.html

And is based on a new article reported here: http://apnews.myway.com/article/20090728/D99NE5E00.html

Here is your bottom line:

"Obama dispatched his top economic officials - Treasury Secretary Timothy Geithner, National Economic Council Director Lawrence Summers, White House budget director Peter Orszag and Federal Reserve Chairman Ben Bernanke - to try to reassure China that the U.S. will not let deficits or inflation jeopardize the value of Chinese investments.
U.S. briefers said the president's team told the Chinese that the United States was committed to making sure the economic and monetary stimulus being used to fight the recession did not fuel inflation.

The Chinese, who have the largest foreign holdings of U.S. Treasury debt at $801.5 billion, have been expressing worries that soaring deficits could spark inflation or a sudden drop in the value of the dollar, thus jeopardizing their investments. Chinese officials said those concerns were raised during Monday's talks."


What do you think happened? Vote here with your reply:

(A) The Chinese accepted the words of the US government officials because they like fancy speeches and are enamored with clever Americans.
(b) The Chinese asked for and got financial concessions (like inflation protection) for their $800+B investment
(c) The US offered to sell Alaska (after all the US is not using it for anything) to the Chinese for all the US Dollars held by the Central Bank of China and the retirement of all US Debt held by the Chinese
(d) The US Government told China that they (China) were really screwed because we plan to crash the dollar and not pay on any of the debt. [Known as the Argentina Solution]


You can reply anonymously, so let's hear your vote.

Cowboy and Street Thug

FINE PRINT: What follows is a work of fiction. Any references to persons, legal entities or governments (living or dead or undead) is purely coincidental. The following is for entertainment purposes only. Any information that follows is neither a solicitation to buy or sell securities. The writer of this article may or may not own such securities at the time you are reading this article. And, don't be a complete idiot-- do your own research before you buy financial instruments of any kind.

Back in March is posited the following: China and Commodities Will Recover First

It was harder to make money under the cowboy but the new guy is so predictable that this is like taking candy from a baby. No wonder Wall Street loves him and no wonder they supported his election.

The cowboy operated under UN Resolution 1441 and there was no doubt what the end game would be: If the United Nations was to have any credibility then American blood would have to be sacrificed. He wasn't a smooth talker but there was no doubt about his willingness to step into the street for a gun fight. UN Resolution 1441 authorized military action against IRAQ and he took it.

Today we have the new guy. And, we have IRAN. Everthing was fine with a the December 2009 deadline on nuclear ambitions but the new guy decided to publicly move the deadline up to September. There is no UN Resolution that IRAN comply with this on any date! We are mano y mano now baby!

What happens in September?

(a) Will IRAN suddenly capitulate to the United States?

(b) Will the US attack IRAN, without a UN Resolution allowing such, because they didn't meet the September deadline ?

(c) Will the US have its surrogate ISREAL attack IRAN so the US can save face?

(d) Will IRAN ignore the US demand thus allowing a smoother talker of nuance, to point out the differences between cultural calendars and timekeeping that were no doubt at the heart of a timing snafu?

Given that (a) isn't going to happen all the remaining options are financially destablizing with a commensurate "flight to safety" to follow. With US Treasuries increasingly doubtful as "safe" given US government insolvency, some money will go into commodities and China. The dollar will collapse either because the US cannot fund another war, properly pay its surrogates, and/or lose its standing as a world leader.

I continue to like DBA, DBB, DBC, DBO, FXI and GLD.

Computer Pgm To Manipulate Markets Stolen!

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

PROCEEDINGS BEFORE MAGISTRATE JUDGE KEVIN N. FOX,
UNITED STATES DISTRICT COURT


What follows is an excerpt from page 8...lines 3 through 7...

3 activity. In addition, because of the way this software
4 interfaces with the various markets and exchanges, the bank
5 has raised a possibility that there is a danger that
6 somebody who knew how to use this program could use it to
7 manipulate markets in unfair ways.


I am not a lawyer but I play one in the blogosphere. So let me interpret this testimony and then ask some hypothetical questions (which have nothing to do with the case).

FACT: Plaintiff has stated, as a fact, that the program can be used to manipulate the market in unfair ways.


QUESTIONS:

1. How would you define manipulate?
2. Does Goldman Sachs' use of the program constitute manipulation?
3. Would not such manipulation affect the market both during and after the fact of the program's use in both direct and indirect ways?
4. How would you define fair?
5. Does Goldman Sachs' use the program to manipulate the markets unfairly? (this is like asking have you stopped beating your spouse)
6. Is there a qualified, independent body that examines Goldman's use of the program to ensure compliance and absence of malfeasance?

Full text of testimony is posted on SCRIBD here is a convenient link: http://zerohedge.blogspot.com/2009/07/aleynikov-transcript.html

California won't accept their own IOUs?

The US state of California, formerly the 7th largest economy in the world began issuing IOU ("I Owe You") certificates to people and businesses that they couldn't pay because they didn't have enough money. The IOU's are technically registered warrants meaning that they are convertible to legal tender.

Here's the irony: Let's say you were a contractor and did some construction work on state owned building. The state government will give you a registered warrant (IOU) that means they will pay you at a later date. However, if you hold CA Registered Warrants and want to use them pay any bill you owe to the state like taxes, licenses or workers compensation insurance, California will not accept their own warrants in return.

Don't believe me? search their own site: http://www.ca.gov/