Stocks Bounce As Germany Sells First Negative-Yielding 30-Year Bond

The "scary" thing - mentioned here yesterday - that sent traders rushing for the exits on Tuesday in major markets from Germany, to France, to the United States, was probably anxiety and anticipation of Germany pricing the first 30-year bond at a negative interest rate.

Germany was looking to sell $2 billion of the bonds, but managed to only sell $965 million of the debt, which eventually priced out at a yield of -0.11%. So, essentially, it was a failed auction, with the Bundesbank scooping up the rest, allegedly to be sold later on to other suckers, er, investors.

Now, that may not sound like a big deal at the outset, but losing a little more than a tenth of one percent on your money over 30 years can add right up. On $1 million, in the first year, it would be $1,100 that you'd just let go. Each year, the amount you'd lose would be lower, but it would still be 0.11%.

Just rounding it off, you'd lose about $30,000 of your money, leaving $970,000. If there was inflation during that period of time, the money would be worth much less in buying power at maturity in 2050.

There are some very bad implications surrounding negative interest rates. First, they are money destroyers. In the fiat money, fractional reserve banking system now in play worldwide, all money is debt. The Fed or other central banks create money (more accurately, "currency") by floating bonds, selling them to interested parties, at interest, creating a debt. The primary dealers, who are the principal buyers of the Fed's bonds (treasuries), create more debt by reselling the bonds or loaning money to companies or individuals.

However, bonds with negative interest rates cause negative debt, or, rather, a surplus, to the Fed, but this money extinguishes debt rather than creating it. If the supply of negative interest-bearing bonds becomes too large, it will cause a contraction in the money supply, which is what is happening in Germany and most of Europe presently. All of Germany's sovereign bonds are yielding negative returns, as are most of Europe's.

The continuation of such a program, especially if it catches on and sends yields further into the red, like one, two, or even three percent, would have the effect of choking off the money supply completely, destroying, once and for all, that currency.

The math is straightforward. If you have a million dollar bond with a -3.00% yield, you lose $30,000 the first year, and smaller amounts each consecutive year, since your principal is getting smaller year-over-year.

If that bond is for 10 years, it's going to lose somewhere in the neighborhood of 25% of its value, leaving you with $750,000 of your original million dollars. At three percent for 30 years, the result is the loss of up to 90% of your original investment, if the bond (at par), continues to pay -3% on one million dollars.

I may not have that exactly right, but the principle is correct and the money supply will be shrunk by negative yielding bonds. This is a very dangerous situation which bears close scrutiny because it very well may be the signal that global central banks are on the verge of forcing all sovereigns into default, destroying the money supply of many nations, and replacing national currencies with a worldwide unit of exchange.

It is, as the conspiracy theorists contend, what the globalists have had in mind for many years. With negative interest rates, they can slowly kill off the yen first, then the euro, then the US dollar. What will happen with the Chinese yuan or Russian ruble and other not-so-mainstream currencies remains to be seen, but a calamity of this proportion is likely to leave most other countries begging for some kind of solution, which the central banks will gladly supply.

At the Close, Wednesday, August 21, 2019:
Dow Jones Industrial Average: 26,202.73, +240.29 (+0.93%)
NASDAQ: 8,020.21, +71.65 (+0.90%)
S&P 500: 2,924.43, +23.92 (+0.82%)
NYSE Composite: 12,697.01, +97.61 (+0.77%)


Just for fun, somebody posted this on Zero Hedge the other day:
Nostradamus: (Cent. 8 Quat. 28)

Les simulacres d'or & argent enflez,
Qu'apres le rapt au lac furent gettez
Au desouvert estaincts tous & troublez.
Au marbre script prescript intergetez.

Translates as:

The copies of gold and silver inflated,
which after the theft were thrown into the lake,
at the discovery that all is exhausted and dissipated by the debt.
All scripts and bonds will be wiped out.

or,

The simulacra of gold and silver swell,
After the lake rapture were gone
At the open all are overcome & trouble.
At the marble script prescript intergetez.

US and European Markets All Suffer End-of-Session Dumping

The major indices - not just in the US, but it Europe as well - fell victim to late-day large scale stock dumping, with all US indices, along with Germany's DAX, France's CAC 40, Britain's FTSE, and the Euronext 100, closing at the low points of their respective sessions.

This can only indicate one of two things: a rebalancing was taking place in the indices, or, big moneys getting out of stocks before Wednesday's opening.

The first case is probably not feasible, since these various indices do not rebalance all on the same day. That would lead to serious dislocations and confusion. Thus, that leaves the second case, in which some large traders with inside information made a hasty exit in anticipation of something terrible on Wednesday. What that terrible thing may be is currently unfathomable, but will probably come to light when European markets open on the morrow.

Market conditions such as this cannot be viewed as one-offs, as they are occurring with too much regularity. There's far too much volatility and sudden reversals to be credited to randomness; it's much more likely that markets are being manipulated by a cartel of central banks and their agencies, the major brokerages, meaning that the average investor is once again left holding a bag of stocks worth less than they were the day before.

One can claim conspiracy often enough to attract attention, and then division, which is why the regulars in the financial media will never let loose with any opinion even tangentially touching upon a conspiratorial theme. Those outside the mainstream have no such binding authority as a job or a narrative, so it's left to bloggers and speculators to sort out the less-than-obvious maneuverings in the market.

While the losses were not large, they were uniform, which indicates at least some coordination.

At the Close, Tuesday, August 20, 2019:
Dow Jones Industrial Average: 25,962.44, -173.35 (-0.66%)
NASDAQ: 7,948.56, -54.25 (-0.68%)
S&P 500: 2,900.51, -23.14 (-0.79%)
NYSE Composite: 12,599.41, -88.51 (-0.70%)

This Is A Short Squeeze

When stocks power ahead, especially after a severe downturn (such as last week's), there is normally a good amount of short squeezing going on, as individuals who borrow stock in an attempt to unload it at a lower price, thus raking in the difference (short sellers), are forced to cover (buy at a higher price than they anticipated).

The amount of money that short sellers can lose in conditions like this are unlimited, so there's a strong urge to limit losses. It's all very sophisticated, this short selling and short-squeezing, generally the province of high frequency traders at dealer hubs. Neither practice is recommended for the average 401K investor.

When short-squeezes occur, they are usually one-day events, after which the markets return to some semblance of normalcy, though "normal" is a highly suggestive description under current market conditions. Individual stocks and whole indices are being whipsawed daily by the cross-currents of currency devaluation, trade war rumors, economic data, and yes, even the occasional quarterly corporate report.

Thus, traders and analysts are well-advised to do some smoothing out of all the noise in the markets, focusing on moving averages and daily ranges, rather than final prices. In that regard, the major US indices are between their 50 and 200-day moving averages, which implies plenty of volatility, setting up both buying and selling opportunities over the near term for those with high risk tolerance (hint: probably not you).

Day-traders, otherwise known as major broker-dealers, will have a field day in such an environment, though history is rife with examples of traders being spectacularly wrong and losing billions in the process. That's likely to happen in the current environment, if only because people never, ever, ever learn from the mistakes of others.

Expect more volatility, with a tiny edge to upside trading, though different sectors and different stocks will move in different directions.

Choose wisely.

At the Close, Monday, August 19, 2019:
Dow Jones Industrial Average: 26,135.79, +249.78 (+0.96%)
NASDAQ: 8,002.81, +106.82 (+1.35%)
S&P 500: 2,923.65, +34.97 (+1.21%)
NYSEComposite: 12,687.91, +107.50 (+0.85%)

WEEKEND WRAP: Stocks Lower Third Straight Week; Treasury Curve Inverts

Stocks took another turn for the worse, the third straight week in which the major averages shed points. That would constitute a trend, especially considering what happened on the Treasury yield curve, where the two-year note inverted against the 10-year-note, yielding - for a short time - one basis point more than its longer-term counterpart.

Additionally, bonds with negative yields globally moved beyond the $16 trillion mark, with Germany, among other EU countries, having its entire bond complex falling below zero yield.

Those two events in bond-land are going to prove to be crippling to global growth and the effects are already becoming apparent.

Negative interest rates destroy the time value of money. Debt is discarded. Without debt, there is no money, except for that which has no interest or counterparty. That would be gold, silver, hard assets. Gold and silver have been rallying while national central-bank fiat currencies fluctuate against each other in the desperate race to the bottom.

The idea that the country which can devalue its currency fastest and lowest will be the winner in the trade arena is offset by the fact that weak currencies - while great for exporters - are not necessarily good for that nation's consumers, because imports would necessarily become more dear.

The desire to send interest rates into negative territory - a concept launched by the Japanese and quickly taken up by Europe after the GFC - is a marker for the death of currencies, i.e., fiat money.

Negative rates are inherently deflationary, which is exactly what central banks wish to avoid, because it voids their franchise. Fiat money - which is in use globally - will die, not by hyperinflation, but by hyper-deflation.

That has been the working thesis at Money Daily since 2008, and it appears to finally be setting off into a new phase.

Facts must be faced. After the crash in 2008, banks became insolvent and were bailed out by trillions of dollars, yen and euros from central banks, which, by their very nature of money creation out of thin air, are also insolvent. Most governments are either deeply in debt or insolvent, with massive debts to their central banks offset by national resources (see Greece). Most people's finances are in a state of insolvent, with debt far outweighing assets. That leaves corporations, large and small, as the only solvent entities in the world, though many of those corporations are also insolvent, with more debt than equity, and much of their equity accounted for by stock buybacks. When the market takes a meaningful dive, many of these corporations will be prime bankruptcy targets, though the government would almost surely step in - as it did with the banks and General Motors during the crisis - with freshly-minted money to stave off creditors.

All roads lead back to the fiat money system and fractional reserve banking.

We have broken countries undertaking broken trade in broken markets. Mal-investments and wealth inequality are proliferating. Big government, running enormous deficits, carries on the fraud of counterfeiting by central banks. The currencies commonly used in exchange are worth nothing more than the ink and paper upon which are printed the pretty pictures and numbers. They are all debt instruments and negative interest rates extinguish debt. The world is headed for a radical reconfiguration of the monetary system.

At the Close, Friday, August 16, 2019:
Dow Jones Industrial Average: 25,886.01, +306.61 (+1.20%)
NASDAQ: 7,895.99, +129.37 (+1.67%)
S&P 500: 2,888.68, +41.08 (+1.44%)
NYSE Composite: 12,580.41, +170.91 (+1.38%)

For the Week:
Dow: -401.43 (-1.53%)
NASDAQ: -63.15 (-0.79%)
S&P 500: -29.97 (-1.03%)
NYSE Composite: -168.01 (-1.32%)
Dow Transports: -239.89 (-2.35%)

Ignore the Noise as Markets Grind Bond Yields Toward Zero

Thursday's trading saw more of the usual up-and-down twerking that usually accompanies large moves in either direction. After Wednesday's rout - the fourth-largest point decline on the Dow Industrials - some bounce was expected, and it did occur early, though markets slipped into the red midday before being rescued by apparently-optimistic investors (central banks, PPT) into the close.

Interesting is the idea that Wednesday's selloff was not met with more panic in the media and by the general public. Stocks have been volatile since October of last year, so the possibility that people are zoned out from the near-constant drubbing and recovery is real.

People should actually care that their college retirement funds are at so much risk in stocks, but that doesn't seem to be the case among the 401K crowd. Getting used to uncertainty is a kind of Stockholm syndrome that is inimitable to the Wall Street casino. The general public may get agitated more over mass shootings, tweets by the president, or a bad call in an NFL game, but when it comes to the money betting on their futures, they are sheepish.

Maybe that's a good thing when talking about market noise, but an 800-point drop on the Dow is something that shouldn't be ignored or overlooked. There are damn good reasons stocks get hammered, and even passive investors should express at least a modicum of concern.

Be that as it may, Thursday was more of the noisy variety, though most other markets - bonds, commodities, futures, FX - were being bounced around pretty vigorously, especially treasury bonds, where the 10-year-note continues to fall, reaching for all-time lows.

The 10-year is hovering in the 1.47 - 1.65 range. The all-time low yield on the benchmark 10-year was 1.375, on July 5, 2016. Anybody wearing a thinking cap clearly sees where this recent decline is headed. With now $16 trillion in bonds yielding negative returns globally, US treasuries stick out like sore thumbs. In the race to the bottom, the 10-year will fall below the record low yield. It's simply a matter of time. Eventually, US bonds will likely carry negative yields as the global financial system, rescued by central banks in 2008-09, completely falls apart over the next three to five years.

Money is dying. Fiat money will die quite painfully.

At the Close, Thursday, August 15, 2019:
Dow Jones Industrial Average: 25,579.39, +99.97 (+0.39%)
NASDAQ: 7,766.62, -7.32 (-0.09%)
S&P 500: 2,847.60, +7.00 (+0.25%)
NYSE Composite: 12,409.54, +41.49 (+0.34%)