Gold broke down last week. The future doesn’t look bright. I can’t sugarcoat it.
The Treasury is injecting still more cash into the market, on top of the $96 billion it already staged last week. It announced on Tuesday (Feb 23) that it will do a third round of T-bill paydowns, this for $25 billion, settling on March 3. This is on top of the $55 billion that is settling today, February 23, and the $41 billion to be settled on Thursday, February 25.
This means that the US Treasury will have injected a total of $125 billion in cash into the market in a week.
These announcements have done no good so far. The prices of longer term Treasuries continue to crash, as this chart of the 20 year Treasury bond ETF shows. It remains to be seen if the actual settlements of the cash, starting today, will help.
As collateral calls go out to dealers, the selling has begun to impact stock prices, as I have long forecast would occur. The crisis that I have warned about is upon us.
Do not be lulled into a false sense of security by the sanguinity of Jaysus Powell and his henchmen at the Fed and in the Wall Street media establishment. The financial system is yet a again at an existential crossroads, and the Fed has yet to indicate that it understands the seriousness of the problem that it has caused with its ever larger and larger systemic bailouts and encouragement of ever increasing moral hazard.
At some point the problem becomes too big to rectify.
The Treasury is spending this money out if its $1.6 trillion cash hoard. Treasury officials are obviously in a panic over the plunge in Treasury note and bond prices that accompanies the surge in the 10 year Treasury yield.
With good reason.
This will have an effect similar to Fed QE. Treasury paydowns put cash directly into the accounts of the dealers, banks, and investors who hold the expiring paper. The paydown of the expiring paper will simultaneously create a shortage of paper in which to reinvest cash.
The Treasury’s goal is to force the former holders of the short term bills to reinvest the cash further out on the yield curve in order to stem the rise in yields and the fall in bond prices.
The injection of $96 billion comes just before the Treasury settles the regularly scheduled net issuance of new notes and bonds at the turn of the month. This cash will help the market to absorb that new paper. Net issuance of that paper will be $174 billion. This was as forecast by the TBAC.
The declining bond prices are crushing the leveraged portfolios of Primary Dealers, with the resulting collateral calls. There’s been an imminent threat of contagion into stocks, and ultimately a systemic crash. We’ve seen vestiges of it in the form of downdrafts in stock prices in recent days. So far, they have not been sustained.
I have been warning about this approaching catastrophe for months. It now appears to be upon us. The Treasury’s injection, and any subsequent ones, will mitigate against that risk for the time being.
See these reports for more details, charts, and explanation, as well as strategy viewpoints.
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