Consider: normally, during international crises, financial crises, etc., a phenomenon occurs known as “flight to safety.” In the past, this has been synonymous with “flight to the dollar.” During normal economic times, risk assets (stocks, commercial buildings, etc) are a good way to earn return on your investments. When a crisis hits, there is a mad rush to dump risk assets and try to weather the storm without losing money. Under these circumstances, investors have for decades fled to the relative safety of U.S. Treasury Bonds, Notes, and Bills. These pay a much lower return but in the past they have guaranteed at least the return “of” capital, if not a high return “on” capital.
It has also been customary for the central banks of the world to boost the value of the US Dollar, boost the DOW and S&P, and smack down the prices of precious metals, as the Federal Reserve Chairman was speaking before CONgress. This was to indicate to all the power of the banks, the agreement of the markets with the words emanating from the Chairman’s mouth, and the investing public’s confidence in the central banks’ ability to skillfully manage the economy. In other words, its purpose was to maintain and reinforce the illusion that central banks are good things and managed economies work just fine. Of course, we know those are lies, but the banks are powerful and so is the illusion.
Those things seem to have changed. The Bernank has testified before CONgress yesterday (1 March) and today, but the USD has dropped like a stone and precious metals prices have surged; gold is at $1438.00 per ounce as I write this. Wholesale gasoline is at $3.00 per gallon, which means by the time it gets to the pump it will be about $3.45 or so. The Libyan civil war is becoming more destructive, not less, but where is the flight to safety? Could it be that no one believes the Ministry of Truth’s ridiculous statements about the unemployment rate magically dropping to 9%? Has the stream of government economic and political propaganda finally gone from the sublime to the ridiculous? Or is something more interesting afoot?
Is The Bernank about to be replaced by someone more “competent?” I’m reminded of the fable of the hated king who, while walking in his kingdom one day, finds a woman praying for him to have a long reign. Delighted to find someone who cares so much for him, he asks her why. She replies that every time we get a new king he is worse than that previous one, and so she hoped he would be king for a long time.
If you think things are bad now, just wait.
This just in: Zerohedge brings us this from Merrill’s Harley Bassman (no other link provided; see, it’s not just me…):
- Maybe I am showing my age, but I can assure you that as World Political events go, what is happening in the Middle East is actually the BIG ONE.
- Respectfully ignoring the moral aspects of what is occurring and only focusing upon the cold numbers of dollars and the economy, we have tossed some serious uncertainty into the mix.
- Without stepping over the line and opining as to all the various outcomes that do not bode well, let’s just say that the 20bps rally in the T10yr since the “pot started to boil” is microscopic relative to the scope of events.
- The reason there is no “Flight to Quality” bid for USTreasuries is that USTs are no longer the “Quality” asset. Since the FED has turned on the printing presses, the “value” of the dollar has steadily declined. This is why the “Flight to Quality” is happening in Gold, Oil, Copper, Cotton, etc.
- Attention all you non-inflationists (and you know who you are), what more evidence do you need that the Govt’s Plan “A” (inflation) is well underway?