Originally published by Chamber of Merchants
China, Japan, Saudi Arabia Resume Dumping US Bonds
During US trading, the bond market sell-off woke up from its two day rest and continued to sell off.
Who is dumping the United States i.o.u certificates? China and Japan as well as Saudi Arabia are all liquidating their United States bonds. This info reflects September. The most recent info is yet to be released:
Now what’s interesting in a recent Bloomberg news report about the bond market getting dumped, is not that it’s the biggest sell-off since 2012, but that the report states that the reason for the sell-off is that these countries are trying to defend their currencies.
No. That is media trying to subdue a growing panic about the stability and value of US Treasuries.
Let’s quickly sniper that ridiculous statement: China and Japan love having a lower currency compared to the US dollar. They buy almost nothing from the US and they export almost everything. So a lower exchange rate for them is their heaven, their light at the end of the tunnel, their cloud 9. They don’t need to defend their currencies. They don’t want to defend their currencies.
Saudia Arabia, on the other hand did threaten to sell their US bonds if Obama failed to reject the legislation that would allow US citizens to sue the Saudi royal family for their alleged September 11th involvement. Obama is on his way out, so I guess whatever promises he made to them will kind of not be kept.
Remember, the US Treasury/Bond system is the only way that the United States can keep up its level of debt. So when the bonds become worth less and less, the United States gets a little nervous:
As you can see from the ETF fund which trades on US Govt bonds, the sell-off is reaching breaking point.
By the way, China has sold over 1 trillion dollars of US bonds in the last 2 years. And the exchange rate is making it a very attractive sell right now.
Keep your eyes on the bond market: a bond yield spike has preceded every financial disaster in the last 20 years, courtesy of Zero Hedge:
I am not advocating a crash though.
I am merely pointing out that the bond market is misbehaving and this may have larger implications across the markets. I do also reiterate that the United States cannot raise money if nobody wants to buy their bonds.
Why are China and Japan liquidating their assets? Maybe the exchange rate is the best that it will be for a long time. Maybe they don’t want to lend the United States any more money since they’re about to ask for more early next year. I cannot say, but it’s not for the reasons the media are telling us. (The media were wrong about Brexit, wrong about Trump, wrong about…bond market?)
Watch this space. (I’m holding gold so I watch this space while being able to sleep at night).
US Dollar and Gold
So the US Dollar sits at 101!
Fancy that.
The exchange rates across the markets are the lowest they’ve been for months, which is great for exporters everywhere.
Gold, as discussed as a probability yesterday, took a step back and touched $1210.50 USD.
This was on the economic news from last night:
But Merchant, that doesn’t look so great? The employment is lower than expect…oh… that’s Australia…moving on.
But Merchant, that doesn’t look so great? The Core CPI (inflation) is lower than expected… Lower inflation, therefore raising rates may slow inflation more.
But Merchant, that doesn’t look so great? The Fed Manufacturing is much lower than expected..Lower manufacturing, therefore raising rates will slow the economy and manufacturing will slow even more.
But Merchant, that doesn’t look so great? The housing permits have increased…Raising interest rates will increase the debt repayments of all mortgages and slow down the economy.
So then why is the dollar higher if the case for interest rates are lower?
Look at the last entry on that list above: ” Fed Chair Yellen Testifies”.
And what did she testify? Irrespective of the economic data:
Dr Yellen said the Fed could increase interest rates “relatively soon”.
So the dollar rallied anyway.
Amazing how one person with words can defy economics with a vague statement and turn the markets in a direction while everything else points in the opposite direction.
Conclusion
Once again, it’s a nothing day. I’m satisfied with my positions and would still not be surprised to see USD gold at least testing $1190-$1200 before the reversal. Remember, all this madness comes to an end on December 14th when the interest rate decision is announced. I will post a chart later today regarding interest rates , the dollar and gold.
Remember , Remember the 14th of December.
This may be the calm before the storm.
Don’t take unnecessary risks. Don’t become complacent.