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Discussion in 'The Kruse Longevity Center' started by Jack Kruse, Mar 11, 2021.

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  1. Jack Kruse

    Jack Kruse Administrator

    Q: Why does gold go down with every interest rate hike?
    A: Because it makes golds competitors more attractive due to the now higher yield
    JanSz and ND Hauf like this.
  2. Jack Kruse

    Jack Kruse Administrator

    Things are really heating up now. Japan selling USD/UST to defend the Yen for first time since 1998.


    • Contrary to what we saw in previous crises, we now
    have a debt crisis at the sovereign level. This is
    exacerbated by rising energy prices and deglobalization.
    It is being felt in the Fx market big time now

    • The Federal Reserve needs to hike rates in order to curb
    inflation on the one hand but needs higher asset prices
    in order to obtain higher tax receipts for the Treasury to
    pay off their deficit on the other. People do not realize
    the rapidity of the raise is historic. Fewer realize why.
    They are defending from hyperinflation

    • Since the fall of the USSR in 1990 there has been a slow
    and steady acceleration back to a more decentralized
    global system, primarily around energy. Russia has taught
    Biden/EU you can print money but you can't molecules
    of energy and it is real money driving inflation globally

    • China, Russia and other BRICS are moving away from pricing
    oil and other commodities in US dollars. This is causing
    a backlash from the US, which are trying to protect the
    petrodollar/eurodollar system fueling chronic global inflation

    • This will drive a steady gold bid from foreign central
    banks over time. It will fuel BTC massive rise in the next 5 yrs.
    Holding physical gold will become
    more important to central banks. Holding physical
    BTC is what taxpayers will need

    • The Federal Reserve wants to avoid yield curve control
    and certainly explicit yield curve control at all costs. It is
    likely that we will see the US government purchasing
    Japanese bonds within the next few years. They will
    only do this for allies = INFLATION is never going down in the
    fiat world again.
    ND Hauf, JanSz and GavinH like this.
  3. Jack Kruse

    Jack Kruse Administrator

    What a strong DXY does:

    A strong dollar helps in the fight against domestic inflationary pressure but the US is using it to inflict pain.

    Economically, a strong dollar suits the US in a way that it didn’t in 1985. The greenback’s vertiginous rise in the late 1970s and early 1980s was driven by a Federal Reserve waging a war against inflation by dint of a monetary policy of sustained savagery. Besides the damaging double-dip recession of the early 1980s, often forgotten is that this policy also led to the Latin American debt crisis. That crisis was sparked by the effect of sharply higher interest rates and weaker currencies on a huge pile of foreign-currency loans, mostly from large American banks, which promptly became insolvent.

    Today's version of Latin America is China. The USA is trying to punish China for helping the Petrodollar attack with Russia and for keeping them hamstrung so they cannot invade Taiwan. The US is, today, in essence, weaponizing the greenback and China is the target. Think of China as Latin America in the early 1980s and of the US taking advantage of similar fragilities. As pretty much any data point that is not produced in China shows, the country’s economy is in appalling shape after having gorged on debt for many years. One analyst I know on Wall Street and respect calculates that Chinese property companies have to roll over 60 trillion yuan ($8.55 trillion) of liabilities this year. Rolling over debt in a domestic market is hard enough. As Latin America in the 1980s showed, rolling over foreign-currency loans is more life-threatening altogether. We are seeing massive weakness now in Asia Fx markets and the US is partially to be blamed. The higher the US currency goes, the more painful it becomes for Chinese companies to pay off their dollar-denominated debt. That, of course, is the point. We/re at economic war with China already

    With higher rates, the government knows that banks won't lend due to counterparty risk. The US is using this against China but its causing failures in Japan and Germany Fx markets as we speak. The Bank for International Settlements (BIS) estimates that China’s banks alone owe $800 billion to foreign banks. Andrew Hunt, an independent economist, says that is a vast underestimate, with the Bank of China owing that much on its own. The total amount for China's biggest banks, Hunt says, is more like $3.5 trillion.

    Worse still for Chinese borrowers, foreign banks are shrinking their overseas lending. The US knew this would happen. And not just the big American ones, which have been reducing their offshore dollar exposures for a few years now and are the main suppliers of offshore dollars. So, too, are their Japanese and European counterparts because their currencies are dropping fast. These pressures are only likely to intensify as year-end approaches. So is demand for dollars, however much other countries bleat.
    GavinH, JanSz and ND Hauf like this.
  4. Jack Kruse

    Jack Kruse Administrator

    I said, "Worse still for Chinese borrowers, foreign banks are shrinking their overseas lending. The US knew this would happen. And not just the big American ones, which have been reducing their offshore dollar exposures for a few years now and are the main suppliers of offshore dollars. So, too, are their Japanese and European counterparts because their currencies are dropping fast. These pressures are only likely to intensify as year-end approaches. So is demand for dollars, however much other countries bleat."

    CCP removed Xi today.

    big move.

    Not good for Putin's petrodollar assault.
    GavinH and JanSz like this.
  5. Jack Kruse

    Jack Kruse Administrator

  6. Jack Kruse

    Jack Kruse Administrator

  7. Jack Kruse

    Jack Kruse Administrator

    Fx instability = credit default swaps up = interest yields rise and this causes pension fund stress. They become underfunded.
    As Interest rates rise & inflation goes up the *derivatives* subjected UK pension funds to "bank runs." Why? Because *more COLLATERAL is needed* The markets are structurally short collateral in this environment. This is one reason why central banks can't keep letting fiat-backed stablecoins grow--because they silo collateral value from fiat assets.
    JanSz likes this.
  8. Jack Kruse

    Jack Kruse Administrator

    JanSz likes this.
  9. Jack Kruse

    Jack Kruse Administrator

  10. Jack Kruse

    Jack Kruse Administrator

  11. Jack Kruse

    Jack Kruse Administrator

    What I see presently on 9/28/22:
    England is Bear Stearns
    Japan is Lehman
    The EU is Long Term Capital Management
    Few understand how the Fx market and energy inflation will drive credit default swaps and a collapse in big tech (see Apple and Meta today)
    Even fewer understand how the derivative market in the US is a time bomb for the market making investment banks in the US
    JanSz likes this.
  12. Jack Kruse

    Jack Kruse Administrator

    If governments really wanted to contain inflation, they would work to stop spending & run budget surpluses as quickly as possible. Instead, they are relying on issuing more debt at a time central bankers are tightening & draining liquidity. This won't end well.

    Japan interventions, UK pound/gilts, Germany’s energy crisis, failing business due to a lack of electricity and Europe’s record pessimistic consumers, India’s fast-disappearing forex, US retailers caught off guard with historic inventory, even China's Yuan has been beaten down by Xi’s ZERO-DISSENT policies. Market inversions. TIPS. 27 down weeks for bonds so far in 2022. Most in US history

    Hurricane warnings are in markets. But few really get what's coming.

    The WEF placed Disposable Idiots, like Biden/Zelensky for Great Reset. HOW TO Manage this RESET: - Provide value to your audience - Convert fiat & save in Bitcoin - Take Bitcoin into self-custody - Hold bitcoin long-term - Spread Truth & the sound money gospel REPEAT https://pic.twitter.com/BmnFJ9ie74

    For the ignorant who say BTC isn't an inflation hedge. Suck it. https://pic.twitter.com/WTnuJOQmWf
    JanSz likes this.
  13. Jack Kruse

    Jack Kruse Administrator

    Government interest payments going vertical. This will only increase dramatically and will have an ever larger impact on the US budget. This is why you need BTC insurance. With the current presumed terminal rate of the Fed funds rate we're looking at over $1 trillion/per year much larger than the US defense budget. [​IMG]
    JanSz likes this.
  14. Jack Kruse

    Jack Kruse Administrator

    Moments ago the BEA reported that in August, personal income and spending came in 0.3% and 0.4%, respectively, the former in line with expectations (0.3%) and slightly higher than the 0.2% increase in July, while the latter, spending, printing well above the consensus forecast of 0.2% and far above July's -0.2% decline......there is still more than enough to keep inflation red-hot, and indeed the punchline from today's report is that both PCE and core PCE - the Fed's preferred inflation metric - came in well above expectations. To wit, on an annual basis, headline PCE printed 6.2% Y/Y, above the 6.0% expected (below July's 6.4%), while core PCE came in at 4.9%, also above the 4.7% expected, and unchanged from an upward revised July print.
    JanSz likes this.
  15. Jack Kruse

    Jack Kruse Administrator

    But where the PCE data truly stood out was on a MoM basis, where the core print of 0.3%, came in far above last month's -0.1% drop and also well above consensus expectations of 0.1%, while the headline print of 0.6% unexpectedly came just shy of record highs, and above the expected 0.5% print.
    Expectations on Bloomberg were for PCE Core Deflator YOY to be 4.7%, with the “whisper” number at 4.8% led by Nick Timiraos from the WSJ (believed by many to be the unofficial voice of the Fed). It came in a touch high at 4.9%, but just like European bonds largely held their own after a high Eurozone CPI of 10%, treasuries holding firm here – a sign that so much is priced in.

    Anyone who says inflation has peaked should be ignored. They are ignorant.
    JanSz likes this.
  16. Jack Kruse

    Jack Kruse Administrator

    Prediction in EU soon:

  17. Jack Kruse

    Jack Kruse Administrator

    JanSz likes this.
  18. Jack Kruse

    Jack Kruse Administrator

    “Volatility vortex” is a polite way to say “US govt Balance of Payments problem similar to the one that just forced the BoE back into QE despite elevated inflation.” ‘Volatility vortex’ slams into $24 Trillion US government bond market | Financial Times
    JanSz and ND Hauf like this.
  19. Jack Kruse

    Jack Kruse Administrator

    Everyone needs to understand the optimal Rx in this economic environment. The math is clear (at least back tested is undeniable. It’s a 20 vol asset which means you can capture 100% of the market upside with only a 5% allocation. This gives you a lot of flexibility with the other 95%, cash if you want. If you have kids and like to sleep at night BTC is about your only good option in this backdrop.
  20. Jack Kruse

    Jack Kruse Administrator


    Why should this chart stun you? Why are nominal rates rising when inflation is supposed to be falling?

    Is it possible inflation isn't falling?

    Is it possible something else is going on?

    Bond yields are rising even as inflation expectations are falling. One would expect the opposite to happen, as inflation easing means the Fed won’t have to raise rates quite as much as markets fear, and so yields should fall accordingly.

    But that’s not the case. Why?

    One reason may be that demand for US Treasuries has all but dried up. No one is buying UST. Which then begs the question, what happens if a bond auction for USTs fails, and what exactly does that mean?

    What we’re talking about here today are auctions hosted by the US Treasury to sell bonds in order to finance the public debt.

    Treasuries are named according to their term (length of maturity):

    • Treasury bills have terms shorter than 1 year are called (or T-bills);

    • Treasury notes are shorter than 10 years (Notes),

    • Treasury bonds exceed 10 years (Bonds),

    • and then there are Treasury Inflation Protection Securities (TIPS) and Floating Rate Notes (FRNs) with various maturities.

    Treasury auctions occur pretty regularly, on a set schedule. About 300 public auctions are held each year. So far the US Treasury has auctioned about $11.2T of bonds, so far, in 2022. It is Big business because the US Treasury needs auction to run its Ponzi scheme. If the money stops coming in the game is over.

    First, to participate directly in an auction, a bidder must have an established account. Institutions use TAAPS (Treasury Automated Auction Processing System) and individuals use a TreasuryDirect account.

    Individuals can only place non-competitive bids, where they agree to accept whatever discount rate (yield) is set by the auction.

    Institutions can place either non-competitive or competitive bids, where the bidder specifies an interest rate they are willing to accept.

    Institutions can also trade in advance of an auction, and then settle with each other when the auction happens. This is called the when-issued market and is pretty important to our discussion, so we’ll talk more about that in a bit.

    Back to the auction itself.

    Once an auction begins, the Treasury first accepts all non-competitive bids and then conducts an auction for the remainder of the amount it is looking to raise. This is where competitive bidders are unsure whether they will be filled at their price or not.

    The process is called a Dutch auction.
    caroline, JanSz and ND Hauf like this.
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