"take-off!" ..... says schicht

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    Hans Schicht

    The US long bond has always been my main guide in following the general trend of the markets. So at the end of my last essay, again, I mentioned: watch the US long bond! Well, it came to happen.

    The news is that the long bond has finally reversed course. And this time the FED is not any longer be in the position to reverse the direction of the free markets, like it managed in the spring of 2002! This time, after years of manipulating the financial markets, a far overstretched FED has finally run out of ammunition and control. No interest politics, interventions on the currency markets, manipulation of the precious metal markets, jaw-boning, spreading of rumors, or bluff will work any longer. The markets have gotten the bit between their teethes and are running for it. Interest rates are going to shoot up. Iron, steel, copper and not to forget oil, have broken free. Laughing at the last frantic efforts by the cabal to contain them, gold and silver have started their long journey upward.

    After declining sharply at the beginning of February, - even approaching short term interest rates -, the US long bond rates have shot back up from a pronounced V-bottom at the end of the second week. If the rise continues, and so it looks, it will spell the collapse of the secret buy-back program of the US Long Bond through hidden accounts by the FED and the Exchange Stabilization Fund, (see my essay "The Long Bond Mystery", July 2002. Like all the revelations about the manipulation of the precious metal markets, the stock markets and the oil market, why should the FED through its member banks not have tinkered with the daddy of all markets, their treasury market?)

    Foreigners are holding over U$ 1.8 trillion dollars in US treasuries, lots of it still in long bonds, although all issuance of the thirty year long bond stopped early 2001. The sudden fall in the thirty year long bond prices in the span of only seven working days from about 116 ½ down to 110 ¾ must have wiped out some 5 % of the values of all foreign held US treasury bond investments world wide, taking into account, that shorter bonds fell less. But not only did the US treasury bonds collapse. Over the same period, the dollar itself also fell and well 1½% against the world currency basket. Added together it comes to a 6½% loss in one go, guesstimated to amount to over U$ 100 billion dollars! And now we are talking numbers! A steep and costly decline indeed. It must have come like a bomb shell for the international markets, which are due to react strongly on the double whammy. The last thing Greenspan must have wanted to happen, as it shows him losing his grip on financial events. Greenspan had always been able to avoid the treasury bonds falling simultaneously with the dollar, but finally his powers seem to fail.

    By buying back the long bond on the local US markets on the sly, the FED has managed to drag out the day of reckoning for the dollar for as long as it could. The buy-back also enabled the FED to cushion the unavoidable devaluation of the dollar for its own shareholders, the US Mega Banks. The FED's covered policies have given its shareholder banks the advanced opportunity to bail out from their dollar long bond holdings and dollar stocks and move timely into foreign assets, currencies and treasuries, commodities or whatever away from the dollar, passing the bag on to Joe Six-pack and foreigners. All behind the scenes, through derivative transactions where the banks can camouflage their actions and keep shifts in policy away from the public eye. Do not forget, that the FED is there to protect its share holders, the banks, and not the nation nor the public! However, in how far the New York banks and cohorts have been able to make use of the escape route is another matter.

    The writing is on the wall and time is running out! For the dollar, the banks and their entourage. With the pronounced V-reversal in long term interest rates behind us, rapidl rising interest rates on all fronts and collapsing bond prices are now in the cards. Pushed by the massive dollar liquidity created by the veiled long bond buy-backs and by all the other known and unknown liquidity injections, the first signs of fierce dollar inflation will become markedly visible in the next few weeks already, especially on Greenspan's face.

    Still does the USA have the world by the tail. But if the USA waits too long in letting the dollar slide, the USA will lose out and the others will get the USA by the tail.

    A default of the dollar and the US debt has been planned as the only exit to the exorbitant indulgencies and self inflicted mess of the last decades. The internal monetization of the US long bond to bail out the US Mega Banks has been running for some time. In the next few weeks the external dollar monetization will unfold to the detriment of all foreign dollar asset holders. not to forget Joe Six-pack at home. Worthless dollars paid out in exchange for worthless bonds. And who can claim anything else than paper dollars for the bonds where all US debt is denominated in dollars anyhow?

    History repeats itself: The whole situation is remarkably similar to the Weimar Republic re-purchasing the war-reparation bonds against issuing billions of worthless marks. The process helped Germany to default on its war reparation obligations, but it left the man in the street and the foreigners holding the bag.

    We are going to have a very wild year with mega changes on the financial front, and parallel upheavals on the economic and political fronts. The world will not like it and will react!

    Forget about international efforts to get to new agreements. It is going to be each on his own.

    I am sticking my neck out. But, by not depending on subscribers, what else can I lose than my reputation?

    Hans Schicht
    20 February 2005


    At least this writer speaks in terms of weeks rather than some undefined 'future' so we should know within a few months whether he's correct or just 'blowing smoke'.


    (This article appears at http://www.gold-eagle.com/editorials_05/schicht022005.html.)
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