Investors are selling their bonds all around the World and that’s forcing yields higher despite the best efforts of the Central Banksters to keep them in check. The US has $100Bn worth of TBills to sell this week and we’ll see what prices we get but the real danger is, of course, Japan, where 10-year notes carrey 0.461% interest and that’s already up from 0.3% in April. For a country that’s 250% of their GDP in debt and using 30% of their tax revenues just to service the interest on that debt – another 0.1% here or there REALLY MATTERS!
We’re short on Japan, of course, I detailed those trades in last week’s posts, for that simple reason – if rates simply rise to a “normal” level of 1% – the country is going to be unable to service their debt. That’s a very simple premise, isn’t it?
As you can see from the chart, we’ve been having a fantastic time since our top call on the Nikkei at 20,000 (it went a bit over, but we stuck with it) and we already tested 19,000 last week and today we’re back at 19,500 (and playing long for a bounce) but, once 19,500 fails, 19,000 may not hold this time and we could be in for a wild ride down.
The root of our cautious economic outlook lies in the chart above. Even if we ignore the outlying Japan crisis, the US, UK, Germany, France, Italy and Canada are not far behind in indebtedness. Every man, woman and child in the US owes $59,000 in debt already and it’s all fine as long as no one asks anyone else to pay it back but look what happened to Greece when someone did ask for their money back…
Today, at 1pm, the US Government will ask to refinance another $24Bn for 3 years through the Treasury Auction. By flooding the World with money, the Central Banks have insured that there is a ready supply of the stuff but the reality is that Japan, China, Germany, etc. (as well as our own Fed) will buy our debt and, a week later, we will buy their debt and everyone will pretend that’s all fine as the total debt goes up and up.
