I am truly amazed at what I am seeing out there in the markets these days. I also understand and share the frustration of the many analysts who know what “should” be happening but is not.
What should be happening is massive, self-reinforcing deflation caused by debt destruction and resulting from the housing bust and retreat of consumer borrowing.
These are harrowing figures:
One in Four Borrowers Is Underwater
The proportion of U.S. homeowners who owe more on their mortgages than the properties are worth has swelled to about 23%, threatening prospects for a sustained housing recovery.
Nearly 10.7 million households had negative equity in their homes in the third quarter, according to First American CoreLogic, a real-estate information company based in Santa Ana, Calif.
There is simply no doubt that a finally defeated US consumer is in full retrenchment mode. With one-in-four houses now with a mortgage ‘underwater,’ the great consumer credit bubble is well and truly over. Deflation should be driving down assets (like stocks and commodities).
However, our financial markets are telling a very different story, with signs of plentiful, if not rampant, liquidity everywhere.
First, in the largest market of them all (by sheer size) is the bond market. There we find staggeringly large Treasury auctions being held week after week with stupendously low yields and suspiciously high ‘indirect bidders’ (foreign central banks) showing up each week.
Check out the results from this week.
Monday November 23
11:37 [UST3MO] Treasury sells $31 billion 6-month bills at 0.142%
11:37 [UST3MO] Treasury sells $30 billion 3-month bills at 0.041%
Monday November 23
1:04 [UST2YR] Treasury sells $44 bln in 2-year notes at 0.802%
1:04 [UST2YR] Bidders offer $3.16 for each $1 in 2-yr debt sold
1:04 [UST2YR] Indirect bidders buy 44.5% of 2-year note auction
Tuesday November 24
1:05 [UST5YR] Indirect bidders buy 61% of 5-year-note auction
1:05 [UST5YR] Treasurys extend gains after 5-year-note sale
1:04 [UST5YR] Treasury sells $42 bln in 5-year notes at 2.175%
1:04 [UST5YR] Bidders offer $2.81 for each $1 of 5-yr debt sold
Treasurys gain, straight through 2-year auction
NEW YORK (MarketWatch) — Long-term Treasury prices advanced Monday, maintaining higher ground as the government’s 2-year-note sale received sufficient demand, kicking off $118 billion in debt sales scheduled for this holiday-shortened week.
by lemonyellowschwin