THE HORROR, Bond traders are white with terror Options

[BHP Tinto]

Gold Battle
Thrilla in Manila!


I want to talk about the bond market today as it relates to gold. And take you into the very real mind of a very real bond trader. Looking at a bond and gold chart is all very interesting if you like watching ivory tower movies. I do. But movies are not the whole picture. Experiencing the market thru the eyes of a real professional bond trader gives you a sensation of reality, in this case a most horrifying reality, that no chart can give you. I'm going to take you into the mind of a major bond trader who is a very good friend of mine.

What's happening in bond land? The latest US govt bond auction was for $110 billion. Two years ago the average monthly bond auction total was $5 billion, $10 billion, numbers like that. The US govt finances its debt with bonds. A $2 trillion deficit means $2 trillion in new bonds needs to be issued. Approx. $200 billion a month.

I want to take you inside the mind of a primary dealer. These are the approx. 20 dealers that have contracts with the US govt to market their bonds. The way the deal works in the govt's mind is: "You buy our bonds and sell them. You can short t-bonds going into the auction and bag a nice profit for yourself. But if you don't sell the bonds to your clients, guess who owns them? You do! If you don't like it, no more primary dealing for you, got it? And maybe we aren't so keen to hand over anymore bailout money or allow fraud accounting of your OTC derivatives. So play ball, or we take you out."

I spent two hours yesterday meeting in person with a very good friend of mine who is retired as the largest govt bond trader in Canada for one of the primary dealers. He still manages $1.5 billion as a side gig. His minimum trade is $5 million. He looks like a pitbull and uses 4 letter words like Mr. Bernanke uses a greenback photocopier. He carefully detailed to me the horrors that began roaring thru the bond market, horrors that are growing, since the shocking $110 billion US govt bond auction was announced for this week.

The bottom line is: There isn't enough money to soak up all the govt paper screaming down the pipe. The $300 billion in total that Mr. Bernanke committed to buy the bonds over multiple auctions, is a drop in the bucket. It's not enough.

There is a daily competition for money in the world's bond markets. The US govt bond is the King Daddy of those markets. The primary dealers will do WHATEVER IT TAKES to sell those bonds. The primary dealers also carry tremendous power against the govt. Let's have a listen to their response to the Gman's "it's my way or the highway". Listen carefully. "How would you like it, Mr. Gman, if we announced that " sorry, we can't find buyers for your triple A rated toilet paper, we're going to announce to your public that you defaulted. Let's see how you do when we cut your credit cards up. You tell us what to do? Wrong. Go ahead, take away our primary dealerships. We're all standing together on this. We give the orders, not you. Got it?"

What might those orders be? One order could be: "Your $300 billion commitment to buy T-bonds ain't gonna cut it. Try $3 trillion. Now get to your greenback photocopier start button and start pushing it. We'll tell you when to stop."

While that action may be in the pipeline, as of today the ACTIONS taken in the bond market by the players are what is important. And those actions, believe it or not, are to buy bonds. Money is starting to come out of general equities, aka the stock market, and into bonds. Money is not coming out of bonds, it's going in. This is what the chartists don't understand. Money isn't just trickling in, it's pouring in. But it's not enough to meet the govt's skyrocketing demand for money!

The losses in the bond market have pounded bank capital ratios. Balanced funds must now sell stocks and buy bonds to meet their mandated percentages. Losses on corporate bonds bought over the past year are staggering. Many hedge funds leveraged their purchases and are now in dire trouble.

I have warned you all repeatedly about taking delivery of a portion of your stock certificates. Securing your gold. Holding 1 to 12 months expenses cash outside the banking system.

The bond market auction was this week. Again, I want you to FEEL what the bond traders are feeling. They are white with terror. They aren't looking at some chart in internet candyland, they know there isn't enough money to buy all the govt bonds.

Where we appear to be headed is for a test of the Dow lows. You had better pray those lows hold. Because if they don't, your money could become a target of the govt as its demand for money skyrockets, while the supply of money tanks. The ideal situation is a fast crash towards those lows with perhaps either the Dow transports or the industrials breaking, but not both. While that happens, the bond market must rally.

The nightmare situation is the Dow just slowly rolls down, and bonds mount no major rally. If both the Dow transports and the industrials break the lows, the global banking and brokerage system will likely be closed soon after that, the first of many such closes. Short selling would likely be banned. A national sales tax would be simply one of a zillion money grabs.

I do things in moderation. If the Dow industrials and transports break the lows, I would seriously consider moving 5% of your IRA and 401k money out and into physical gold on the next correction in gold. Looking back, you should have bought gold bullion in a pyramid formation instead of opening IRA and 401k accounts. It's too late to turn that clock back. It's a small number, but you may not need that much insurance than 5% given the magnitude of the dangers at hand. Nothing is fixed. Nothing is repaired.

If Ben Bernanke fails to drastically increase the Fed's purchases of bonds, another vortex of asset destruction is a near certainty, as the primary dealers will exert mindblowing pressure on the managers of other assets to move those assets into bonds. Some of the movement is being triggered automatically thru asset allocation algorithms. Let me repeat: money IS not just moving into bonds now, it is POURING in. But... that money is not enough to soak up all the bonds the govt is issuing.

Most money managers are only just this week starting to understand this reality. And what kind of horrific situation this is. If Mr. Bernanke steps forward and announces massive new bond purchases, that could disintegrate the USdollar and send gold to $1200 in weeks or even days. On the other hand, if he doesn't, the primary dealers have no choice but to order a massive liquidation of equity and commodity assets to feed the Gman's maniacal demand for money. Picture a black hole. Everything is being sucked into it. That is the US govt's demand for money. This week's announcement of the $110 billion auction is literally seen by the bond traders as announcing that a real black hole has opened up on a sandy beach. EVERYTHING is slowly being sucked in. Even the sand. And it is accelerating fast in a massive deflationary vortex. As the govt gets the money, it is BURNED. As the sand (and people) pour down the hole, even gold could get sucked in as everything is sold to feed the Gman. Here's the gold chart, the weekly. The chart looks phenomenal. Indicators almost all right in the middle "sweet spot." Perfect to activate the head and shoulders.

Sadly, the massive increases in the commercial short positions of gold and other commodities over the past few weeks suggest it could be the deflationary vortex that emerges the victor of this clash of the titans. Will gold soar or melt? I wouldn't bet 10 cents on one scenario exclusively over the other. I want my subscribers to be 100% prepared for any and all scenarios. Remember the tools Mr. Bernanke has laid out. After the purchase of the t-bonds fails, (and it is badly failing right now) the next step is gold revaluation. If you think the United States govt is going to stand around like a wet noodle while their t-bonds are liquidated and watch all "their" money pour into gold without taking action to prevent that, please report to your new home on Fantasy Island. And don't expect there to be any gold there for you when you arrive. Own gold stocks bought into weakness and take delivery of a portion of your certificates. Own gold jewellery. Secure your gold before the govt secures it for you. Jim "Mr. Big" Sinclair, the world's largest trader of gold in the last bull market, feels gold could begin a skyrocket move to 1200, within 3 weeks! Jim "Mighty Man" Rogers feels gold could fall to 700! The bottom line right now is the bond market will decide the victor. The good news is Mighty Man will be a buyer at 700 if it happens. If he is correct, another massive wave of asset destruction is just around the corner, one that could require in excess of $50 trillion in money printing to cover the announced otc derivatives losses that will probably follow. The IMF may have no choice but to start a massive liquidation of its gold very quickly if the bond market doesn't reverse. They have no money and they may be enlisted to buy US govt debt. This is the clash of the titans and the public, who has just loaded up on stocks in time to be killed, is on the verge of being totally obliterated. Regardless of which way this plays out. Ironically, as money pours out of other assets to buy US govt bonds to feed US Gman Friar Tuck, it could have the effect of a giant short position on the USD being unwound, triggering a massive USD rally. The scenarios for huge price movements in all the major markets in all kinds of directions is arguably stronger right now than ever in financial history!

This is the ultimate nail biter, the Financial Thrilla in Manila! Will it be Jim Sinclair's bull rocket, or Jim Rogers' sledgehammer? I'd like to leave you with an even bigger question for the weekend, and that is:

Are You Prepared?

###

May 29, 2009
Stewart Thomson
Graceland Updates
website: www.gracelandupdates.com
email: s2p3t4@sympatico.ca

[romans holiday]

Good read. Scary stuff.

By bailing out the banks and staving of the risk of systemic failure for the financial system the government only raised the stakes. They have transferred the risk/contagion from private business to public institutions. Now the fundamental institution of the dollar is at stake. What a ship of fools.

Bears repeating.

Most money managers are only just this week starting to understand this reality. And what kind of horrific situation this is. If Mr. Bernanke steps forward and announces massive new bond purchases, that could disintegrate the USdollar and send gold to $1200 in weeks or even days. On the other hand, if he doesn't, the primary dealers have no choice but to order a massive liquidation of equity and commodity assets to feed the Gman's maniacal demand for money. Picture a black hole. Everything is being sucked into it. That is the US govt's demand for money. This week's announcement of the $110 billion auction is literally seen by the bond traders as announcing that a real black hole has opened up on a sandy beach. EVERYTHING is slowly being sucked in. Even the sand. And it is accelerating fast in a massive deflationary vortex. As the govt gets the money, it is BURNED. As the sand (and people) pour down the hole, even gold could get sucked in as everything is sold to feed the Gman. Here's the gold chart, the weekly. The chart looks phenomenal. Indicators almost all right in the middle "sweet spot." Perfect to activate the head and shoulders.

Sadly, the massive increases in the commercial short positions of gold and other commodities over the past few weeks suggest it could be the deflationary vortex that emerges the victor of this clash of the titans. Will gold soar or melt? I wouldn't bet 10 cents on one scenario exclusively over the other. I want my subscribers to be 100% prepared for any and all scenarios. Remember the tools Mr. Bernanke has laid out. After the purchase of the t-bonds fails, (and it is badly failing right now) the next step is gold revaluation. If you think the United States govt is going to stand around like a wet noodle while their t-bonds are liquidated and watch all "their" money pour into gold without taking action to prevent that, please report to your new home on Fantasy Island. And don't expect there to be any gold there for you when you arrive. Own gold stocks bought into weakness and take delivery of a portion of your certificates. Own gold jewellery. Secure your gold before the govt secures it for you. Jim "Mr. Big" Sinclair, the world's largest trader of gold in the last bull market, feels gold could begin a skyrocket move to 1200, within 3 weeks! Jim "Mighty Man" Rogers feels gold could fall to 700! The bottom line right now is the bond market will decide the victor. The good news is Mighty Man will be a buyer at 700 if it happens. If he is correct, another massive wave of asset destruction is just around the corner, one that could require in excess of $50 trillion in money printing to cover the announced otc derivatives losses that will probably follow. The IMF may have no choice but to start a massive liquidation of its gold very quickly if the bond market doesn't reverse. They have no money and they may be enlisted to buy US govt debt. This is the clash of the titans and the public, who has just loaded up on stocks in time to be killed, is on the verge of being totally obliterated. Regardless of which way this plays out. Ironically, as money pours out of other assets to buy US govt bonds to feed US Gman Friar Tuck, it could have the effect of a giant short position on the USD being unwound, triggering a massive USD rally. The scenarios for huge price movements in all the major markets in all kinds of directions is arguably stronger right now than ever in financial history!

This is the ultimate nail biter, the Financial Thrilla in Manila! Will it be Jim Sinclair's bull rocket, or Jim Rogers' sledgehammer? I'd like to leave you with an even bigger question for the weekend, and that is:

Are You Prepared?

I reckon they will have to sacrifice the markets to salvage the dollar at some point. To play this, buy cheap dollars now, hold and then buy gold when/if it is caught up in a selling frenzy.

[LauraB]

To play this, buy cheap dollars now, hold and then buy gold when/if it is caught up in a selling frenzy.

The question I was attempting to ask on the gold thread yesterday, only I didn't phrase it well

but just how low will the dollar be allowed to go????


__________________

I thought we'd found Cgnao until, horror, the mention of gold being sucked into the black hole too

[chris ct]

I've been thinking something like this for afew weeks now; a major scary event in equities to drive cash to the US Govt bond markets which will save the dollar...

All this talk of black holes is SCARY....

[romans holiday]

The question I was attempting to ask on the gold thread yesterday, only I didn't phrase it well

but just how low will the dollar be allowed to go????


__________________

I thought we'd found Cgnao until, horror, the mention of gold being sucked into the black hole too

Only as low as before it would spark a hyper-inflationary scare where capital would flee the dollar. Before we get near this, I think we will see the markets crashed and capital forced back into the dollar. What a roller-coaster ride eh? I am hoping the dollar to cheapen in the next month or two and will be buying as a hedge against this scenario... thankyou goldmoney.

Careful with silver in case the markets are crashed. I think gold will be relatively safe compared to silver which could again plummet. Once the ratio gets to aroud 50 odd in the next month or so I will swap most of my silver to gold. After markets/commodities have crashed, go back into silver and double your holding. This would also be the time to buy gold with dollars and then we will se the whole merry-go-round again.

[grumpy-old-man]

great find BHP Tinto.
I hope you don't mind I put your post on hpc in the bond & gilt threads.

your post

cheers, GOM

[Methinkshe]

After the purchase of the t-bonds fails, (and it is badly failing right now) the next step is gold revaluation. If you think the United States govt is going to stand around like a wet noodle while their t-bonds are liquidated and watch all "their" money pour into gold without taking action to prevent that, please report to your new home on Fantasy Island. And don't expect there to be any gold there for you when you arrive. Own gold stocks bought into weakness and take delivery of a portion of your certificates. Own gold jewellery. Secure your gold before the govt secures it for you.

I find this bit interesting.

I've posted on here before about my suspicions that gold-holders won't be allowed to profit from their foresight. One way or another governments will find a way to devalue their holdings whether through a revaluation, or making trade illegal or possible only through government licensed dealers at an artifically low price, or any other nefarious means. And the only way I could see around this was by holding gold jewellery or possibly coins (although even that could be dodgy if it can be proved they were bought for investment and not as collectors' items).

The above excerpts seems to confirm my suspicions.

[mSparks]

What's happening in bond land? The latest US govt bond auction was for $110 billion. Two years ago the average monthly bond auction total was $5 billion, $10 billion, numbers like that. The US govt finances its debt with bonds. A $2 trillion deficit means $2 trillion in new bonds needs to be issued. Approx. $200 billion a month.

2005 7,933
2007 9,008
2008 10,699.8
2nd Quarter of 2009 11,305

Them there is da War preparations init.

[Mr P]

This article sums up my worries, where I think we're at and how I've tried ( a bit) to hedge.

The question I was attempting to ask on the gold thread yesterday, only I didn't phrase it well

but just how low will the dollar be allowed to go????

I thought we'd found Cgnao until, horror, the mention of gold being sucked into the black hole too

I agree that the bond market and $ is more important/bigger than em's. (http://www.kitco.com/ind/maund/may112009.html)

Gold may be effected but think about it in terms of it's nominal and real price going up/down..

Only as low as before it would spark a hyper-inflationary scare where capital would flee the dollar. Before we get near this, I think we will see the markets crashed and capital forced back into the dollar. What a roller-coaster ride eh? I am hoping the dollar to cheapen in the next month or two and will be buying as a hedge against this scenario... thankyou goldmoney.

Careful with silver in case the markets are crashed. I think gold will be relatively safe compared to silver which could again plummet. Once the ratio gets to aroud 50 odd in the next month or so I will swap most of my silver to gold. After markets/commodities have crashed, go back into silver and double your holding. This would also be the time to buy gold with dollars and then we will se the whole merry-go-round again.

As you know, I've thought/done something a bit along these lines. Things may move faster then you mention though - don't know how much stronger the $ will get or how much further the G/S ratio will go - depending on which way things turn. I maybe jumped the gun (feel a bit p'd about my silver for $ sale ATM!) and might have made the wrong choice - who knows! I'm far more weighted to PM's then cash though...

I do things in moderation. If the Dow industrials and transports break the lows, I would seriously consider moving 5% of your IRA and 401k money out and into physical gold on the next correction in gold. Looking back, you should have bought gold bullion in a pyramid formation instead of opening IRA and 401k accounts. It's too late to turn that clock back. It's a small number, but you may not need that much insurance than 5% given the magnitude of the dangers at hand. Nothing is fixed. Nothing is repaired.

5% seems rather too moderate IMO.

[LauraB]

5% seems rather too moderate IMO.

Unless that is deemed sufficient for both yachts & retirement;

but I do not wish to be a part of any love-fest for gold IUP

even though half my wealth is in it

& the rest waiting


What else is there to do? (other than suddenly acquiring Dr. Bubb's knowledge & expertise .......... & I think I'd still rather play in my few fairly sunny acres dressed as a peasant)

[Mr P]

but I do not wish to be a part of any love-fest for gold IUP

What else is there to do? (other than suddenly acquiring Dr. Bubb's knowledge & expertise .......... & I think I'd still rather play in my few fairly sunny acres dressed as a peasant)

Me niether, don't know and fair play. That's the sort of thing I plan to be doing ASABP.

[InternationalRoc...]

Picture a black hole. Everything is being sucked into it. That is the US govt's demand for money.

that's how I picture governments in general.

[G0ldfinger]

Quick, everyone, sell all gold, and buy back later when it is cheaper.



It's going to be cheaper because Bernanke is printing so much USD.

[G0ldfinger]

I've been thinking something like this for afew weeks now; a major scary event in equities to drive cash to the US Govt bond markets which will save the dollar...

All this talk of black holes is SCARY....

The derivatives black hole opened 09/08/07 when LIBOR collapsed. Every since it has been there, and there is no possible way of getting rid of it.

[mSparks]

Quick, everyone, sell all gold, and buy back later when it is cheaper.



It's going to be cheaper because Bernanke is printing so much USD.

yeah.... thats exactly what he's doing....NOT!

since when was throwing all your money into a black hole the equivalent of printing?

[Mr P]

Quick, everyone, sell all gold, and buy back later when it is cheaper.



It's going to be cheaper because Bernanke is printing so much USD.

In regard to what GF is getting at - just to make my view on this clear...

IMO (for what it's worth!) , don't sell your gold. If you haven't got much/any then get a 'reasonable' percentage. Don't faff/worry too much about timing. Silver - DYODD. Possibly more gain/possibly more risk.

I mess about and consider 'trading' pm's because by far the majority of my 'money' 'life' income is involved with it. I don't really have prospects for (future) earning any more/a large percentage of my 'life' income through a paying job due to my situation. I'm really only concerned with a very basic income for myself - but I've got dependents that I am responsible for and I'm not that old!

[InternationalRoc...]

since when was throwing all your money into a black hole the equivalent of printing?

I think you'll find it's actually a pink hole:


From: http://www.youtube.com/watch?v=sUZYrefKkRc

[DrBubb]

The nightmare situation is the Dow just slowly rolls down, and bonds mount no major rally. If both the Dow transports and the industrials break the lows, the global banking and brokerage system will likely be closed soon after that, the first of many such closes. Short selling would likely be banned. A national sales tax would be simply one of a zillion money grabs.

...Most money managers are only just this week starting to understand this reality. And what kind of horrific situation this is. If Mr. Bernanke steps forward and announces massive new bond purchases, that could disintegrate the USdollar and send gold to $1200 in weeks or even days. On the other hand, if he doesn't, the primary dealers have no choice but to order a massive liquidation of equity and commodity assets to feed the Gman's maniacal demand for money.

Picture a black hole. Everything is being sucked into it. That is the US govt's demand for money. This week's announcement of the $110 billion auction is literally seen by the bond traders as announcing that a real black hole has opened up on a sandy beach. EVERYTHING is slowly being sucked in. Even the sand. And it is accelerating fast in a massive deflationary vortex. As the govt gets the money, it is BURNED.

No wonder Obama is putting Geithner on a plane, and sending him off to China.
How much time will that buy... July? August?

[Compounded]

No wonder Obama is putting Geithner on a plane, and sending him off to China.
How much time will that buy... July? August?

Do you think time is running out?

[thickmick]

I mess about and consider 'trading' pm's because by far the majority of my 'money' 'life' income is involved with it. I don't really have prospects for (future) earning any more/a large percentage of my 'life' income through a paying job due to my situation. I'm really only concerned with a very basic income for myself - but I've got dependents that I am responsible for and I'm not that old!

+1

I've always lived well within my means, never felt the need for 'stuff'. If I make any money out of this chaos it'll be for the thrill of it and to pass it on to my heirs. They'll need it, given the perfect storm clouds of food, water, energy and demographics gathering on the horizon