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The Last Bull Market In Paper

The month of June, the stated end of the Fed’s monetization/debt creation, matches Armstrong’s turn …. when the Bernank ostensibly hits the wall with QE2. We are getting close. In another section of the latest letter Buckler points out that CDS spreads in Euroland have backed off; thus, the pendulum could swing back to US issued paper– and indeed, the curve has already shown signs of misbehavior.

© 2011 – The Privateer
[email protected]
(reproduced with permission)

The Last Bull Market In Paper:

As long as the post WWII global financial system with the US Dollar as its ultimate “reserve” lasts, the
official US Treasury debt figures will remain the most important single financial number in the world.
This is true for the simple reason that this US Treasury debt is the ultimate “underpinning” for the entire
global financial system. As we have pointed out before in recent Privateers, the secondary market for US
Treasuries shows the longest unbroken bull market of all paper global markets for paper “assets”. The
prices for US Treasury debt have been in an unbroken uptrend ever since mid 1982. Mid 1982 was when
the US emerged from the recession of the late 1970s and the world embarked on an almost three-decade
long adventure of (paper) “asset price inflation”. In the 1970s, the increase in the stock of money which
is what inflation IS was being primarily reflected in the rising prices of real economic goods. From 1982
until very recently, the MASSIVELY accelerated increase in the stock of money was being reflected in
the prices of paper assets – primarily in the global stock and bond markets.

Global stock markets are looking “healthy” in early 2011 – compared to their abysmal lows set in the first
quarter of 2009 – but they are still substantially below the highs most of them set in late 2007 and most
certainly do NOT show unbroken uptrends stretching back to the early 1980s. The secondary market for
US Treasuries is today substantially below the highs it set at the end of 2008 at the height of the
“deleveraging” rally back into the US Dollar. The unbroken uptrend for US Treasuries has lasted longer
than the uptrend for any other paper market. But since the peak in December 2008, it has come under
increasing pressure. Today, it is threatening to break down altogether.

This is the ominous potential trend change of ALL modern financial markets. Prices for US Treasuries
peaked in December 2008, three months before the bottom of the global rout of stock markets in March
2009. Stock markets were rescued by the decision of the UK and US central banks to directly monetise
the debt paper being put out by their governments. This is the ultimate form of monetary inflation via
credit expansion. The only step beyond this is to start adding “zeros” to the legal tender printed by those
same central banks.
Today, both central banks are still at it, with the US Fed having taken the lead. They
have a $US 900 Billion “war chest” which is scheduled to last them until June this year.

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