“When Interest Rates Tick Up, The U.S. Will Be In A Mess”. 

One day when interest rates go up for whatever reason, maybe next year, or in 3 years time, interest payments on the government debt will balloon, and in say, 7 years time, the interest payments on the US government debt will be between 35 and 50 percent of tax revenues. Then you are in a huge mess.

I believe to get out of that mess they will monetize, they will have all kinds of stimulus packages that will lead to high inflation and the standards of living of the typical household, the average household, will go down. It will enrich a few people, the elite, essentially on Wall Street.

But then to distract the attention, the US will escalate its war efforts and then we will go into war in the world and then the whole thing will collapse.

Marc Faber’s 2013 Market Outlook

Click HERE for Faber’s 2013 Forecast if any problem with player below)

ET Now : Marc Faber – Market View by ETnow

“Credit is suspicion asleep”

SIGNS OF THE TIMES

“6,125 Proposed Regulations Posted in Last 90 Days – Average 68 Per Day”

– CNS News, November 8 

Ironical, as the release came on the week when certain politicians were observing the deaths of so many soldiers – in the defense of freedom.

“Japan Plunges Into Deep Recession”

– Financial Times, November 12

“Bank of Canada warns that ‘vigilance by all parties’ is essential to contain the county’s household debt problem.”

– Financial Post, October 30

This seemed familiar so we checked our notes:

“The impact on the broader economy from sub-prime is likely to be contained.”

– Ben Bernanke, March 28, 2007

Using the typical timing on the end of boom, the yield curve was likely to reverse from inverted to steepening by as late as June 2007. The deadly reversal was completed by late in that fateful May.

*   *   *   *   *

CREDIT MARKETS

Representative sub-prime bonds soared to an outstanding high on September 14th. News that mortgage-backed securities were on the Fed’s shopping list was announced the day before. The chart shows the initial sell-off was followed by a trading range below the high. It broke down this week, suggesting no lack of supply for a foolhardy bid. At 57.4 now, taking out 56.6 would extend the downtrend. Taking out 55 would ring the alarm bells.

Contrary to official plans other bond sectors showed contempt for notions about “containment”.  

US corporate high-yield (CYE) tested the late September high at 8.05 in late October and then plunged to 7.08. The low during the concerns of May was 6.86.

Junk (JNK) also tested its September high and has rolled over. The high was 40.53 and taking out 39.25 will set the downtrend. The low in May was 36.45.

Representing global markets, the Spanish Ten-Year reached 7.52% with concerns about default in July. Then the “risk-on” move dropped the yield to 5.34% in mid-October. The action has trended up and taking out 6.10% will start to get some attention.

As risk began to gain regard, the long bond has rallied from a key low of 144 and change on September 14th. Last week the high was 151.66 and the move is not overbought. 

In shorter maturities, the Ted-Spread reached an exceptional degree of oversold at 0.203 on October 24th. It has set a brief and choppy uptrend to 0.240, which has been caused by the treasury bill rate plunging while Libor remained unchanged. It will become interesting when Libor starts to increase.

WRAP

This brief update will lead to a more extensive comment about government treasury departments issuing endless amounts of bonds as government central banks buy endless amounts of treasury issues. In case of the US it includes buying , shudder, the sub-prime.

Of course, outside investors have been playing the game, but overall it is institutionalized insanity. Where does the money come from to pay the interest? Well, it comes from issuance of yet more debt and it reminds of playing the popular game of Monopoly. Decades ago our family and friends decided to play the game with all of the money from another Monopoly set. It went on forever and there were no winners. Eventually, we quit and went back to only one set of money. Played by the rules it’s a good game.

Back in the 1970s as interest rates were soaring to unprecedented levels there were some articles about the costs of compounding interest. One concept was that within a speculative rise in price the compounding cost of interest eventually limits the ability of speculators to drive prices higher. This really took effect when surging prices faltered, which was the cue for Mister Margin to come onstage.

It makes sense that this would apply at any level of interest rates.  Compounding doesn’t care what the rate is and even today’s low coupons must be paid.

Recently this seems to have been noticed by the UK government. The request for interest payments from the Bank of England is fascinating.

Halkin’s Weekly Letter includes a brief and amusing piece that starts with “Dear Mervyn”:

Link to November 17 ‘Bob and Phil Show’ where Bob makes some potent points on the Fiscal Cliff:

 HYPERLINK “http://talkdigitalnetwork.com/2012/11/fiscal-cliff-with-a-creamy-filling/” http://talkdigitalnetwork.com/2012/11/fiscal-cliff-with-a-creamy-filling/ 

INSTITUTIONAL ADVISORS

THURSDAY, NOVEMBER 22, 2012

BOB HOYE

PUBLISHED BY INSTITUTIONAL ADVISORS

The above is part of Pivotal Events that was

published for our subscribers November 18, 2012.

 BOB HOYE,   INSTITUTIONAL ADVISORS

E-MAIL   HYPERLINK “mailto:bhoye.institutionaladvisors@telus.net” bhoye.institutionaladvisors@telus.net 

WEBSITE:    HYPERLINK “http://www.institutionaladvisors.com” www.institutionaladvisors.com 

PIVOTAL EVENTS – NOVEMBER 18, 2012                                                                                                                  PAGE 2

PIVOTAL EVENTS –  NOVEMBER 18, 2012                                                                                                               PAGE 1

“I consider it so important that I want everyone to read the following adapted from the main article of my November Real Wealth Report, which published last Friday”. –  Larry Edelson

It’s not kind to President Obama, but whether you agree with my views or not, it’s an important read …

The Sovereign-Debt Crisis Coming Our Country’s Way Will Be a Category 5 Financial Storm

And Obama’s Second Term is Entirely Consistent With it

Obama’s policies of class warfare and fat tax increases on the job-producers and risk-takers in our country will tear our society apart by the seams.

It will deepen the looming sovereign-debt crisis, and eventually destroy the U.S. dollar.

The next eight months – before the crisis fully hits our economy – will be your very last chance to get your financial house in order.

Fact is, I didn’t like either presidential candidate all that much. But Obama’s policy of instigating and escalating class warfare in our country, further dividing our society and blaming almost everything on the rich is just about the worst platform any leader can have.

Just consider the history of class struggles and you will see what I mean. They almost never solve any of those problems. Instead, they often lead to terrible consequences.

Nearly every one of the revolutions in our history was largely triggered by class warfare – blaming the rich, targeting them for higher taxes and, in many cases, literally chasing them out of their country.

And what happened as a result? In the majority of cases, the revolutions turned bloody, the existing government collapsed, the underlying economy was destroyed and society crumbled to its very core.

In some cases, class warfare led to genocide, civil war and even armed international conflict and world wars.

Class warfare almost always becomes the No. 1 enemy of economic growth. That’s especially true, according to the historical record, when a mature economy experiences class warfare.

Consider the U.S. economy right now. It’s lousy; the number of people in the labor force is the lowest it’s been in 31 years. We’ve had 43 months where unemployment has exceeded 8%.

You would think President Obama would want all the help he could get to boost employment. He would want those with money and credit to take risks to stimulate job growth, new industries, new technologies, entrepreneurship and more.

But instead, Obama has made class warfare his biggest priority. That’s why he’s even insanely claimed that those with money never would have made it “without government help.”

And why he has labeled small business and job-creators as “millionaires and billionaires” — targeting them instead for higher taxes.

It’s all allegedly in the name of “fairness” and supposedly aimed at closing the budget deficit.

Yet according to the Internal Revenue Service, the top 1% of U.S. taxpayers pay about 36% of all federal income taxes, while 47% of Americans don’t pay a single dime.

It’s why President Obama will stick to his guns on the upcoming fiscal cliff negotiations, keeping tax hikes in place for the wealthy at all costs, while conceding on other measures such as spending cuts.

Mind you, President Obama defines the “rich” — those he is targeting for higher taxes — as individuals earning $200,000 a year or more, and $250,000 a year for those married filing jointly.

That’s hardly “rich” by any measure. Not in today’s world of generally rising living costs and declining real incomes, net of inflation.

Is it any wonder that …

• President Obama, in his first term, signed more than 923 Executive Orders — almost 15 times more than former President George W. Bush signed during his two terms while fighting the war on terror?
• You now have to report every penny of financial assets you own overseas?
• If you owe taxes to the IRS, they can confiscate your passport, without a court order?
• The reporting requirement for sending money overseas has dropped from $10,000 to $3,000?

It’s hardly surprising to me. Many of the Executive Orders Obama has signed have been entirely consistent with his attacks on the rich all along …

Turning the “Patriot Act” into something it was never intended to be — a scheme to systematically deny American citizens, especially those with wealth, one liberty after another.

No, it’s not likely that Obama’s policies will lead to massive bloodshed in our country or to a world war, as many other cases of class warfare have done.

But targeting the “rich” simply isn’t going to cure our country’s problems.

President Obama could confiscate 100% of their estimated $6.4 trillion in wealth and it would hardly make a dent in the $222 trillion Washington owes us, its foreign creditors, Social Security, Medicare and more.

Quite to the contrary, it will aggravate our federal deficit and our national debt by systematically robbing our country of economic growth that’s largely propelled by entrepreneurs and risk-takers, by job-creators.

Again, just take a look at the history books. During the French Revolution, class warfare leader Maximilien Robespierre enforced confiscatory taxes on the rich with the guillotine. Those that could get out of the country, left as fast as they could.

In 1290, King Edward I issued an edict expelling all money-lenders (predominately the wealthy Jews) from England. And as we all know, Hitler went after them too.

During the Bolshevik Revolution, Vladimir Lenin declared class war against capitalists, confiscating their privately owned land, banks and businesses. It destroyed the productive capacity of Russia and set off a famine that killed an estimated 5 million Russians.

In 1929, Joseph Stalin pursued a class war as well, seizing the assets of Russia’s rich farmers, causing yet another famine where an estimated 7 million people subsequently starved to death.

Mao Tse-tung attacked China’s wealthy capitalists, promoting the Cultural Revolution which resulted in an estimated 45 million Chinese people starved or beaten to death between 1958 and 1962.

More recently, in Argentina, President Cristina Kirchner seized private pensions supposedly to help cover government budget deficits. Yet government spending subsequently soared 40% as Argentines fled the country, taking their cash and wealth with them.

In Europe, France is hollowing out its economy, raising taxes 
on the wealthy (those earning more than $1.2 million to a 75% tax and for those earning over $186,000, a 45% tax) — and raising taxes on assets, inheritance and dividends.

Already, many big French names are leaving France. PPR, the luxury-goods group controlling Gucci and Yves Saint Laurent, is said to be relocating executives to London. Private-equity executives Bertrand Meunier and Christophe Florin have left for jobs in Switzerland and Abu Dhabi.

Entrepreneur Pierre Chappaz, founder of websites Kelkoo and Wikio Ebuzzing, has moved to Switzerland. Marc Simoncini, one of France’s most famous dot-com investors, is threatening to move to Belgium.

French magnate Bernard Arnault – Europe’s richest man, head of the LVMH fashion and Luxury Empire, and owner of iconic brands like Louis Vuitton, Moet and Chandon, Hublot and Bulgari – recently announced he had applied for Belgian citizenship in what may be an initial move toward acquiring tax-free status in Monaco.

Here in the U.S., wealthy Americans renouncing their U.S. citizenship is exploding higher, up sevenfold since 2008.

A record 1,781 U.S. citizens gave up their citizenship last year, compared to 231 in 2008.

I expect that trend to accelerate in the months and years ahead. Obama’s class warfare strategy virtually guarantees it.

Capital will flee the U.S. like never before. It will deepen the sovereign-debt crisis by reducing federal tax receipts, making it nearly impossible to shrink the federal deficit, not to mention our country’s $222 trillion of national debts and IOUs.

In the end, by the time the U.S. sovereign-debt crisis reaches full-tilt, it will also hollow out the U.S. dollar – making it virtually impossible for the greenback to remain the world’s single reserve currency.

I wish things were different. We all do. But I am afraid they are not, and I’m convinced that President Obama will soon come to regret a second term.

His policies virtually ensure that the sovereign-debt crisis will become a full Category 5 storm when it does hit the U.S., in the middle of next year.

How to Prepare … and Why 2013 
Will be Your Very Last Chance to Do So!

Based on my timing models, I believe the U.S. will become fully infected with a sovereign-debt crisis around the middle of 2013.

That means that the eight months between now and the middle of next year represent your last window of opportunity to fully prepare for the mother of all financial storms.

The good news is that you have time. You also have the markets on your side, provided you understand the forces at work.

The majority of investors won’t see the storm coming. Even fewer will be prepared. Fewer still will understand how it will pan out.

My Real Wealth Report subscribers are in a unique position — well-ahead of the game, with a deep understanding of when, why and how the storm will hit … and what its consequences will be.

We’re in the first phase now. Europe is still going down the tubes.

There’s a worldwide contraction of credit happening right now that’s overpowering most markets and central bank money-printing. This first phase is largely disinflationary, precisely as I have been warning you.

And it will remain disinflationary, until the U.S. is fully engulfed by the sovereign-debt crisis around the middle of next year.

Between now and then, you can expect more downside action in commodities and stocks, setting up buying opportunities of a lifetime …

Don’t be fooled by the declines. Take advantage of them with speculative funds using bearish vehicles that profit from declining markets.

And then, when everyone else is panicking and selling, get ready to buy virtually everything under the sun. More money can be made in the markets over the next few years than in a lifetime of work, provided you know how the sovereign-debt crisis is going to unfold.

Best wishes,

Larry

P.S. Real Wealth Report is a no-brainer for any investor who wants a different, independent point of view. That alone is worth the cost of a membership, at just $89 a year.

Add in all my recommendations — in precious metals, in natural resource-based income stocks, in currencies, in Asian investment plays and more — and the $89 membership fee is an outrageous bargain! Click here to join now.

Bonds have enjoyed a huge rally since the onset of the financial crisis four years ago, as investors have sought safety in Treasurys and yield in other fixed-income-market sectors.

But many don’t realize they’re actually taking some risk, John Boritzke, director of tax-exempt fixed income at BMO Global Asset Management says.

What goes up generally goes down, and if you’re investing in bonds through mutual funds or exchange-traded funds, you could suffer a loss of principal.

The downside risk is “a bit worrisome,” Boritzke says. “Bond investors have not had to suffer price declines. That experience may be new to people who have become more aggressive.”

While he doesn’t see a bubble in the bond market as a whole, “if there’s a bubble in part of the market it’s that there’s way too much money flowing into high-yield [junk bonds],” Boritzke says. 

“Some of the deals being priced into the market are becoming too aggressive.”

So far defaults have been low following the financial crisis. But the fiscal cliff could change that, Boritzke says. “We don’t have a lot of room for error in terms of [gross domestic product].”

With interest rates near record lows, corporate bond issuance is on pace for a record high this year. 

“There’s been lots of new issuance,” William Larkin of Cabot Money Management tells Bloomberg. “At some point this is going to dry up, as people become more cautious and demand starts to fall.”

…..read more Flight to Safety in Bonds May Actually Mean More Risk

Jim Rogers, legendary commodities investor and co-founder of the Quantum Fund along with George Soros (a legend in his own right), has been looking at the pace of money printing in the developed world. And he doesn’t like what he sees. In fact, the legendary investor was recently quoted as predicting, “inflation run amok.”

Rogers isn’t just another Wall Street prognosticator. He predicted the housing bubble and financial crash, and started selling stocks in the sectors in 2006. He also saw the slowdown we’ve seen during the past couple years in Chinese stocks coming. During the 10 years he helped manage the Quantum Fund with Soros, the fund returned 4,200%.

So it’s easy to see why people tend to sit up and pay attention when Rogers warns of trouble on the horizon.

….read more HERE