My new podcast episode is out.

Daily Treasury Statement predicting HUGE jobs number on Friday

If you took my course, Understanding the Daily Treasury Statement, you would know why I am making this call, now, three days before the release of that number. I am telling you this: it will be far better than expectations.

I am not going to tell you how I know this, but I know. You will have to sign up for the next course to learn how to get this information plus lots of other, very powerful, money making tips and insights from this amazing resource. I am the only one who teaches this.

Consider this a gift--my gift to you, so don't waste it; go make yourself some (a lot) of money.

The number will blow away the 240k expected gain in nonfarm  payrolls. BLOW. IT. AWAY.

So, what  do you do?  You buy the dollar (short euro, yen, British pound, Aussie dollar, etc), sell bonds, sell gold and sell stocks. On the latter, I know it seem counterintuitive because, obviously, a strong jobs number is bullish news for the economy and therefore bullish for stocks, however, the way the market has been trading, i.e. with intense fear of an imminent rate hike, they'll probably hit the stock market in reaction to a strong number. On the other hand, longer term investors should use this as an opportunity to add to long stock positions.

Enjoy.

-Mike Norman
#itsnotaboutthedeficit

February ends with a massive, $460 Federal spending spree

No wonder why the stock market is flying. The data is in and February ended with a humongous, $460 billion spending spree by the Federal gov't. This surpasses last February's $459 billion injection. This may be the biggest February ever. It's certainly the biggest since I have been keeping records.

Last Friday ended with a burst of almost $56 billion in a single day. Total tax refunds for the month (individual and business) came in at $137 billion! That crushes last Feb's refunds of $133 billion. And we can expect another $60 billion in March and $50 billion in April. What a stimulus.

If the idiots in Congress don't f**k it up with the debt ceiling and budget the economy and stocks will be off to the races. Dow 20,000 like butter.

Sadly, though, the Fed will  raise rates. That's my forecast.

You  can't sell into this (stocks). Let's keep our eyes open for Congressional screw-ups mid-month, but for now this is blistering.

Dollar strong now, as it will follow bullish U.S. economic sentiment, but it adds to dollar top probabilities at some point. Bonds will be under pressure from fears of a Fed rate hike due to strong U.S. economy.

Oh yeah, one more thing...

Total employment taxes collected by the Federal gov't in Feb was $186.8b. That is down slightly from the $189.5b collected in January, however, February was a shorter month with less work days so I am hesitant to call any "weaker than expected" result for Friday's jobs number.

Consider this: Last Feb the total employment tax collection  was $177.1b and in Jan of last year it was $185b. That was an $8b differential between Feb and Jan. This year that difference was less than $3 billion, so I am calling Friday's number to be in line with expectations or stronger.

P.S. I teach all of this forecasting off the Treasury Statement  in my course. Watch out for the next one.

My podcast for Tuesday, Jan 6, 2015

Today's podcast.

Some topics: Market decline, bond yields, Bill Gross (again), euro, oil. Enjoy.

My podcast for Monday, Dec 8. Interview with Matt Franko.

Matt Franko is my buddy and a contributor to this blog. The guy is a smart, thoughtful, considerate, articulate and a really good dude. Listen to my interview with him.

My podcast for Monday, Dec 8. Interview with Matt Franko, contributor to this blog.

John Carney — Teaching the market monetarists about money

What is money = how does it matter? The pragmatic criterion of truth lies in the difference something makes.

For example, when it is reported that US corporations are holding several "trillion dollars in cash," this doesn't mean cash deposits or physical currency but cash equivalents.

Cash and cash equivalents are the most liquid assets found within the asset portion of a company's balance sheet. Cash equivalents are assets that are readily convertible into cash, such as money market holdings, short-term government bonds or Treasury bills, marketable securities and commercial paper. Cash equivalents are distinguished from other investments through their short-term existence; they mature within 3 months whereas short-term investments are 12 months or less, and long-term investments are any investments that mature in excess of 12 months. Another important condition a cash equivalent needs to satisfy is that the investment should have insignificant risk of change in value; thus, common stock cannot be considered a cash equivalent, but preferred stock acquired shortly before its redemption date can be. These highly liquid financial instruments that are so near their maturity and that there is significant risk of change in value due to fluctuation of interest rates are known as cash equivalents. Although cash equivalents are not cash, they are generally presented on the statement of financial position together with cash using the title "Cash and Cash Equivalents"— Wikipedia

CNBC NetNet
Teaching the market monetarists about moneyJohn Carney | Senior Editor
((h/t) Stephanie Kelton on FB)

Brian Romanchuk — What Is A Government Bond?

This article is an introduction to some core concepts of Modern Monetary Theory (MMT). Although I associate this explanation with MMT, it is clear that it was foreshadowed by earlier economists, such as Abba Lerner. I am currently not in a position to say who was the first to do this mode of analysis.

MMT versus loanable funds explained with respect to bonds, interest rate, and yields.

Bond Economics
What Is A Government Bond?
Brian Romanchuk

Auburn Parks — How many people even know what our 'National Debt' actually is?

I wonder just how many people know about what our national debt actually is. The term 'national debt' gets thrown around so often and I have yet to hear anyone talk about US Treasury securities in any interview or discussion on TV, Radio, or any mainstream media websites about the so-called debt. People just assume that because I have debt I know what the national debt is because the national Govt is just like me and my household or the business down the street. Well guess what, the Federal Govt is nothing like a household or business. And the 'national debt' is nothing more than the total number of US treasury bonds in existence. So the next time you hear somebody talk about the 'debt being too high' or 'we need to reduce or national debt'.....we must ask ourselves, just why do we really want there to be less US Treasury bonds in existence.

Is it better public policy to have a smaller amount of risk-free financial assets available to the non-Govt?

I am not saying there could never be a situation where the above statement should be answered with a yes.....I am just saying that any time anyone wants to stop issuing Treasury bonds dollar for dollar with the amount of deficit spending, I am game. If only, to put all this 'national debt' silliness to rest once and for all. But is this something that we progressives should advocate for en masse......to shrink the debt by just supporting the repeal of the statute that requires treasury to issue bonds for deficit spending. Its not like the Fed bank would ever 'bounce a Treasury check' although its more accurately described as the Fed would never refuse to use its computer to credit a SS recipient's or Govt contractor's bank account.

Of course the next thing that people are going to say is........
INFLATION!!!!!!!!AAAAAHHHHHHHHH!!!!!!!!

Daily Kos — Money and Public Purpose
How many people even know what our 'National Debt' actually is?
Auburn Parks

Jonathan Larson — Debt-free money—of course we can rebuild our infrastructure

Thomas Edison on Henry Ford's proposal to fund public infrastructure with issuance of bills rather than bonds in order to avoid the economic rent that interest payments involve.

Real Economics
Debt-free money—of course we can rebuild our infrastructure
Jonathan Larson
(h/t Paul via email)

From the MMT perspective the story is incomplete in that the interest paid is also an increase in consolidated non-government net financial assets in aggregate and the interest doesn't cost a self-funding government anything anyway. The real issue is whether this is the most appropriate way to inject funds for public purpose, based on criteria such as fairness, effectiveness and efficiency.

Since interest is not necessary operationally, as Edison and Ford point out, it is a subsidy. Who gets that subsidy and why should they get it rather than using that amount of funding for other purposes, like more infrastructure that benefits the everyone as a public good?

It might be argued that not issuing bonds is inflationary. But as Thomas Edison points out, anticipating the MMT economists on this, the interest-bearing government securities are also negotiable and are used for temporary safe storage as well as using large sums around conveniently. The MMT economists also point out that they are the best form of collateral and therefore function as near money, especially short terms bills. Therefore, issuance of government securities has little bearing on inflation.

The other argument is that a large economy needs safe assets and it is a public purpose to provide them. But, as Chris Cook points out, this could be done with consols rather than bonds, consols acting in the same fashion as stock, i.e., equity rather than debt.

Jeff Cox — Who's Afraid of QE Ending? Not the Bond Market

..the stock market sold off at the slightest notion that the Fed might pull the plug.

"Equity markets seem to think of asset purchases as magic pixie dust," Cloherty said. "They just make everything fly. No one has a transmission mechanism for how that works, they just know it does."

The Standard & Poor's 500 lost 1 percent following Wednesday's Fed release and was on pace to add to that decline Thursday.
The bond market, though, was humming along even though a Fed exit from bond buying would seem likely to decrease demand and thus put upward pressure on yields.

Instead, yields fell and a popular exchange-traded fund, the iShares Barclays 20+ Year Treasury Bond fund, gained nearly one percent.

CNBC — US Markets
Who's Afraid of QE Ending? Not the Bond Market
Jeff Cox | Senior Writer

Laurence Kotlikoff — The Treasury Has Already Minted Two Trillion Dollar Coins

...substitute a $2 trillion piece of paper called a Treasury bond for the platinum coin. Suppose the Treasury prints up such a piece of paper and hands it to the Fed and the Fed puts $2 trillion into its account. No difference right, except for the lack of platinum.

Next suppose the Treasury doesn’t hand the $2 trillion bond to the Fed directly, but hands it to John Q. Public who gives the Treasury $2 trillion and then hands the bond to the Fed in exchange for $2 trillion. What’s the result? It’s the same. The Treasury has $2 trillion to spend. John Q. Public has his original $2 trillion. And the Fed is holding the piece of paper labeled U.S. Treasury bond.

Finally, suppose the Treasury does this operation in smaller steps and over five years, specifically between 2007 and today. It sells, i.e., hands to John Q. in exchange for money, smaller denomination bonds, which Johns Q. sells to the Fed, i.e., hands to the Fed in exchange for money. Further, suppose the sum total of all these bond sales to the public and Fed purchases of the bonds from the public equals $2 trillion. Voila, you’ve got U.S. monetary policy since 2007.

In 2007, the monetary base – the amount of money our government printed in its 231 years of existence totaled $800 billion. Today it totals $2.8 trillion. And it increased by this amount via the process just described – the Treasury’s effective minting out of thin air two $1 trillion platinum coins.

Yahoo! Finance | The Exchange
The Treasury Has Already Minted Two Trillion Dollar Coins
Laurence Kotlikoff | economist at Boston University, co-author of The Clash of Generations, and President of Economic Security Planning, Inc.
(h/t Clonal Antibody in the comments at Monetary Realism)

Props to Laurence Kotlikoff for pointing out that coin issuance and bond issuance are essentially the same in outcome operationally, that is, they provide the Treasury with reserves to settle deposits it creates in non-government accounts through expenditures and transfers. Note that Treasury only "spends" what has already been approved through the appropriations process and commitments made through the various agencies. The Treasury is not authorized to add to spending itself.

Except that in issuing interest-bearing securities the Treasury is providing safe assets to the private sector, which it pays the private sector a premium to hold. Since this premium is not required operationally, it constitutes a special interest subsidy that is unnecessary. Enquiring minds wonder why it exists at all, since the high liquidity of Treasury securities does not reduce the propensity to spend, i.e., "sterlize" the bank reserves created by Treasury expenditure.

Issuing Treasury securities made sense under a convertible fixed rate monetary system such as the gold standard, but it is no longer needed under modern monetary system that uses non-convertible flexible rate sovereign currencies. It is now an obstacle that limits policy space and a subsidy with dubious justification wrt to public purpose. It should be excised with Ockham's razor and replace with direct issuance of Treasury notes in sufficient amount to offset changing saving desire of consolidated non-government in aggregate but no greater at full employment, in order to harmonize growth, employment and price stability.

Considering the growing size of the interest payments to the rest of the budget, the question arises, Is this politically mandated subsidy serving public purpose, or is it catering to interest groups that profit from it inordinately due to their privileged position in society — as landowners, generally the monarchy and aristocracy, did from land rent in the agricultural era under feudalism?

Note: After showing how the coin and bond issuance accomplish the same goal in the government's self-funding, Kotlikoff goes off the rails in claiming that this is "inflationary,"

Now what happens when the Treasury spends its freebee money? It raises prices of the goods and services we buy or keeps them from falling as much as would otherwise be the case. Either way, the money we have in our pockets or in the bank or coming to us over time as, for example, interest plus principal on bonds we’ve bought in the past – all this money loses purchasing power. So we are effectively taxed $2 trillion.

Someone needs to explain to him what inflation is defined as economically, namely, a continuous rise in the price level, and how it occurs, that is when effective demand increases faster than the economy can expand to meet it. One wonders whether a professional economist is unaware of this obvious fact, or he has a political agenda.

Reading the rests of the article, the conclusion seems to be that it is political in that it has no basis in fact, unless Kotlikoff just doesn't know what he is taking about. The proof. He even throws in Zimbabwe! ROFL. He thinks that seigniorage is a sin.

John Lounsbury — The Terrifying Danger of the Trillion Dollar Coin

Excellent post by John Lounsbury shows the real implication of TPC, the option of government self-financing and the consequent ending of the public subsidy to finance in the form of operationally unnecessary interest payments on consolidated non-government saving of net financial assets in aggregate and with it ending the so-called government intertemporal budget constraint.

Global Economic Intersection
The Terrifying Danger of the Trillion Dollar Coin: No One is Talking about the Bottom Line with the Platinum Coin
John Lounsbury | Managing Editor and Co-founder of Global Economic Intersection

Dirk Ehnts — Profit sharing as alternative for interest rate

I have been at a book presentation of David Graeber (5,000 years of Debt) in May at Dussmann Berlin and he reminded me of something I have long forgotten: profit-sharing is an alternative for an interest rate. The incentives the two mechanisms create are quite distinct. With an interest rate, the creditor is supposed to get his money (back) whatever occurs. With a profit-sharing agreement, this looks quite differently. Only when the debtor books positive profits does the debtor get his or her share.

econoblog101
Profit sharing as alternative for interest rate
Dirk Ehnts

MMT was right...AGAIN!! And a special shout out to Warren Mosler!

MMT was right again! And I give a special shout out to Warren Mosler! Check it out.

Barry Ritholtz — 10 Year Bonds Around the World

Bianco Research

Read it at The Big Picture
10 Year Bonds Around the World

by Barry Ritholtz

(h/t Scott Fullwiler via Twitter)

Sample the comments for some humor. Example: "Valuation doesn't matter until it does." You know, any day now. I wonder how many of these people are putting their money where their mouth is and going short after so many got burned so badly. Explains why people are willing to take the losing side of a trade. They don't understand valuation.

Another market "guru" misunderstanding how rates are set

Just heard Doug Kass ("Dougie" as they call him) of Seabreeze Partners and a CNBC Fast Money Contributor out with comments a few minutes ago that display his lack of understanding of the bond market and how rates are set.

He's advising shorting Treasuries because he says that they can "get decimated in a muddle through economic environment."

He mentions the "bond vigilantes" and other such nonsense.

Kass will get this wrong if he actually trades it this way. But if you listen to Kass you never really know what his position is. He'll say he's short bonds and two weeks from now if bonds go up he'll say he never said that or that he was long.

Fed says it will remove income for the next two years. Markets rally.

To show you how perverted and misguided things have gotten.

Suppose you told someone that the government would remove significant amounts of income from the economy over the next two years. You could even call it a tax. Do you think that person would run out and buy stocks and other risk assets?

Absolutely not. They'd probably take whatever cash they had and hang on to it, real tight, out of fear that the economic future was about to become very bleak.

But that was the opposite of how investors reacted to today in response to the Fed's statement.

Here's what the Fed said:

“low rates of resource utilization and a subdued outlook for inflation over the medium run are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014.”

That was the surprise in the statement today. The Fed EXTENDED the length of time that they would hold interest rates at zero for more than a year. (They originally said, mid-2013.)

But we know that this policy removes income from the economy. Case in point: over the last four years the Fed has removed $400 bln in interest income from the economy. That's HUGE. That's the equivalent of almost 3% of GDP. And we're only growing at 1.8%!!

Yet when investors hear this today they bought stocks...and gold and commodities and other risk assets. And they sold the dollar even though this is all hugely deflationary.

It's QE Redux. Haven't we been through this before? Everyone piles in on the false belief that this is inflationary. They push up stocks, gold, commodities and foreign currencies and then it all comes tumbling down when the buying stops.

Same, exact thing will happen this time.

Where are all the "geniuses?"

Where are all the "geniuses" who told us that the dollar was going to tank, that US interest rates would spike higher, that the US economy would be the worst perfomer, that gold would be the best investment? Where are they? Every single one of these imbeciles got all these things WRONG! A universe of ignorance so vast that if Einstein were alive today he'd have to invent an entire new school of physics to describe it.

Et tu, Deutschland? Bund auction fail

Is the bond market figuring out that EZ sovereigns aren't actually sovereign, and the Germany's head is on the block too? German CDS rise as 35% of the offering of 10 year's go without a bid.

Bloomberg: German Auction "Disaster" Stirs Crisis Contagion Concern

Goldman recommended closing out a losing bet on EUR/USD with about a 2.3% loss.

Bloomberg: Goldman Closes Out Money-Losing Euro Bet On Stability

Where is that money seeking safety? Gold? Nah. Gold has broken 1700. USD and Treasuries up as the traditional risk off haven.

Looks like the MMT scenario is tracking correctly.

Yield on the 5 year breaks 1% for first time

Read it at Zero Hedge

$35 Billion In 5 Year Bonds Price Below 1% For First Time Ever

Sure sign that hyperinflation is just around the corner, right?