BOOM as at 3rd January 2021

US BOND DIVERGENCE

There is a large price divergence currently growing in the bond markets of the United States. The prices of Junk Bonds are rising fast due to rabid investor demand and, meanwhile, the prices of Federal Government guaranteed, long Treasury Bonds are falling.

Over the last 2 months since November, the price of JNK, an ETF that invests in Junk Bonds, has risen by 6.3 %. Annualized, that would equate to a return of 38 %.

This divergence started in early August, five months ago. It is worth noting and understanding what it means. It means that private investors in the US are currently preferring to take the risks involved in owning bonds issued by companies with poor credit ratings rather than taking the super safe option of investing in long bonds issued by the Federal Government of the United States. And those government bonds are guaranteed by the government until maturity in 20 to 30 years time.

It’s a classic “Risk On” move. The reality of it is that investors think they can take the risk,  get a higher yield, profit from any capital gains and sell out “just in time” if something bad happens and the solvency of the issuing companies suddenly falls under a dark cloud.

There is something rather odd about this. The demand for Federal Government issued bonds is being underwritten by the central bank of the United States, the Federal Reserve. In their last FOMC meeting (the Federal Open Markets Committee), the minutes stated “Regarding asset purchases, participants judged that it would be appropriate over coming months for the Federal Reserve to increase its holdings of Treasury securities and agency MBS at least at the current pace.”

So, with the US central bank clearly stating its intention to continue its purchases of Federal Government Bonds and hinting that they may even increase the pace of purchases, we are seeing the price of those bonds fall on the open market. That doesn’t seem right does it?

This raises the long term interest rates of those longer dated Treasury isssued securities and steepens the sovereign yield curve towards a more “normal” shape. All well and good as far as the Federal Reserve is concerned because they are keen to see a more normal yield curve so that the economy can transition back to “normal” or, as some economists say, back to “equilibrium”.

“Normal” and “equilibrium” as far as many conventional economists are concerned is that particular state of the US economy that was in existence prior to the Global Financial Crisis of 2008. The central banks have been trying to engineer a return to that situation of persistent CPI inflation ever since. Just to remind readers, in 2007, the CPI inflation rate was almost 6 % per annum. Today, it is below 2 % after 12 years of massive stimulus measures. 

Of course, a cynic would suggest that the US economy, in 2007, in that “normal” state was also racked with unprecedented, massive banking crime and fraud. Maybe that fits the definition of normal for the US economy?

So — are conservative private investors leaving the long term Treasury market forever and heading off to preferentially fund marginally solvent companies instead? And is this preference for higher and higher junk valuations sustainable over the long term? Perhaps they are  thinking that the central bank can take over the role of funding the federal government deficit long term while they excitedly gamble on junk at the roulette wheel?

Or — will they soon realize that current high junk bond valuations based on fictitious corporate earnings forecasts are unrealistic in an economy that faces extremely strong headwinds from Covid shutdowns and severe political uncertainty?

If the latter scenario occurs, then Junk bond prices could start to collapse and head down to join the falling prices of Treasury bonds. “Risk” in the bond market would then switch abruptly from “ON” to “OFF”.
If that happens, then the current stratospheric US stock prices could also roll over as investors head for the safety of cash. This scenario is easy to see happening if the earnings results of US companies start falling sharply.

After all, not all citizens can stand around the roulette wheel all day, can they? Some have to work to provide goods and services and others have to buy them, surely? Maybe an economy can become a casino but BOOM suspects that this can happen for only a relatively short period of time.

BITCOIN BONANZA

The price of Bitcoin has skyrocketed lately to almost reach US $ 30,000. A Bitcoin is a piece of binary code that can be put into a packet and transferred from one place to another. In other words, it is not much different to an email. Now, if I agree to send you a very special email, will you please send me $ 30,000 in return? No? What if I say please? Or if I tell you the contents are a wonderful place to store wealth? Or if I suggest that it is, in fact, a new currency?

No?   Sounds like a Pyramid Scheme?  Or a Chain Letter? Let’s look at Wikipedia.

There are two main types of chain letter: Hoaxes and Urban Legends

Hoaxes attempt to trick or defraud users with a scam that convinces users to spread the letter to other people for a specific reason, or to send money or personal information.

Urban legends are designed to be redistributed and usually warn users of a threat or claim to be notifying them of important or urgent information.

In the United States, chain letters that request money or other items of value and promise a substantial return to the participants (such as the infamous Make Money Fast scheme) are illegal.”

Chain Letters were used back in the good old days (before we had binary code) to separate people from their hard earned cash.

A chain letter is a message that attempts to convince the recipient to make a number of copies and pass them on to a certain number of other recipients. The “chain” is an exponentially growing pyramid that cannot be sustained indefinitely.

Common methods used in chain letters included emotionally manipulative stories, get-rich-quick pyramid schemes, and the exploitation of superstition to threaten the recipient. Originally, chain letters were letters sent by mail.”

That was back in the good old days ….. before we had email and “crypto” exchanges.

If you buy a Bitcoin at US$ 30,000, the trick is to find someone else who is prepared to pay you more for it. Can a Bitcoin be used for any other purpose? The answer is yes. You can buy anything with a Bitcoin …. so long as the seller is willing to accept the Bitcoin as settlement of the transaction. Isn’t that wonderful?

By the way, if you can convince someone to accept dogsheet or bullsheet as payment, then you can also buy anything with those commodities. You could even truthfully call the transaction “revolutionary” or “innovative”.

Bitcoin was (supposedly) invented by a very special man called Satoshi Nakamoto who has somehow disappeared. The words Nakamoto Satoshi mean Central Intelligence if you look at the Japanese characters and translate them into English.

BOOM has summarized the history of Blockchain technology in some detail in previous editorials but here are the key points —

1. The first Cryptology BlockChain paper occurred in 1991 — 29 years ago. It was essentially a cryptographic description of a “chain of blocks”.

2. The National Security Agency of the USA (the NSA) released a paper on 18th June 1996 — 24 years ago.  “How to Make a Mint – The Cryptography of Anonymous Electronic Cash”. It was published by MIT October 31st 1996 — the Massachusetts Institute of Technology.

The Central Intelligence Agency, better known as the CIA, presumably had nothing to do with it, as far as we can ascertain. But we know for sure that the NSA was involved.

3. Satoshi Nakamoto released the original paper on Bitcoin on October 31st 2008 on Bitcoin.org. The Source Code was implemented early 2009 — over 10 years ago.

It has taken a while to catch on.

WATCH THE LOCKDOWN INTERVIEW

In this interview, Catherine Austin Fitts explains what she thinks is happening to the world and why it is happening. She is a former United States Assistant Secretary of Housing and Urban Development during the Presidency of George H.W. Bush. The interview will (in most cases) shock you.

THE FUTURE OF VACCINES

And then, there is this video on the Future of Vaccines. It explains what a Messenger RNA Vaccine is, the fact that some Covid vaccines use this new technology, the fact that those vaccines have not had comprehensive animal testing performed and the fact that Messenger RNA vaccines (mRNA) have never been previously used in human beings. Ever.

Of course, the manufacturers and government public health officials don’t want you to watch this. They want you to line up and have the jab — no questions asked.

OTHER VACCINES

By the way, BOOM is a supporter of conventional vaccines using conventional antigen technology that have been proven to be safe and effective over many years of intense development and use.

OTHER STORIES

Unfortunately, there is no room today in the Editorial to discuss some news items of last week. They included stories on the allergic reactions to the new Covid vaccines, stories on deaths that have occurred soon after the new Covid vaccines, stories concerning large numbers of medical staff at major hospitals refusing to have the new Covid vaccines and stories about hundreds of people testing Positive for Covid 19 after having some of the new vaccines. Then there is the story about the nurse who collapsed on camera after having the vaccine and has since deleted her facebook account and (apparently) disappeared. And the story about the Chief Scientist at the WHO, Dr. Soumya Swaminathan, who said the new Covid vaccines are not designed to prevent the spread of the virus. Quote: “I don’t believe we have the evidence on any of the vaccines to be confident that it’s going to prevent people from actually getting the infection and therefore being able to pass it on” Swaminathan said. Unquote

Link: https://nationalpost.com/news/world/who-chief-scientist-not-confident-vaccines-prevent-transmission

HUGE NUMBERS OF DOCTORS ASK FOR REASSESSMENT OF CORONA MEASURES

Globally, we are seeing a massive campaign of disinformation concerning Covid 19 in the main stream media. While a great number of doctors are presenting different views, unprecedented censorship by the media prevents them from making the news bulletins and headlines. Their opinions are effectively banned.

Information from different thinking experts and professionals can currently be found almost exclusively through targeted searches on the internet or alternative news sources, but not in the mainstream media. Start with THE OPEN LETTER from Doctors in Belgium  —

THE OPEN LETTER
https://docs4opendebate.be/en/open-letter/

SIGNATORIES
https://docs4opendebate.be/en/signatories/

GREAT BARRINGTON DECLARATION

Signatures:     39,544 Doctors    13,083 Medical & Public Health Scientists   
“Current lockdown policies are producing devastating effects on short and long-term public health.”

https://gbdeclaration.org/
Current Signature Count: https://gbdeclaration.org/view-signatures/

Germany

An international group of doctors has launched an extra-parliamentary inquiry into the “exaggerated and oppressive corona measures”, with a view to questioning politicians and scientists around the world.
https://acu2020.org/english-versions/

International
The initiative by Luc Montagnier, Nobel Prize winner in medicine, and Robert F. Kennedy, lawyer, among others, addresses the many inconsistencies surrounding corona policy and is addressed to the presidents of the WHO, the European Commission and the European Parliament.
https://www.internationalfreechoice.com/

United States

In the US, a group of clinician doctors, who see patients on a daily basis, united under the banner “America’s Frontline Doctors” and gave a press conference which has now been watched millions of times.
https://americasfrontlinedoctorsummit.com/

The Netherlands

In the Netherlands, doctors have come together and drafted an open letter addressed to colleagues and the government pleading for proportional measures. This letter aims to stimulate an open and frank debate on how to tackle the Covid-19 outbreak and was signed by more than 2,755 doctors.
https://opendebat.info/

An open, sharp-worded letter, was written by doctors and mental health care providers, that has been signed by more than 2500 healthcare professionals.
https://brandbriefggz.nl/

Spain

A public press conference of “Doctors for Truth” in Madrid, was attended by 400 doctors and scientists under the slogan “A world dictatorship with a sanitary excuse”. “Covid-19 is a false pandemic created for political purposes”. Doctors agree that:
Coronavirus victims did not outnumber last year’s seasonal flu deaths.
Figures were exaggerated by altering medical protocols.
The confinement of the healthy and the forced use of masks have no scientific basis.
The disease known as Covid-19 does not have a single infectious pattern, but a combination of them.
https://niburu.co/gezondheid/15385-artsen-komen-massaal-met-coronawaarheid-naar-buiten

Belgium

A Belgian initiative, which has already been signed by more than 1,500 doctors and health professionals (23rd September 2020)

http://omgekeerdelockdown.simplesite.com/?fbclid=IwAR2bJAAShAlIidjnRQPyVSoZbk1Uj-FTHAthL77hKX_Oo8aMLN3V6DdwAac

An open letter on the initiative of a group of doctors from the Cliniques Universitaires St-Luc, UCLouvain. 13,583 have signed already.

https://belgiumbeyondcovid.be/

In economics, things work until they don’t. Until next week …………  Make your own conclusions, do your own research.  BOOM does not offer investment advice.

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HOW MOST MONEY IS CREATED

BANKS CREATE FRESH NEW MONEY OUT OF THIN AIR (but they always need a Borrower to do so)THERE IS NO SUCH THING AS A DEPOSIT
BANKS PURCHASE SECURITIES, THEY DON’T MAKE LOANS
BANKS DON’T TAKE DEPOSITS, THEY BORROW YOUR MONEY

Watch this short 15 minutes video and learn as Professor Richard Werner brilliantly explains how the banking system and financial sector really work. 

https://www.youtube.com/watch?v=EC0G7pY4wREhttp://
How is Most New Money Created ?

LOANS CREATE DEPOSITS — that is how almost all new money is created in the economy (by commercial banks making loans).

From the Bank of England Quarterly Bulletin Q1 2014    —
“Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.

“Most money in the modern economy is in the form of bank deposits, which are created by commercial banks themselves”.

Youtube Video —  https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction

and

https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy

Paper:  Money in the Modern Economy  PDF —  CLICK HERE

Quarterly Bulletins Index

http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx

Most economists are unaware of this and even ignore the banking & finance sectors in their econometric models.

On 25th April 2017, the central bank of Germany, the Bundesbank, released a statement on this matter —

“In terms of volume, the majority of the money supply is made up of book money, which is created through transactions between banks and domestic customers. Sight deposits are an example of book money: sight deposits are created when a bank settles transactions with a customer, ie it grants a credit, say, or purchases an asset and credits the corresponding amount to the customer’s bank account in return. This means that banks can create book money just by making an accounting entry: according to the Bundesbank’s economists, “this refutes a popular misconception that banks act simply as intermediaries at the time of lending – i.e. that banks can only grant credit using funds placed with them previously as deposits by other customers”. By the same token, excess central bank reserves are not a necessary precondition for a bank to grant credit (and thus create money).”

Reference: https://www.bundesbank.de/Redaktion/EN/Topics/2017/2017_04_25_how_money_is_created.html
The Reserve Bank of Australia (Australia’s central bank) has also contributed to the issue in a speech by Christopher Kent, the Assistant Governor on September 19th 2018.
“…… the vast bulk of broad money consists of bank deposits”
“Money can be created …….. when financial intermediaries make loans
“In the first instance, the process of money creation requires a willing borrower.” 
“It’s also worth emphasizing that the process of money creation is not the result of the actions of any single bank – rather, the banking system as a whole acts to create money.”

Disclaimer:   All content is presented for educational and/or entertainment purposes only. Under no circumstances should it be mistaken for professional investment advice, nor is it at all intended to be taken as such. The commentary and other contents simply reflect the opinion of the authors alone on the current and future status of the markets and various economies. It is subject to error and change without notice.The presence of a link to a website does not indicate approval or endorsement of that web site or any services, products, or opinions that may be offered by them.

Neither the information nor any opinion expressed constitutes a solicitation to buy or sell any securities nor investments. Do NOT ever purchase any security or investment without doing your own and sufficient research.  Neither BOOM Finance and Economics.com nor any of its principals or contributors are under any obligation to update or keep current the information contained herein. The principals and related parties may at times have positions in the securities or investments referred to and may make purchases or sales of these securities and investments while this site is live. The analysis contained is based on both technical and fundamental research.

Although the information contained is derived from sources which are believed to be reliable, they cannot be guaranteed.

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MOLS Denmark

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