Friday, August 7, 2009

The Debts of the Spenders: UK Extends Gilt Repurchase Program

Coming soon to the USA. Expect to see the DXY (dollar index) take a further beating this fall if Ben Bernanke extends his quantitative easing program. This is a near certainty IMHO due to

1) declining inability of foreign lenders to buy US bonds (ahem I'm looking at you Japan w/170% GDP spending and .000001% interest rates)

2) continuing weakness in US housing and commercial real estate (ability to refinance is critical to prevent widening CMBX spreads - no it was never meant to protect the homeowners - what you actually believed that political drivel?)

3) competition w/other "spender" nations increasing their bond re-purchase programs

4) potential Obama health care plan (which I actually support b/c it will be a great driver of fiscal stimulus and highly inflationary - something goldbugs will love). The Fed will be forced to buy more bonds in order to keep rates down for the aforementioned reasons.

5) holiday retail weakness. Hohoho! Santa Claus is not visiting China this year. Now is the time for US and European retailers to place their orders w/Chinese factories. "Back to school" sales are already shaping up to be disappointing. Now combine that w/a potential liquidity crunch w/ merchants unable to finance their wares and operations during the critical Oct-Dec months where a majority of their profits are based.

*Note - I love the Telegraph even though one of its main authors, Ambrose Pierce, re: financial matters is a paranoid perma-bear. I mean, just look at the headline of the story!
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