The Treasury Bond Train Wreck

How the heck is Washington supposed to fund the recovery when bond sales have fallen 224%?

These guys oughta wear dresses and carry pom-poms. I am talking about Wall Street’s cheering squad. (Or is that Washington’s cheering squad? Come to think of it, now that we collectively own so much of Wall Street, I suppose there ain’t terribly much difference.)

Anyway, my point is that the guys and gals with the megaphones are touting another "gen-yoo-wine sign of recovery." This time it’s a "huge" spike in mortgages, which must mean that the housing market is thawing, which must mean that the economy is on the mend. Also, the streets will be paved with gold and wine will flow from the town square’s fountain, yadda, yadda, yadda.

Don’t get me wrong: I do believe that they will eventually be able to simulate a recovery. Yeah, I said "simulate," not "stimulate," because the next boom will be a fiction created by re-inflating the dollar, just like the last two.

But that’s next week’s gripe, or more likely, next year’s. Right now I am complaining about the mortgage spike farce.

Think Real Estate’s Picking Back Up? Fergedaboudit!

First off, it’s not about home sales. What we are looking at is a 31.2% week-to-week increase over all. That is undoubtedly the biggest such increase in months if not a year or so. But (and ain’t there always a "but") 72.9% of those new applications were not for new sales, but rather the refinancing of old mortgages.

In point of fact, I am actually one of those folks who are looking to take advantage of these historic low rates. And why the heck not: I’ve still got income, I am sitting on a ton of equity and my credit is pristine.

I’m the ONLY sort of customer they should have been lending to in the first place, and certainly the only kind they ought to be looking to lend to now. And seeing as how I am the strong party in this negation, I am ruthlessly squeezing them for every tenth in rate. As for points? Fergedaboudit!

And I am reasonably sure that every one of those refi apps is either a miserly old skinflint like me, or the exact opposite: a sub-primer looking to cram down on their way to inevitable foreclosure. My point here is that neither category is going to do but so much for the banks or the real estate brokers.

Fat, Happy and Stupid at the Fed

Meaningless though they may be, Ben Bernanke loves stats like this, and has most probably spent the past two days beating up his fellow FOMC members with them. As I sit to write, the Fed is contemplating novel new ways they can give the economy a swift kick in the pants.

By the time you read this, we will already have some kind of incomprehensible statement out of them. But the word I am getting right now is that they are quite satisfied with the main banking rate right now, and looking to keep it at zero for most all of 2009, if not a good part of 2010, a truculent move that will put fat grins on the faces of Keynsian monetarists around the world and cause Austrian economists to lose their lunch.

My sources tell me that they also plan to continue sopping up all those toxic mortgage bonds that are slopping around the system. They also plan on buying some $300 billion in U.S. Treasury notes over the next six months.

Nobody (With Any Sense) Wants to Play This Game Anymore

Funny that, because they are the only ones who want Treasuries and such right now. Certainly almost no one besides the Japanese and Chinese is interested. And yet outsiders are supposed to be funding most all of Washington’s various recovery plans.

As per the accountants at the Treasury Department, net foreign purchases of long-term U.S. Treasury notes, Fannie Mae and Freddie Mac bonds, corporate debt and stocks dropped from a positive $34.7 billion in December ’08 to a negative $43 billion in January ’09, a 224% net decline in one short month!

Now consider that both Japan and China actually increased their holdings over this period (although even they came in under their 12-month purchase average). Seems to me that right about the same moment that we are trying to flog $2 trillion in shiny new "Obama-Bonds" on the open market, most everyone else is trying to unload nasty old used U.S. notes onto that same market.

The upshot? That light at the end of the tunnel that the cheerleaders were touting? That’s the 4:19 express out of Galveston, my friends, and the Obama recovery program is sitting square in the middle of the track.