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Thursday, December 23, 2010

Mailbag: Bear Trader reflects on a bond panic; on renouncing pensions etc; and holiday wishes

(Ed.note: The Bear Trader is a regular contributor to the Evansville Observer, and his comments are bearish even when giving Holiday Wishes. His bearish views are never to be considered investment advice.)

Notice that Pimco Total Return made a hell of a drop Dec. 8 and has not recovered. Dec.8 took out all the moving averages, including the 400 day SMA, and did so big time. Dec.3 PTTRX was 11.50, Dec. 8 was 10.80, a 6% drop in three trading days. This has never happened before. PTTRX is by far the largest bond fund. Some stability since, see wise crack.

MMT took out the 200 day EMA Dec. 13. Looks to be recovering, maybe. Looks like the FRB (Federal Reserve Board) is buying like a maniac on speed.

10 year Federal bond return was 2.4% Oct. 8, now is 3.346%. This is a 28% drop in price. Some stabilizing the last three days, ditto the "maniac on speed" wise crack.

So. A "real" bond panic? You mean when the lid blows off Japan and Europe Government bonds (sometime in the next two years, sooner rather than later)? Depends on what the USA does in the next weeks. Get Bernanke kenneled, stop monetizing the debt, let USA interest rates rise, (causing a USA bond panic,) run the USA like Cristie does New Jersey, let the Big Boys take their losses in bonds as interest rates return to somewhere more than inflation (say, 4.5% on Fed 90 day notes) and everything will turn out fine in the end. Otherwise the entire world's bonds will crash together simultaneously unless the USD can be the "strong currency of last resort". Otherwise gold and silver will go to the moon. Maybe even a hundred times higher in USD, Yen, and Euros. That would mean gold and silver confiscation, and Weimar - Zimbabwe inflation.

You get your social security check and buy a loaf of bread. Runs on the banks and everyone buying anything at all with it while cash still has some value.

So, "a real bond panic"? One's running now, and the Fed is monetizing like crazy. The dikes are bulging and the Fed is out of fingers.

ON that cheerful note, on to municipalities, states, etc.

The statutes are real hazey, Federaly there is no real way to roll up pension obligations except bankruptcy, Washington DC is talking about some sort of new set of laws to let States, Counties, Municipalities, etc. dump their pension obligations. We shall see.

I don't think that pension law that applies to the private sector applies to government bodies. For sure government entities are not covered by Federal pension reserves requirements applied to the private sector.

The States have sovereign immunity in lawsuits, meaning that if a State does not care to be sued in cannot be forced. Essentially their pension obligations can be terminated by States at will. Then the Feds would probably take it to Federal Court (14th Amendment). California, Illinois, Rhode Island, etc. would plead poverty, and residents of Texas, Wisconsin, and many others would balk at paying amazingly huge out of state government pensions. Also the States can unilaterally de-recognize the public unions, no unions, no contracts, no pensions. The States are not covered by the National Labor Relations Act of 1935, you see. The same is true of the Federal Government - unions are allowed there only because of JFK's Executive Order. A few words on a piece of paper above the President's signature and Federal unions are history.

Have a Merry Christmas!!!

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