Unintended Consequences

Unintended Consequences
December 10, 2010
By John Mauldin


Ten-Year Yields Are Rising
An Uptick in Consumer Credit? Not!
Some Thoughts for Ben
New York, Cabo, and Winnipeg


Correct me if I’m wrong, but I seem to remember that one of the reasons for QE2 was to lower rates on the longer end of the US yield curve. Clearly, that has not happened? Today we look at come of the unintended consequences of monetary policy, turn our eyes briefly to consumer debt, and wonder about deflating incomes. There are a lot of very interesting things to cover. (This letter will print long, but there are a lot of graphs. Usual amount of copy.)

But first, the are some changes and upgrades being made to the database that houses the list of my 1.5 million closest friends. That means that some of you will be reading this on the website this week, rather than having the letter sent directly to you. If this letter doesn’t show up for some reason, you can always go to www.2000wave.com and get it directly from the website. We should be back on track by next week. Sorry for any inconvenience.

Second, long-time readers know I have an avid interest in biotech. I am also a serial entrepreneur on the lookout for business opportunities. Some have been successful and others have been learning experiences. On the biotech front, I frequently talk and meet with CEOs and scientists in the biotech space. In this process I have come across what I think is an amazing new product. I have personally been using it and love it! I bought the marketing rights. Next week I will introduce you to it. We are rushing to get the material ready before Christmas, and production efforts on the websites are not up to my normal standards. But since it only goes to my closest friends, I trust you will cut me some slack. And it is an amazing product. More next week.

You can be the judge as to whether I should have jumped at yet another opportunity. But rest assured, gentle reader, that my primary focus is on writing to you every Friday, and it always will be. That is what I love to do and what I seemingly do best. Now, into the letter.

Ten-Year Yields Are Rising

Look at the chart below. The yield on ten-year US bonds has been rising since the beginning of QE2. But it is not just US bonds; European and UK bonds are moving up as well. This has also meant that mortgage rates in the US are up almost a half percent in the last few months. That certainly has not helped housing prices or sales, as it makes housing less affordable. (Chart from my friends at Variant Perception.)

But it is not just the US and UK. Look at what is happening to German bonds, supposedly the safest in Europe. They are up about as much as their counterparts. (Chart from Cowen International and data from Bloomberg.)

And then we look at Japan and we see the same phenomenon. Japanese real rates going up? Really? What is up with that?

In Europe it is now cheaper to hedge against corporate default than sovereign default. That is not the way it is supposed to be.

Read More

Category: Inflation, Think Tank

The Illustrated History of the U.S. Credit Collapse

The Global Macro Monitor blog was started b an independent trader and economist and, in a prior life, was a global macro hedge fund PM/trader, headed emerging market bond trading desks on Wall Street, and an economist/global strategist, beginning his career at the World Bank in the mid 1980’s. His unique and unconventional views are…Read More

Category: Credit

FDIC Bank Failure Update

We haven’t run these Chart Store graphs in a few weeks, so lets take a look: In the beginning of the year, I thought we might blow past 2009′s totals, but it looks like 2010 is going to just barely outpace last year. Strong start, but we look like we will end up within a…Read More

Category: Credit

Investing Losses: Death by Opinion

Chart via No Brainer Trades > No Brainer Trades brought the above chart to my attention, and its worth spending some time detailing. “I heard this guy on CNBC . . . well, his opinion is . . . his trades are . . .” As the chart suggests, these turn out to be amongst…Read More

Category: Apprenticed Investor, Psychology, Trading

Foreclosures in Cleveland: Taking on Banks and Blight

Cleveland’s Judge Raymond L. Plianka takes on banks whose predatory lending resulted in blight

Foreclosures have devastated some neighborhoods in Cleveland, and a housing court judge is making owners and banks pay to keep properties and communities from becoming blighted


Category: Foreclosures, Real Estate, Video

Wankin’ Bankers


An Irishman abroad tells it like it is !! :-)


We at xfm Dublin, Ireland, WANT this man to return home and run the country :-) Even if this man was in a fucking coma, he could do a better job than Fianna Fail and their wanker banker and developer mates. It will be a cold day in Hell, when another Banker / Builder / Property Developer / Speculator or ‘Fianna Failure Lizard’ wipes the eye of the Irish People. They should stick to shovelling shit ! That is what they are used to, that’s what they are good at.

Category: Bailouts, Credit, Video

The Opera Time-Piece: $1.2M

Via A Blog to Read, we see this Manufacture Royale Opera Time-Piece Watch (Accordian) The utterly insane price of the Manufacture Royale’s Opera wristwatch: $1,200,000 >

Category: Weekend

Secret Derivatives Trading

Courtesy of NYT > Louise Story has a front page article in the Sunday NYT that is your must read this morning: “On the third Wednesday of every month, the nine members of an elite Wall Street society gather in Midtown Manhattan. The men share a common goal: to protect the interests of big banks…Read More

Category: Bailouts, Derivatives, Regulation

Mark Madoff Suicide Leaves Unanswered Questions

Mark Madoff was found dangling from a black dog leash in his Manhattan apartment living room, while his 2-year-old son was found asleep in an adjoining bedroom. The 46 year old son of a thief, in his final act of cowardice. emailed his wife, in Florida with their older child. What a delightful family this…Read More

Category: Legal

Yves Smith on Harry Shearer’s Le Show

Category: Derivatives, Legal, Video