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FEATURED ARTICLE | AUGUST 3, 2009
Why Default on U.S. Treasuries is Likely
Jeffrey Rogers Hummel*
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“Buried within the October 3, 2008 bailout bill was a provision permitting the Fed to pay interest on bank reserves. Within days, the Fed implemented this new power, essentially converting bank reserves into more government debt. Now, any seigniorage that government gains from creating bank reserves will completely vanish or be greatly reduced.”
Almost everyone is aware that federal government spending in the United States is scheduled to skyrocket, primarily because of Social Security, Medicare, and Medicaid. Recent “stimulus” packages have accelerated the process. Only the naively optimistic actually believe that politicians will fully resolve this looming fiscal crisis with some judicious combination of tax hikes and program cuts. Many predict that, instead, the government will inflate its way out of this future bind, using Federal Reserve monetary expansion to fill the shortfall between outlays and receipts. But I believe, in contrast, that it is far more likely that the United States will be driven to an outright default on Treasury securities, openly reneging on the interest due on its formal debt and probably repudiating part of the principal.
more here
http://www.econlib.org/library/Columns/y2009/Hummeltbills.html
and
TrimTabs Investment Research reported that selling by corporate insiders in August has surged to $6.1 billion, the highest amount since May 2008. The ratio of insider selling to insider buying hit 30.6, the highest level since TrimTabs began tracking the data in 2004.
“The best-informed market participants are sending a clear signal that the party on Wall Street is going to end soon,” said Charles Biderman, CEO of TrimTabs.
TrimTabs’ data on insider transactions is based on daily filings of Form 4, which corporate officers, directors, and major holders are required to file with the Securities and Exchange Commission.
In a research note, TrimTabs explained that insider activity is not the only sign the rally is about to end. The TrimTabs Demand Index, which tracks 18 fund flow and sentiment indicators, has turned very bearish for the first time since March.
For example, short interest on NYSE stocks plummeted by 10.3% in the second half of July and margin debt on all US listed stocks spiked 5.9% in July, while 51.6% of advisors surveyed by Investors Intelligence are bullish, the highest level since December 2007.
“When corporate insiders are bailing, the shorts are covering and investors are borrowing to buy, it generally pays to be a seller rather than a buyer of stock,” said Biderman.
TrimTabs also reports that the actions of U.S. public companies have been bearish. In the past four months, companies have been net sellers of a record $105.2 billion in shares.
“Investors who think the U.S. economy is recovering are going to get a big shock this fall,” said Biderman. “Companies and corporate insiders are signaling that the economy is in much worse shape than conventional wisdom believes.”
TrimTabs Investment Research is the only independent research service that publishes detailed daily coverage of U.S. stock market liquidity—including mutual fund flows and exchange-traded fund flows—as well as weekly withheld income and employment tax collections. Founded by Charles Biderman, TrimTabs has provided institutional investors with trading strategies since 1990. For more information, please visit www.TrimTabs.com.
I hate to say it but I agree with this assessment in almost every possible way.
You can’t spend your way out of debt, and you can’t build a house on a foundation of Jell-O. Not one that’ll hold up to a wind storm, anyway.
Pray that we learn from our mistakes, and that the coming financial meltdown lays bare the lie of “green jobs” while instilling a hard day’s work as virtuous in our current generation of selfish entitlement-mentalitied brats.
Wonder what Hedge fund this guy is tied to? These “Doomsday Guys” always have a big stake in the market going lower.
~~Harvard Economic Society, May 17, 1930
This sort of thing kind of blows the bubble up during the day, but the curve since february looks to have peaked.
So, yeah, there's really not much money to be made in this market (in the broadest sense) although some individuals have seemed to have done well ~ we'll find out about that in a few weeks. I'm guessing now they may have made 10% ~ maybe less.
Nothing like a little colorful reporting to perk up dreary financial news!
Shanghai is down now relative to a few weeks ago, but if you had put your money there in January you are still standing on huge gains.
ping