Sunday, November 13, 2016

When the US dollar goes up, the price of oil goes down, as oil is priced in US dollars...

The higher the dollar rises, the farther our money goes when purchasing products from weaker currencies.

This appears to be the reaction to the beginning of a trade war which officially began last Tuesday.

Other countries are devaluing their currencies to make their exports less expensive, after we threatened said countries with tariffs etc...

The higher our currency goes, the more expensive our products are to the economies who can now ship and sell for less to America.

The higher our currency goes, the less expensive any commodities priced in US dollars become, reeking havoc on the oil

Our exports go down.

Non-US imports go up, as more will purchase lower priced goods until the Trump import taxes come into play.

Our financial markets are going up while the US dollar is going up, which doesn't make much sense, as our companies will find it less profitable to export and foreign companies, in the near term, are going to dump low priced goods into our economy.

While the world's central banks pump $200 billion into financial markets per month.

There's no easy way out.

Oil etc..., along with other dollar priced commodities may be getting cheaper for Americans, but the inverse is those we want to sell our manufactured products to are getting price hikes at the same time, as everything priced in dollars becomes more expensive;
Quite the catch 22

The rest of the world reacted faster than we did, and now we're stuck with the consequences, which the central banks can only put off for so long

Interest rates are saying the Fed's of the world are losing control of the rigged pricing mechanisms

. .
Chinese Bonds Headed for Longest Run of Losses in Three Years

Will The 'Rout' In Government Bonds Turn Into Carnage?
"World's $150 trillion debt edifice shaken by Trump victory

The spectacular sell-off in the global bond and credit markets since the election of Donald Trump has left a trail of carnage among hedge funds and revived gnawing doubts about the fragility of the eurozone's financial system.

With big moves like we had last week, 
someone big probably got their asses handed to them

Bank of America warned that there has been violent 'violent rotation' within the structure of the bond market over the last week, with powerful implications.

There is never one cockroach

Traders switched overnight from worries about deflation to an entirely different bet on surging reflation driven by Mr Trump's expansionary policies. This has instantly shaved $1.14 trillion off Bank of America's Global Broad Market Index.

The gauge captures roughly a third all debt contracts. The International Monetary Fund said the total outstanding stock of bonds and loans worldwide was $152 trillion at the end of 2015, far greater than the $69 trillion store of global wealth in equities..."

The bond market is about 2.2 times bigger than the world's equity markets,
and the bond market is getting crushed

Most people don't even know how much they have invested in what

A margin call occurs after an investor borrows to purchase investments
while using current investments as collateral
and the brokerage firm who lent the money asks for more
if the account's value declines below required levels.

Most brokerage firms allow from two to five days to meet the call.

If an investor purchases $100,000 worth of securities
with an initial investment of $50,000
and a loan of $50,000 with a 30% "maintenance" requirement
and the account falls below $80,000, the investor should receive a margin call.

So $79,999 = 29,999 (less than 30% of the $100,000) in equity
and $50,000 owed = a maintenance call.

If the investments go up before the money is due
usually somewhere between two and five days,
meaning if the account rises above $80,000 above the 30%,
the margin call is considered to have been met
and the investor doesn't have to sell or supply more money.

If the the $100,000 falls under $80,000,
and the investor still owes $50,000 plus interest
and the account doesn't go back up in time
the investor has to either sell enough to bring the account into compliance
or inject more money into the account to bring the equity back up over 30%.

If the investor doesn't act, the brokerage firm usually does
as the brokerage has the right to sell securities to increase an account's equity
until it rises above the maintenance margin.

Investors can buy much more fixed income debt (bonds) on margin;

US Bonds Margin

The following rules apply for Margin and Portfolio Margin accounts.

Bonds must be paid-in-full in a Cash account.

Ten years but less than twenty years to maturity 7% * Market Value

Twenty years or more to maturity 9% * Market Value

Let's say you can put up $10,000 
and buy $100,000 in bonds on margin

If the value of the bonds go down as yields rise,
you have to make up the difference in cash

Non-NYSE-Listed Speculative Grade  50% * Bond Market Value

Non-NYSE-Listed Junk Grade 70% * Bond Market Value

If yields don't go down quick, 
someone who made a big mistake won't be able to pay up
and will have to sell, creating even more margin calls for others etc...,
which is how 2008 happened

Anyone want to buy some bonds investing in credit card debt?

I didn't think so

If one family has meat and another is growing vegetables
could the meat family accept an I Owe yoU for some present meat 
in exchange for some future vegetables
plus extra to compensate for waiting?
Like borrowing from a bank?

If the Veggie family exchanges present sustenance for future need
is the IOU money and the extra interest?

Like buying groceries with a credit card?

If the Meat family exchanges a Veggie IOU for an axe
is the transaction dependent on the IOU’s perceived value?

Like the trade-in value of a used car?

Could widespread consensus of an over-abundantly large crop
make the Veggie IOU worth less axe?

Like buying local corn after harvesting a bumper crop?

What could happen if the Veggie family issues or is thought to have issued
more IOUs than planted seeds? 

Should an IOU backed by faith and credit 
remain relatively stable as long as faith and credit exist?

Ponzi finance units must increase its outstanding debt
in order to meet its financial obligations

A transition occurs over the course of an expansion 
as increasingly risky positions are validated by the booming economy 
that renders the built in margins of error superfluous
encouraging adoption of riskier positions

Eventually, either financing costs rise
or income comes in below expectations
leading to defaults on payment commitments

Hyman Minsky

Hypothetically, for every $100 deposit
a bank can lend about $90, which when deposited in another or the same bank
~$81 can be lent, of which $72.90 can be lent 
then $65.61, $59.05, 53.14, 47.83, 43.05, 38.74 34.87, 31.38, 28.24, 
25.41, 22.88, 20.59, 18.53, etc…

When national debts have once been accumulated to a certain degree
[there has never been] a single instance
of their having been fairly and completely paid

The liberation of the public revenue...
has always been brought about by bankruptcy
though frequently by a pretended payment [through inflation]

Inflation or expectations of inflation leads to higher interest rates

Adam Smith
Moral philosopher and Father of Modern Economics