- Written by Bill Bonner, Founder and President, Agora Inc.
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No matter how loud we sing, we will never clear the air of the trouble ahead.
The big news last week was the drop in Treasury prices. Bloomberg is on the story:
Treasuries posted their biggest four-week decline since December 2010 as signs economic growth is accelerating dimmed the likelihood the Federal Reserve will initiate another round of asset purchases.
Economic data on the job market, the housing industry and consumer purchasing and sentiment showed signs of faster growth, helping reduce haven demand to push benchmark 10-year Treasury yields to the highest level since May 11. The central bank will release minutes from its Aug. 1 meeting where it declined to initiate a third round of monetary stimulus, a policy known as quantitative easing, or QE. Fed Chairman Ben S. Bernanke will address the Kansas City Fed's annual conference on monetary policy at Jackson Hole, Wy., on Aug. 31.
"The market's saying there is no QE3," said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia in New York, one of 21 primary dealers that trade with the Fed. "Rates have backed up significantly. QE3 is off the table."
The 10-year note yield rose 15 basis points this week, or 0.15 percentage point, to 1.81%, according to Bloomberg Bond Trader prices. The 1.625% note due in August 2022 dropped 1 13/32 or $14.06 per $1,000 face value, to 98 9/32...
The index of U.S. leading economic indicators climbed more than forecast in July, a sign of sustained expansion in the world's largest economy. The Thomson Reuters/University of Michigan preliminary August index of consumer sentiment increased to 73.6, the highest level since May, from 72.3 the prior month.
U.S. retail sales rose 0.8% in July, a report on Aug. 14 showed, above the median estimate of economists in a Bloomberg survey. A separate report on Aug. 3 showed the U.S. added 163,000 jobs last month, more than the 100,000 projected by analysts.
Building permits, a proxy for future construction, rose to an 812,000 pace, the most since August 2008. New-home starts fell 1.1% to a 746,000 annual rate from June's 754,000 pace, Commerce Department figures showed Aug. 16 in Washington. The median estimate of 79 economists surveyed by Bloomberg News called for 756,000.
Jobless claims climbed by 2,000, to 366,000, in the week ended Aug. 11, Labor Department figures showed Aug. 16 in Washington. The four-week moving average fell to 373,400, the lowest since July 2008.
How do you like that? Just last week, we were advising readers to watch out for a coming recession. In fact, some analysts think we're in a recession already. And here we have a report with the opposite news... telling us that the economy is actually improving... perhaps making a genuine recovery.
Well, anything is possible. But as we remember it, the real problem in America and the other limping economies is that they are carrying too much debt. And as far as we know, the weight is growing, not declining.
So what do these sunny reports really mean? Is the data so corrupted that it no longer means anything? Is our hypothesis -- that we have a debt-soaked economy desperately in need of a squeeze -- incorrect?
We don't know. We'll have to wait to find out... just like everyone else.
But wait: If the economy really is recovering, won't yields continue to rise? And won't interest rates return to "normal"? And how will an economy trained to operate on ZIRP (zero interest rate policy) continue to function when money is no longer free? And won't inflation increase too?
And then, won't investors and savers look at the numbers and anticipate higher consumer price increases? Won't they start dumping U.S. bonds? And won't that cause just the sort of financial Armageddon that the authorities were trying to avoid?
Oh, what a glorious time for a curious North American to be alive... All of those disasters that happened so regularly to countries like Brazil and Argentina. Now we get to see them up close!
Last night, we went to a village event -- an outdoor dinner... with a Las Vegas-style singer... and then fireworks. Organized by the town council, it was like a farm-district summer festival you might find in a small town in Iowa or South Dakota, if they did that sort of thing. Bad music. Bad food. Fat women. Thin, weather-beaten men.
(What is it about farm life that it makes women hefty and men light? In Paris, it is just the opposite: The women are thin and the men are fat. Surely, the subject deserves more scientific study; we eagerly await the conclusion.)
We sat on long benches in front of trestle tables. Almost all of the diners were local French people; most of them had white hair. The countryside has been stripped of young people. In August, young people go to the beach or to the mountains. The rest of the year, they are in the big cities, working... studying... or hanging out, living on public assistance of one sort or another.
Only old people remain in these rural areas. And now they're leaving too.
"I remember in the 1950s, there were six bars in town," recalled a friend. "Now, there's not a single one. The last one closed down this past winter.
"And now Anne-Marie [his wife] wants to get a place in Poitiers. She's tired of spending the gray months of winter here. More and more of our friends are moving to Poitiers. And the more they move to Poitiers the less she wants to stay here.
"Anne-Marie says she definitely doesn't want to be here by herself. And I see her point. Statistically, she's going to be a widow for more than 10 years. So she'd rather be a widow in Poitiers than out here in the country."
France, like America, is home to more and more old people. How will they be maintained in the style to which they've become accustomed -- with drugs and pensions paid for by the next generation? That's another reason it is so delightful to be alive; we will get to see the welfare/warfare state go bust!
Wait... Paul Ryan is going to fix America's finances. Yeah, right! He voted for President Bush's drug program: the biggest unfunded Medicare boondoggle in history. Ryan also voted for TARP: a $700 billion collection of boondoggles. He voted to bail out GM: an auto industry boondoggle. And he says he won't touch a penny of the Pentagon's budget: by far the biggest boondoggle of all time. Is there any boondoggle he won't vote for?
A singer took the stage about 9 p.m., singing dreadful French rock songs from the 1980s. Our local friends seemed to like them. The few young girls present raised their arms and swiveled their hips. The old people sat patiently on benches.
"I don't think I've ever heard worse music," we shouted in Elizabeth's ear.
It was loud and ghastly. And he wouldn't stop. He kept belting out awful songs until midnight. Even the cows in a nearby field retreated to the far side of the hill.