We saw a very large move in the markets today where investors are betting heavily on inflation – at least that’s the “surface” appearance.

Gold and oil were up strongly.  The US Dollar Index had a good-sized drop.  But what are the other numbers telling us?

First, notice from the data below how the 10-year and 30-year Treasury yields went down today!  This means that investors were willing to make less interest when purchasing them.  You normally look for yields to go up if the stock market has a healthy gain – since investors typically move out of the “safe” Treasuries and into stocks.

We also see that the 2-yr vs. 10-yr and 2-yr vs. 30-yr Treasury spreads are beginning to “blow out” some more.  This means that investors are running to the 2-yr Treasury notes for “safety”, but are leery of the longer 10-yr and 30-yr securities.  In other words, investors truly want to get as close to liquid cash as possible.

We also see where the “Volatility indicator” (VIX) barely dropped today.  This indicator should have dropped significantly on a major rally like we saw today.

Lastly, we see where the Euro has strengthened in a fairly major way against other currencies in the last few days.  This is complete currency manipulation, since things have only gotten worse in the European Union.  This can be seen be investigating the “insurance premiums” that investors must make against Greek CDS’s (Credit Default Swaps).  This insurance is at record high rates.

Many people were fearful of the news today that China has stopped buying our debt for all intents and purposes.  This puts a big hyper-inflationary scare in the air.  Actually, all debt issued at Treasury auctions is bought with existing US dollars.  There is no creation of new dollars that takes place.  To say that China’s refusal to buy our debt is hyper-inflationary would be very wrong.

All of the underlying data leads one to only guess what games are afoot.  I see a populace in our nation that truly wants to believe we have turned the corner.  I also see a media that is propagandizing with false economic impressions.

The truth is that Federal government debt spending is the only thing contributing to the false  assumption that our nation is finding its way out of the woods.  It solves nothing, and makes the longer term prospects very dismal.  There are two things that need to happen in order to step away from the economic edge:

1) Insolvent institutions need to be allowed to fail.  Yes, many people will get hurt financially, but everyone is going to get hurt much worse if this doesn’t happen.

2) We need to dissolve our debt-based money supply.  If we desire a national currency then it needs to be printed and controlled by the US Treasury, not the Fed.   The Fed should be completely abolished, razed to the ground, and treated as the toxic-waste site that it is.
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Watch for these indexes to drop:

Chinese Shanghai Composite Index: 3,018.13 (change of 7.62% from July 20, 2009 base value of 3,266.92)
Shenzhen Stock Exchange Component Stock Index (SSE): 12,304.78 (change of 8.04% from July 20, 2009 base value of 13,381.22)
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Here are today’s numbers for the economic indicator:

1) Gold = $1,117.80
2) Silver = $16.11
3) Dollar Index = 79.64
4) Oil = $77.40
5) S&P 500 Index = 1,094.87
6) 3-month Treasury Bill yield = 0.09
7) 3-month OIS = 0.15

HEI = 33.94

(A value of under 100 indicates deflation, while over 100 indicates inflation – as referenced to Sept. 12, 2008…the day before Lehman Brothers collapsed)

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Here are the numbers for the day:

Dollar Index adjusted indexes:
Dow = (10,268.81) x (0.7964) = 8,178.08
S&P 500 = (1,094.87) x (0. 7964) = 871.95
Nasdaq = (2,214.19) x (0. 7964) = 1,763.38

3-month Treasury: 0.09

2-year Treasury: 0.80

10-year Treasury: 3.66

30-year Treasury: 4.63

2-yr vs. 10-yr Spread (Target > 273): 286 basis points – (Danger Zone)

2-yr vs. 30-yr Spread (Target > 369): 383 basis points – (Danger Zone)

3-month LIBOR: 0.25

3-month EURIBOR: 0.66

3-month OIS: 0.15

TED Spread: 16 basis points

LIBOR/OIS Spread: 10 basis points

Dollar Index: 79.64

Volatility Index: 22.25

JPY-EUR Exchange Rate (Target < 115): 124.2312

JPY-GBP Exchange Rate (Target < 145): 142.4727– (Danger Zone)

JPY-USD Exchange Rate (Target < 90): 90.224

USD-EUR Exchange Rate (Target < 1.25): 1.3769

USD-CNY Exchange Rate (Target > 7.0): 6.8334

Warmly,

Brad

Comments or questions?  brhamill@hamill.com

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