Bund Auction Fail
Research for Online Investors

by John Dalt

11/23/11

Earlier this morning, Germany held a bond auction…and nobody came.  Get ready America…the contagion is coming.  Germany is the eurozone’s strongest economy.  Germany had $8.1 billion in 10-year bunds for sale this morning.  The government offered 2% interest on the bunds, but found takers for just over half of the offering.

Germany lowered the interest rate offered to the lowest ever, down from the last offering of 2.09% in October.  They may have overplayed their hand!  Economists called it the worst bond sale since the inception of the euro.

Marc Ostwald of Monument Securities in London called the auction “It is a complete and utter disaster.”  Reuters quotes Frank Schaeffler, a member of the German Parliament commenting “The debt crisis is burrowing ever deeper, like a worm, and is now reaching Germany.”

The politicians that blocked cutting the U.S. Federal budget should pay attention.  We surmised how Europe will paper over the crisis yesterday with a grand bargain between the EFSF and the IMF.  We expect news within two weeks. When they do, what country has the largest debt (in the world) at over $15 trillion?  What country is running the largest annual deficit to GDP at 10%?  What country cannot enact austerity measures?  What government borrows more than 40% of every dollar spent?

What country is leaderless, with a president more interested in his re-election and ideologically dedicated to a socialist experiment?

As investors, we lost money last year and again earlier this year on the TBT eft.  This ETF moves with interest rates on U.S. 20-year treasuries.  When interest rates go down, it loses value.  When “long-term” interest rates go up, TBT gains in value.

We think it may be time to look at the TBT one more time.  Not an overnight trade, but this one is for the inevitable raid by the bond vigilantes that is coming.  As I write this, I am reminded the FOMC minutes released yesterday told us some Fed governors are in favor of more quantitative easing.  What do they know that we don’t know?

The time may be coming when there is no choice.  The first time a U.S. bond sale fails, the game is up.  The world will see the emperor has no clothes.  Get ready, it is coming sooner than you think.

We hope you have a nice Thanksgiving, we will have today’s MarketToday topic in mind.  I am as certain as the fact it will rain next year…interest rates are going higher in 2012.  The only way for this not to come true is for the Fed to be the “buyer of last resort.”  This will destroy the value of the dollar and our economy.  Just look at Zimbabwe to see our future under this president and senate.

If you are being cut to pieces by the current market, why not join our Long-Term Portfolio?  We sold during the rally last month, and are buying back now.

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It is unreal how you condense information and deduce a probable outcome.  Thanks for the insight.---subscriber T.M.

Editor’s note: I hope you have a blessed Thanksgiving with family.  Our daughters are all home for dad’s smoked turkey and ham.  I will be busy at the smoker early tomorrow morning...and monitoring overseas markets.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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