September 30, 2022 key news items this week: 

1.Currency War: This week I start another theme titled Currency War as the whole world is mesmerized by the relentless rise of the USD. Many financial commentators are preaching a financial apocalypse as they fear the rising USD will push many sovereign nations into financial ruins. This prognosis is in error because most commentators wrongly diagnosed the cause of the rising dollar. The reason is although most realized the deteriorating economic health of the United States but remained fuzzy as regards the depth of its depravity. My thesis is, It is rather the discovery that the USD in fact has no value that will cause many to fall into ruins and ill-prepared for the hyperinflation that is at our doorsteps. By the nature of the subject, the following discourse requires forensic accounting and my apologies if the explanation below cannot be made simpler.

(i) Nation of Disinformation: William Casey CIA Director during the Regan Administration once said, "We'll know our disinformation program is complete, when everything the American public believes is false."(Fig. 1). Has the US Disinformation Campaign been successful, yes, because by 2022, the majority of Americans and many in the 48 countries allied with the US mistaken the disinformation as truth. 

(ii)Treasury Bulletin: The US Treasury publishes a quarterly Bulletin giving information, inter alia, the ownership of the $30 trillion Federal Debt.

Take note Q1 2022 is an interesting quarter because there was a massive bond sell down and many described Q1 2022 as the worst bond rout in the last 40 years. (Fig. 3).

Looking at Fig. 2, two abnormalities stood out. The first, most investors when faced with an inflation rate of 7.0%, 7.5% and 7.9% for the first 3 months of 2022 as compared with USGG10YR of 1.52% as at end of 2021 would dispose of an investment that posses a negative purchasing power of 6% p.a.. So foreign investors, insurance companies and retail investors in mutual funds naturally sold off their bond holdings. However this group of sellers did not include banks and depository institutions. Now banks are most sensitive to interest rate changes because their very survival is dependant upon anticipating and riding correctly the yield curve. We will unpack this enigma in the next paragraph. The second strange observation is the Others group, who are these people that bought close to a $1 trillion of bonds in the worst bond rout for the past 40 years. By definition, Others is just a catch all category and include corporations, households and anything that do not fall into the named categories as classified. Importantly, without this Others buyer, the US Treasury would have failed and the US Government and financial system in default. 

(iii)Accounting hocus-pocus: Many people is aware the US Federal Reserve (“FR”) is a private institution but given certain rights by law. The major shareholders of the FR is per (Fig. 4, 5).

 

In a sense it is like The Hong Kong Association of Banks making important economic decision for the whole of Hong Kong and even the World. The US Treasuries Market is said to be the most liquid and has the biggest depth of all markets. There has never been a failed US Bond auction (inadequate demand). To achieve this the USD is freed from restraints like the Bretton Woods agreement. Systematically important banks in NY are all Primarily Dealers (“PD”) in the US Bond Market. (PD by law must bid and be allocated unwanted bonds at every bond auction). As part of the PD package, the PD are given rights to borrow liquidity at the Federal Reserve Discount Window plus Repo and Reverse Repo (“RRP”)facilities. Repo is the right to exchange a PD’s holding of Treasuries for FR funds over a defined term. RRP is the right to exchange a PD’s FR funds for Treasuries over a defined term (both in a sense is a sale and buy back arrangement). (Fig. 6) is FR chart of RRP,

notice between 2017 to May 2021 RRP is hardly used but May 2021 the use of RRP has been growing non-stop. What does that mean? It means the $1.75 trillion of US Treasuries held by the banks per the Treasury Bulletin at the end of Q1 2022 is not what it appears to be because the bank’s holdings are subject to an overnight sell back arrangement. As at end of Q1, the RRP utilization is $1,786B which means not only the US Banks have sold their entire Treasury portfolio but on top shorted some more. I have recast this picture as (Fig. 7).

The FR with $40B equity and a $8,816B balance sheet (220 times leverage) acts more like a hedge fund and a warehouse facility for private interests than a Central Bank. That is why FR is never audited because it is a cesspool for crimes and insider dealings. The insider banks has been selling down their US Treasuries since August 2021 as they knew inflation would be coming hard and strong but QE has to be continued until December 2021 to cover up the tracks. As regards the “Others” buyer, it simply is a warehouse of unwanted bonds in some highly leveraged Special Investment Vehicles with use Interest Rate Swaps to hide the true precarious nature of US Govt finances. 

(iv)All Western Central Banks are underwater: On September 21, the Reserve Bank of Australia (“RBA”) declared its equity had been wiped out by losses suffered on pandemic-era bond buying (Fig. 8). RBA is at least open and honest about the true state of her finances and in fact RBA is less impaired than other Western Central Banks. I have previously reported the extent of losses by the FR The other Central Banks like BOE, ECB and BOJ are in a far worst off position. All fiat currencies are just claims against the Central Banks, the currency notes are a promises that one can use the paper notes to set off liabilities in the same jurisdiction. In today’s Monetary System, money is credit. Be informed that credit is a word which came from the old Latin word “credo”meaning “I believe”. There is no intrinsic value in a fiat currency except the belief of the holder. The present monetary system we have is only 50 years old and its used by date has arrived. The rule based international order is a military enforcement that no breakaways from this phoney credit system will succeed. 

(v)Why the strength of the USD: The essence of fraud is a promise of high returns in exchange for valuables in your possession. USD is a promise, higher interest rate is also a promise. For the time being there are still people being deceived to hold and to exchange chips in the Central Bank Casino despite the Casino building is already on fire. The strength of the USD is in the destabilization of Europe and Asia and everything in between. On top of the military, intelligence and media onslaught on the psychology of the common folks on the street, there is a large troop of financial engineers to manipulate all financial and commodities markets by derivatives, options and HFT. People are duped into believing the flashes of cyber numeric symbols on the Reuters screen are the real thing. Yes, up till a point and limited in duration. In Fig. 2, we have highlighted the use of “Others” as a warehouse for unsold Treasuries. In past reports, I have highlighted in international finance, the USD use warehouses in the 5Eyes Countries, BOJ and BLICS (Belgium, Luxembourg, Ireland, Cayman and Switzerland) supported by Interest Rate and Exchange Rate Swaps. Even with rising DXY, serious money are still avoiding the US Bond and Equity markets. Speculators who make bets on the USD are parking their money mainly in RRP. The issuance of USD has long past its demand saturation point and insider banks have sold everything they owned since August 2021. 

(vi)Smaller Casinos burning: This week BOE capitulates and restart QE. (Fig. 9).

BOJ last week intervened for the first time in 24 years by overtly dumping USD in open market operations(Fig. 10).

Under such global crisis, members of the Banking Fraternity are fighting for their very own survival individually. Apparently the bad blood first began in the 2021 Jackson Hole meeting. From a momentum technical point of view DXY should reach its peak by end of September, a drop below 110 should trigger a cascading waterfall. Credo requires a large number of Zombie gamblers to continue gaming but by pain they will wake up, just as Euro citizens are waking up despite the reassuring babel of puppet politicians. 

(vii)Unprecedented Hyperinflation: My thesis is FR will also capitulate like BOE because there is no more room to hide against the lack of demand for US Government debt. The choice is print or default. The current Fed tool is high interest rate and it is driving debt ridden countries to bankruptcy including USA without attracting real capital to America. High interest rate is also no cure for a real physical supply shortage of food, energy and the essentials of life because the drivers for inflation is excessive credit creation coupled with political and military designs to disrupt the global supply chains. On September 30, Putin slams Western Money Printing because paper money printed up by Western nations will not heat homes or feed anyone in the world. (Fig. 11).

Be warned my friends. 

2.Russian/Anglo American War in Ukraine: In a major escalation the Nord Stream gas pipelines were sabotaged on the eve of Russia absorbing 4 Ukrainian Oblast into the Russian Federation. The Anglo/American Empire badly need a world war to repudiate all national debts. In the Continent, Europeans, even the very anti-Russia Czechs took to streets against rising costs and want out of EU and NATO. Italians voted in a Nationalist Giorgia Meloni as the New Prime Minister. The tide is gradually turning. 

3.Globalism, the real politics of “the Game of Thrones”: For this week’s opening address I posted an excerpt from the Memoris of David Rockefeller admitting his family is building a one world government. (Fig. 12).

Time and space permitting, we will look into this most powerful American Family. 

4.China/Anglo American Psy War: Western audiences are prone to believing the most outlandish things they hear about China, even with zero substantiation. Over the past weekend, unsubstantiated rumours have gone viral on Twitter, claiming that China’s leader Xi Jinping had been overthrown in a military coup and placed under house arrest. As evidence, a video was posted, purporting to show military vehicles in China. (Fig. 13). 

The past week’s financial markets: 

A.Stock Market: Dow dropped 864.9 points for the week (-2.92%) (Fig. 14).

That sums up to a decline of 8.4% in the month of September. During the week BOE capitulated and restart QE to avert a panic collapse of the Bond market. This move caused Dow to rebound through short covering as there were pervasive short selling. On Friday US CPI for August was announced at 8.3%, lower than July’s 8.5% but but above market forecasts of 8.1%. Dow dropped 500 points as inflation remained stubbornly high. 

B.Debt Market: (Fig. 15):

USGG10YR ended the week at 3.829% an increase of 14.2 basis points or +3.85% change from the previous week. Treasury auction was dismal, even 2 Year Notes were not fully subscribed and left PD stuffed with 22% of issue. (Fig. 16).

UST Yield Curve

saw very short dates (1-2 months) and Long Notes and Bonds(5YR to 30YR) moved over 10 basis points but medium Notes remained stable but over 4%. This week the Gilts market went into a meltdown with 30 Year Gilts spiked 150 basis points within one week. This is equivalent to a price drop of 23% within a single week of AAA Government Bond. To avert billions of Margin Calls against the Pension Funds, BOE stepped in and announce purchase of 30YR Gilts without limit (Fig. 18).

Now why does long term stable investors like Pension Funds face margin calls? Historically, to meet Pension Liabilities, investments in a Pension Portfolio requires a return of 8% to meet payout obligations. Since 2008 the Lehman GFA, to save the commercial banking sector, Central Banks have adopted ZIRP or NIRP policies. 30YR yield only averaged between 2.5% to 3.5%(Fig. 19).

To meet payout obligations, Pension Fund Managers have to take additional risks to borrow short term low interest margin loans (below 50 basis points) to buy higher yield long dated bonds(over 200 basis points). Aggressive Primary Dealers have been eager to lend up to 90% of collateral value. For a season, this yield enhancement mechanism did produce attractive returns but of course during periods of interest rate inversions, this is a recipe for defaults and bankruptcies. The irresponsible Western Governments and Central Banks have over the past 14 years since 2008 created such gigantic bubbles that the whole financial system is beyond remedy. Does Liz Truss or BOE have the abilities to save London by lowering taxes and borrow some more? 

 C.FX Market (Fig.20):

for the week ended September 30, 2022, DXY opened at 113.023 and closed at 112.173 (Up -0.75%). Major volatility in GBP Fx rate followed by EUR as BOE restart QE to save the Gilt market. After BOJ intervention and the Peoples Bank direction to prepare for USD sell down, Asian currencies remained stable against USD. As hedge funds covered their short positions in reverse dollar trade, oil and precious metals made gains against USD as well. (Fig. 21).

I repeat from a momentum technical point of view DXY should reach its peak by end of September, a drop below 110 should trigger a cascading waterfall. 

D.Precious Metals & Crypto :(Fig. 22) :

Gold price opened at $1643, and closed the week at $1660.73, a gain of $17.73(+1.08%). Bullion Banks and Producers further reduced their short position whilst Leveraged Funds double down shorting gold. Silver price moved slightly higher alongside with gold and saw 0.8% for the week. Bitcoin also gained 2.9%. 

Proverbs 27:12  A prudent man foresees evil and hides himself; The simple pass on and are punished. Proverbs 27:15  A continual dripping on a very rainy day And a contentious woman are alike;  Proverbs 27:16  Whoever restrains her restrains the wind, And grasps oil with his right hand.  Proverbs 27:17  As iron sharpens iron, So a man sharpens the countenance of his friend.