Tuesday, June 18, 2013

The Next Step Down

I am sure you have all seen the latest headlines about the bankruptcy of Detroit. Yes our favorite area of blight and the ultimate end of Femocrat control gone unchecked has made the news again. One only has to browse the major news sources or Drudge to read them but here is a link to one over at zerohedge from yesterday.

I read with interest the news about how the emergency manger is attempting to negotiate bondholders and the retirees to take a 10 cents on the dollar haircut deal to keep Detroit from going bankrupt. There is absolutely no way pensioners are going to take that kind of a scalping and no way the Federal government is going to allow it considering which segment of the population it would hit the hardest.

But just like with GM, the bondholders are going to take it in the shorts and then taxpayers are going to fund the unions and pensioners.

You can take that to the bank.

Detroit is not that much further along the road of destruction than several other Liberal cities and States across the country and a scalping of bond holders in Detroit will send a message to others around the world.

Of course we won't hear about it. The media will not let you in on the secret that bond buyers have retreated even further and are no longer buying. The bonds will continue to sell it's just who the actual buyers are that will remain a secret and a secret that most people won't even bother to discover.

This move assures the Fed will continue to pump QE whether it is hidden or not matters not one iota. They will continue. They have backed themselves (and us) into the QE corner and it cannot stop.

But how you may ask is this a step down? This is simply more of the same that we have been seeing since 2009 right? Well no not really. When the final curtain falls and the investor class finally begins to see just how they are going to be mistreated while others are not then another fundamental step has been reached.

And it's a big one.

A move against bondholders will have repercussions into every major city with the same problems and only add to the velocity of the QE bullet. Another words the fast slide down the back of the hockey stick is once again picking up speed. The investment class mostly ignored the scalping they took with GM. They will not be able to ignore this one.

We have seen over the course of the last few years bond and other securities accumulate huge gains because of Fed pumping. For a while as investors lost trust in these securities tangible equities gained but reduced manufacturing demand actually won out in the commodities and we still saw an overall decrease in their value. This is completely unhinged from the continuously rising prices of stocks. How can the stocks rise along with profits yet commodities go down?

What has actually been occurring is the tide of private sector spending and investment keeps going out and the percentage of government spending in the overall GDP keeps gaining. The beach is bare as all the real water has been sucked up and the wave is heading to shore fast. This latest scenario will suck even more of the tide water out.

We all want to be hunkered down and prepared when that wave of government spending finally washes ashore I assure you.

Keep Prepping Everyone!!!


  1. That ... is a VERY good point. Thanks!

  2. yea what Paul Said.. Detroit is ending up nothing more then a wasteland. Don't be surprised if soon we hear of them losing their NFL, MLB, and other sports teams as well. Every one will be bailing

  3. You could do five-seasons of a fixer-upper show with that house!

    The Fed hands out money for free so the banks can but it down on instruments with a tiny of a fraction of interest because they are leveraged so heavy, and still make a pile of money. Of course if you manipulate LIBOR and such it goes a little quicker.

    Let's see who they are willing to bailout with the next crash. Heavy leverage also means heavy losses if you bet the wrong way.


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