Watch Out Below

When the US Employment Situation Report came out Friday, the 41k private payroll print shocked the bulls. An interesting divergence appeared. Normally a weak payroll print in relation to expectations would cause the currency in question, the US Dollar in this case, to weaken substantially. But in fact the opposite took place. The Dollar rallied hard against all but the Yen. The EUR plunged to new cycle lows, the Aussie and Loonie also fell out of bed. This indicates to me that the market has assumed a crash mentality. Risk off. Big time. And with the US approaching 100% Debt to GDP by some calculations (there is a great deal of debate over what is the appropriate debt to measure; does it include off balance sheet liabilities like social security, pensions and medicare for instance? Does it matter what is owed to other parts of the government?  What part is domestic versus foreign held?) if the idea crystallizes in the trading community that the US has crossed the magic line past which it cannot make good its debt without massive dollar printing, you will see a dollar crash, an equity crash and a bond crash simultaneously.  Is that when Gold would go to $3000? Odds? Higher than is comfortable. See the CBO Reestimate of the President’s Budget here.   The chart below can be found here.   I found the link at at he Fundmastery Blog at Marketwatch here.   And I found the link to that at Real Clear Markets.   And remember that when all is said and done, when 2020 rolls around, even these numbers will almost certainly prove to be too low.   Scary stuff.

cbo-2010-projected_deficit

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