Noland: Justifications & Questions

Over the past weekend, many articles were digested along with meals taken in alongside some more fine Olympic action (not without drama between Shani Davis and Chad Hedrick). Two essays caught my eye in particular, the brilliant but unsatisfying Doug Noland essay on the bond yield curve and a stern warning by Martin Feldstein on the exaggerated US economic condition. Noland, although expert in his bond bubble analysis, seems to have overlooked the real economy distress, and might begin to serve as an apologist for the global bond bubble and its financial cancer pathogenesis. Somehow, the label "Weimar" belongs in the discussion, given the exponential credit growth, debt dependence, and massive abuse. Feldstein, who probably is far too competent and qualified to have been appointed as USFed Chairman, has checked in with an excellent warning of faulty statistics in yet another arena, capital flows and US Treasury accounting. One would think Feldstein should be silenced, but the USFed is on honeymoon.

TROUBLING OBSERVATIONS
A preface of some troubling observations, with accompanying pithy explanations. It seems remarkable to me that three phenomena are at work.

1. The US media ignores how Asia and OPEC have slammed the brakes on USTBond support since last spring, after clear warnings for years that US credit supply heavily depends upon them. They are asleep or suffering a blind spot or sadly inept.
2. We identified a stock bubble in 1999, its creation, its causes, its outcome. Not to be denied, we created a bond bubble. Yet, with the passage of time the experts seem driven to objectively justify it and rationalize it, perhaps mystified by its marvelous longevity. Its power might be stubbornly sustained by coercion as much as export preservation.
3. Nobody in the major financial journals connects the dots which lead one to conclude that US Gross Domestic Product is grossly exaggerated domestically, the product of missing price inflation adjustments. Rate tightening adds to risks as we stall.

Item #1 is easy. A central bank revolt is underway. Foreign reserves are loaded to the gills with our paper trash bearing USTBond faces. If attention is brought to this change in attitude, then similar attention would be brought to the questionable (probably illicit) TBond support coming from England. Their operations are easily mixed with England data. Can you say printing press? Bernanke can and does, probably will again, and cite its nifty low cost. The USGovt will have to cut deals with Asians and Persian Gulfers in order to stem the bleeding and erosion of support. When OPEC requires secrecy or at least an nice opaque front, London brokers are always willing to accommodate.

Feldstein points out that an OPEC bond purchase executed with a London broker shows up as English USTBond holdings in the TIC Report. Furthermore, a Chinese purchase of USTBonds executed through a JPMorgan broker will show up as holdings for the resident nation of the broker, whether in Tokyo or Singapore. The most alarming point made by Feldstein is that the TIC accounting does not properly distinguish between official central bank purchases and private firm purchase. However, that does not stop the Wall Street disinformation machine from claiming that private investment in our bond market from overseas has expanded, a powerfully strong signal. Miscalculation of capital flows as a motive to chase interest rate differentials might mask a hidden risk, whereby expected protection from currency loss might be totally misplaced. Bond ownership is narrow in foreign sites, originated primarily from official central bank sources.

Item #2 is perhaps more a preference to turn a blind eye, and to enjoy the ride. Housing benefits from the mortgage bond bubble. Greenspasm (not in office, not to receive respect anymore) endorsed home equity as legitimate wealth, like any monetary heretic would. Economic mythology is of critical importance to maintain a system gone amok, a system with almost no legitimate wealth generation anymore. Past mythology was critical to keep the erected stock bubble elevated. Nevermind that the basic tenets of the 1999 myths were all dismissed as fallacious, including the benefits of productivity (Asian standard of living) and effect of the internet sprawl (lower profit margins). We have some fresh new myths to embrace which keep the broad shouldered bond bubble erector set standing. So justification of the bond bubble is essential and normal, as the mythological premises are promulgated by the supposed experts themselves. We need to hear from Noland more comprehensive harsh critique and risk assessment, not impressed detailed glossy tilted analysis.

Item #3 is more a calculated fraud. The pre-Clinton Consumer Price Index calculation of the CPI would be posted as between 7% and 8% in current months. Such an honest reading is totally unacceptable. The bond market demands a lower CPI. The TIPS Treasury security (which tracks) price inflation would not want such high yields. Heck, if the TIPS is not another exchange traded fund with fraudulent underpinning, tickle me Elmo. The entire stock market depends upon a friendly low CPI. Selling USTBonds abroad to supply us credit depends upon a robust GDP. What better way than to understate the CPI and GDP Deflator by 4% to 5%? Yes, our economic growth as measured by the GDP is roughly 4% to 5% below what is publicly stated. Shown before, the CPI graph before and after a worth a second look. Note the experimental "new & improved CPI" is to be suppressed another full percent.

EXPLANATION OR RATIONALIZATION ???
My sentiment to Doug Noland contains an odd connection, even though we have never met. He used to work with Kurt Richebächer in France with the patriarch's newsletter. My work with Kurt was much more brief, likely due to my greater intolerance for games like low pay, spotty respect, and broken promises. The jackass has a shorter fuse and more independent spirit. Nice intellectual and professional exchanges occurred, a sure benefit and learning experience. In his latest essay, Noland laid out a detailed clear expert explanation of the bond conundrum from the financial perspective, one which sounds alarmingly like a biased rationalization of it rather than a criticism of it with accompanying risks. In key areas, he seems to toe the party line demanded by the establishment, only to invite questions (if not mesmerized by his expertise). However, in fairness, he has been a solid soldier in the past with unceasing blizzards of information and descriptions of aberrant conditions.

In his essay "Bernanke & Yield Curve Analysis" dated Feb 17, his work is superb, his analysis of how the bond world has indeed developed is top notch, but the location of his feet is unclear. Where does he stand? Bonds have become a problem, the tail that wags the dog. Bonds yields trump trade deficits, tragically. Something is very wrong with that picture, but leverage makes it so. In fact, leverage in buffalo chip trading could overwhelm any particular market in the world, if its leverage were great enough.

No mention is made by Noland of the Fanny Mae influence, whose accounting is suspiciously silent. Perhaps a transformation is in progress to replace its coffers with more stable USTBonds. No mention is made of the grand General Motors credit default swap influence, whose partial unwind was perhaps the biggest effect last summer in bond support. No mention of the Japanese yen carry trade influence, which is probably the largest financial machine apparatus in modern history. No mention of Chinese trade war implications, as it ratchets up inexorably and relentlessly. Harsh friction could render immediate change to the yield curve. Only lipservice is paid to the dual nature of the USEconomy, with its real tangible domain (suffering from cost inflation, undermined by Asian outsourcing) and its financial domain (benefiting from the bond bubble, liberal credit). It is refreshing how finally somebody points out the increase in interest income from savers, but he does not mention how it amounts to twice what is paid in interest costs. Curiously, lower rates stimulate the financial sector, while higher rates stimulate savings income.

Newly installed Secretary of Inflation Ben Bernanke stated "Historically, there has been some association between inversion of the yield curve and subsequent slowing of the economy. However, I think at this point in time that the inverted yield curve is not signaling a slowdown… Currently, the short-term real interest rate is close to its average level and the long-term real interest rate is actually relatively low compared to historical norms." The Noland response is alarmingly weak and sadly party line in nature. This is a disappointment to me, since fawning types are legion in the US Congress. Is this boot licking to be detected, or just giving benefit of the doubt to a newcomer? He writes "I was pleased to hear Governor Bernanke's analysis that he doesn't believe the inverted yield curve is indicating economic weakness. Instead, stubbornly low global real long-term rates are among some profound manifestations directly the consequence of today's highly unusual global Credit mechanisms and financial structures." Real interest rates are still negative and accommodative for the financial sphere, not just stubbornly low. Simultaneously, rates are restrictive within the economic sphere, which urgently needs continued zero percent financing in order to keep the topline numbers up. Noland should acknowledge this paradoxical distinction.

Noland seems to contradict himself, or else fall curiously in a trap. So the January Producer Price Index is up 5.7% year on year, and January IRS tax receipts are up 16.9% year on year. He seems impressed by rising capacity utilization, and implicitly accepts strong GDP statistics. However, against the backdrop of higher prices everywhere and massive capital gains taxes from asset inflation, he seems to accept the CPI and GDP Deflator figures at their face. The real long-term interest rate is still negative, when one subtracts 4% to 5% from it, which is the sum of fraudulent lies in price inflation. By "real" he means "adjusted for price inflation," one can assume, an implicit acceptance of falsified price inflation metrics. Does he really approve of inflation adjustment as per cockeyed official adjustment? By "real" we do mean after price inflation is removed, don't we, really? He was among us in pre-Clinton days, right? Sure, accept the GDP as valid in a domestic view, and one must conclude that foreign factors solely flatten the Treasury yield curve.

The USEconomic slowdown has tragic evidence all throughout the real economy. See General Motors and Ford, the vanishing act of home appliance and furniture makers, the attrition of the machine tools, the outsourcing of many middle tiered functions. Lastly and most disturbing is the outsourcing of high level Research & Development to Asia (see Dell, IBM, etc). Also, professional service outsourcing (see GM, etc) has not abated in Asian outsourcing. He speaks of the economic sphere and financial sphere, but he actually only addresses the financial sector in whose camp he works. He surely sees far past the horizon stretching beyond his own camp. What job growth there is in the economic sphere is largely tied to the financial sector, with construction. The rest emanates from mortgage brokers, credit adjustors, title searchers, real estate lawyers, bankruptcy counselors, real estate brokers, property appraisers, car loan handlers, mutual fund managers, bond speculator traders, commodity futures traders, and so on ad nauseum. He seems to give the economic sphere mere lipservice.

Noland ignores or misses the horrendous decline in fixed business investment in the USEconomy. If demand of capital expenditures were normal, the long-term bond yield would be much higher, like when manufacturing capacity utilization used to be closer to the 90% level. He does not mention the conjob of the dollar repatriation, which has artificially supported the bond market, even as it diverted money from intended business investment (and Job Creation, thus the bill's name) toward stock buybacks and increased dividend grants. In my Nov2005 piece "The Dollar Repatriation Conjob" it was pointed out that from 3Q2004 through 3Q2005, capital depreciation among non-financial firms went down a shocking 22%, from $830 billion to $648 billion. Less capex means less depreciation, more profits among S&P500 firms, and the illusion of corporate health. In inflation adjusted terms, fixed business investment has done poorly, and helps to explain the low credit demand from the economic sphere. Adjusted capex fell by 4.2% in 2002, fell by 9.2% in 2003, grew only 1.3% in 2004. Or did it grow at all in 2004, given how we lie on price inflation by at least 4% per annum? All inflation adjusted statistics are garbage, and must be scooted down by 4%.

Noland struts the power of the financial community, replete with its powerful tools. "Importantly, today's Financial Arbitrage commanded marketable securities Credit apparatus responds, adjusts and adapts to monetary policy all-together differently than traditional Bank loan-centric systems did in the past. Indeed, it is the very nature of 'structured finance' to adapt to and aggressively exploit changing market conditions to an extent previously unimaginable. Moreover, contemporary (securities and non-bank-based) finance enjoys no inherent restraint, in contrast to the bank deposit and capital reserve era of days long past."Bonds, rather than a tool to effect equitable leveling from disparate inflation policy, labor pay scales, population growth, and socialist regimes, have turned out to be devices to wreck economies and exacerbate the stubborn desire for supposedly free economies to engage in central planning. Have we learned nothing from the Politburo in the Soviet Union? Not a chance, at least in monetary policy boards.

Noland does seem to recognize the problem, but uses the word "evolution" instead of my choice of "cancer" to describe the pathogenesis in progress. Somehow my feathers are ruffled with usage of "bloated" and "evolve" in the same sentence, incompatibly. "Yet, and as we observe nowadays, there is the prevailing expectation that eventually the rising cost of funds will catch decelerating asset (home) inflation and impose restraint. This comforting hope, however, overlooks a discomforting fundamental dynamic of processes intrinsic to Financial Arbitrage Capitalism: As long as the Credit cycle is in an expansive mode (boom-time inflationary psychology), the bloated marketplace and financial apparatus will continually evolve to fund myriad new strains of asset inflation and other inflationary manifestations (inflation begets inflation; Credit excess begets additional Credit)." Cancer don't evolve. It conquers and destroys. The mfg sector first, then the service sector, then the R&D function, and to some extent low-end military supply have been lost. Cancer eventually leaves us with bupkus, nothing.

Nowhere in the discussion by Noland was any dire warning about the source of this global savings glut, the vast wellspring which feeds our bond market. The "savings" source is what my scribbles have referred to as the great capital hemorrhage, the basis of which is unbridled credit growth within the United States from both home equity and credit cards. In this respect, Noland drops the ball. He makes reference and opens the door, but by virtue of unspoken word, gives some legitimacy to the massive export of inflation. "Remarkably, and seemingly by design, short-term rates have to this point risen concurrently with the inflating value of most asset classes; even the bond market has posted positive returns. Thus far, is has been a New Paradigm case of monetary policy and asset market management: Our highly indebted economy experienced an unparalleled increase in financial asset wealth during the Fed-orchestrated interest rate collapse ("reflation"), only to enjoy additional spectacular asset price gains during the subsequent rate "normalization" (but continued massive Credit inflation!). There are powerful dynamics at work, and traditional analysis will continue to prove rather unhelpful." Traditional analysis works just fine, if one considers that the USEconomy exports inflation, and Asian locations over-produce. As they do so, the labor rate differential turns out to be re-invested in the USTBond complex. The round trip of monetary inflation represents a sinister hidden monetization in practice, except Asians are the owners of our USTBonds, not us. With growing ownership goes sovereign control of our nation, at first from compromise, later from secondary priority.

Noland seems to gloss over the housing sector and its mortgage finance bubble here, perhaps because he has harped on it so often in the past. A "possible crisis" is not the correct catch phrase, a certain crisis is the theme. Extraordinarily lax lending standards, zero percent loans, teaser discounted mortgages, double decker mortgages (to eliminate down payments), negative amortization mortgages, "no-doc" loans (no income verification), and coerced sham inflated appraisals have set the stage for a certain housing decline for many years into the future. Insufficient alarm and global risk will someday eclipse domestic disasters like the failed Savings & Loan debacle in 1989. Somehow, the following words seem too soft. "Despite a series of Federal Reserve rate increases, the current Asset-Based Global Securities Credit Mechanism is generating unparalleled levels of new Credit and liquidity. No meaningful restraint has yet been imposed and, excluding possible financial crisis, none appears in the offing. Financial conditions are extraordinarily loose almost everywhere, and these days liquidity will flow from wherever it is available at the lowest expected cost (i.e. today Japan). The global securities financial apparatus now operates across national borders and outside the purview of individual central banks." Doesn't that mean we have a global bond and housing risk, and not just a new paradigm to rationalize an inverted yield curve?

Noland does not fully acknowledge how the blow-off dynamics are at work. Typical monetary doctrines and principles have long ago been tossed aside as passé and out of tune with today's markets. Rules are no more applicable in the bond market than they were for stocks just six years ago. Blow-off dynamics have taken hold. His rationalization of the flat Treasury term spread yield curve seems to me to be part of the problem, an endorsement of new age forces. The experts seem to have joined the mainstream in explaining its risk away. Layered progression in both staged credit supply and types of credit vehicles are the hallmark symptoms of this credit bubble. Again we are subjected to promises of another Soft Landing, yet we have never experienced one since 1971, and especially since the Greenspasm tenure. Where are the claims that the credit problem has taken on Weimar proportions? We need $4.1 new dollars of credit in order to generate a single $1 in new GDP nowadays. Weimar conditions are here. One should expect less justification and more continued alarm and delineation of risk by Prudent Bear. We are in the midst of an inflation pandemic worldwide, wherein the United States sees little beneficial effect on either household wages or corporate profits. Gimmickry devices and shams have just about run their course for the corporate profit accounting methods. We have seen it all before. The biggest perpetrator nowadays is the USGovt in its accounting.

Noland misses the concept of inflation export with the benefit of deflation import, which has been addressed in my "Export Inflation, Import Deflation" from March2005. The inverted yield curve is directly addressed, with no need to repeat exhaustively, in my "Forces in Yield Curve Inversion" from Dec2005. Noland overlooks cost inflation and its suppressive effect on long-term bond yields from economic sphere suffocation. He overlooks the degradation of the economic sphere from the continued insane but unavoidable pursuit of low-cost solutions via Asian outsourcing. The level of competence among US economists is abysmal. Nowhere is their ineptitude, blindness, and tragic corruption more evident than with low-cost supply. What is beneficial to the individual firm is not necessarily a boon to the aggregate economy. In other words, the extrapolated extension of micro-economic principles fail to offer proper guidance and effective stewardship of the macro-economic body. The biggest immediate risk which screams from the inverted Treasury yield curve is that long-term rates should be 4% higher at least, in order to protect asset erosion and to reflect the lie in the CPI and perceived price inflation rate. Therefore, the flat inverted yield curve is indescribably astonishingly accommodative. Interest rates are way way way too low. Welcome to the Weimar World Economy. Legitimate bond yields cannot be granted within the free market. So monetary inflation rules the day, and week, and month, and year !!!

SO MANY REMAINING QUESTIONS
Noland serves as a rational voice within the financial system used to justify the blow-off phenomenon in progress? To some extent, it seems so anyway. In any blow-off, the entrenched establishment rationalizes the growing aberrations. He eloquently and effectively outlines the financial sphere pathogenesis, but with inadequate coverage of the economic sphere in this vampire economy. The financial sector has sucked the capital blood from the Main Street workers, replacing jobs and wages with home equity and mortgages. The financial sector has impoverished households and workers, and squeezed the middle class beyond description.

When the S&P500 index is rising, is Prudent Bear a very large net seller of gold mining and energy stocks? My sources say YES. They are a big depressive influence occasionally on the precious metals stock sector. The relationship between Prudent Bear and the precious metals community has been assumed as friendly, constructive, working toward mutually shared goals. By structuring itself as a bear type stock fund, they position their large portfolio with shorts in mainstream stocks, and longs in precious metals and energy stocks. Their commodity stock positions are much smaller than their mainstream short positions, their core. Strangely, Prudent Bear shorts the mainstream stocks, but their feet remain within the mainstream. They worsen many declines in precious metal mining stocks typically. That is their secret.

Where is the mention of Fanny Mae in all this yield curve analysis by Noland? My gut tells me that when nothing is revealed in the news media, then all manner of scum, bleeding, and warts are being hidden effectively in a news blackout with concerted planned cooperative agendas. My suspicion, mentioned in previous missives, is that the Fanny Mae staggering collection of mortgage bonds is in the process of being miraculously transformed into US Treasurys. Noland called its mortgage machinery a grand centrifuge. My belief is that a grand recycling machine is at work. We have 1500 accountants on the job, and nobody talks. Fat Fanny and her giant haunches are bankrupt in my book, and their job is as much to account for the current condition as to hide that condition and engineer an illicit transformation of bonds into the more secure USTBonds, given full hints last summer by Greenspasm. As my advice has been for years, LISTEN TO GREENSPASM TOPICS, IGNORE HIS WORDS, AND FIND HINTS ON WHAT IS TRULY HAPPENING. He openly wished Fanny owned more stable Treasury bonds in its portfolio. Maybe it does, but only now, a work in progress.

What is the status of the Yen Carry Trade? In early February, we saw on a single day a giant upmove in the yen currency, while at the same time a rise in the long-term bond yield. Also, gold fell sharply that day. How important is the yen carry trade? In my studies, my conclusion is that in the last 15 years, no larger more gigantic a financial apparatus has existed in modern history for profit generation without a single bead of sweat. The only cost is some oil on the financial engineering machinery. With Japan awakening, one must answer far more questions. Is Japan finally past its deflationary cycle? It seems so, but early still. Is Japan no longer recycling trade surplus into USTBonds, the result being a giant lift instead for their Nikkei stock index? Methinks YES. Is China the outsourcing destination to Japan nowadays, just like Japan and the Pacific Rim was to the United States in the 1980 and 1990 decades? Absolutely YES. Will Tokyo leaders next take some direction from Beijing and less from Washington DC? Yes in all likelihood, but with great risk. They hate each other less than they distrust the American culture and leaders.

LULU MEGA QUESTIONS
Export inflation is back on the radar again, this time on a global level. Is the exported inflation from the United States soon to cause a major shock event, either in Asia or the Middle East? Methinks YES. Look at the Japanese Nikkei stock index, up 40% in the last half of 2005 alone. Look again at Tokyo property prices, at Shanghai property prices (up to recently). Look at the Middle East stock markets, most of which are up 100% or more. Look at the construction boom in the Persian Gulf, gone wild.

Was that vacant pledge by the Saudis two weeks ago to produce 15% more crude oil part & parcel of a much bigger deal? Most new excess capacity commanded by Saudis is of sour crude type, unusable by most gasoline refineries. Did the USGovt cut a deal with the Persian Gulf oil producers, whereby we would continue to offer security protection, but now we also permit asset ownership (like US port facilities) in return for their continued USTBond support? Could be. The Unocal deal was blocked by politicians. Perhaps the acquisition of Peninsular & Oriental Steam Navigation Co will be ushered through the approval process in payback. What national security compromises have been made without voter or Congressional consent? OPEC producers saw a 27% annual jump to $430 billion in 2005 oil revenues. Could broader asset ownership be a King Abdullah requirement, one which the softer King Fahd did not demand? Methinks YES. OPEC bond purchases were stalled badly in late 2005, only picking up steam in the last couple months.

Did the USGovt flick the Asian noses a bit too much in the second half of 2005, by pressuring Beijing for a yuan currency upgrade, by pressuring them to collect on $60 billion in US intellectual property royalties, basically stolen? Probably. Only a 10-fold or 20-fold rise in the yuan will remedy anything on the trade deficits bilaterally with China. They have essentially boycotted USTBond purchases since mid-summer. The total Japanese USTBond boycott since mid-summer might be motivated from basic dislike, since Tokyo leaders despise the USGovt current administration.

Where is the geopolitical and inflation risk premium in mainstream S&P500 stocks? Nowhere. Lower valuations are dictated with the current risks. Where is the risk premium in S&P options, resident to the VIX? Nowhere. Higher option premiums are dictated with the current risks. Where is the risk premium in the long-dated US Treasury bond offerings? Nowhere. The over-supply dictates higher yields to be promised. All risk seems to be located in the crude oil price and the gold price, which is fine by commodity investors. It makes for rocky times though.

Is the American chubby porky landscape going to improve? A true story must be told, which occurred with me, enough to make me shake my head, take a deep breath, look in the mirror, restate my personal commitment, and investigate external destinations. Last weekend, a trip to a K-Mart was embarked upon to secure a gallon of milk, a simple mission. A stock shelf worker was easily 300 lbs, in my path as my legs needed to find a path around him. In line to pay for my single item, my eyes were transfixed upon a woman of extraordinary wide girth in front of me, perhaps of 270 lbs with the added burden of minimal height. The bandied "pear" description must yield to a "bowling ball" or a "potato" image. She cleared the checkout aisle without incident. Behind the counter with a broad smile and cheerful disposition was another obeast (jackass term for obese beast), this of uncertain gender hidden by tremendous size, easily weighing in at 250 lbs. Out the door and waiting for an Sports Utility Vehicle to transport his massive corpulent body was another giant man, likely 300 lbs himself. The sidewalk was fortunately wide, my modest purchase in hand, enabling me to find a less direct path but not an inconvenient one around him. The US needs SUV wagons to transport our oversized citizens. In another decade we might require dump trucks, or many might be stuck inside unable to pass through doorways. Happily, these runner/biker legs found my home, an upscale suburban apartment building, where the older very nice and chatty pleasant Janice is gone in the management office, replaced by Susan, a seemingly nice woman. She is perhaps 320 lbs herself, not as quick to rise on a demanding task to enter an updated file in the cabinet. Does anyone find something wrong not only with our financial condition, but our physical condition? What fatty foods and inactivity are to the body, debt and outsourced jobs are to the economic body.

My Saturday jaunt to retrieve milk (not French fries, not potato chips) was revealing, yet a distressing exercise. No, my car was not called into action for the 3/8 mile excursion, as certain neighbors employ. One friend calls for his car to transport him and his bag to the sports club next door, a lengthy trip of 100 yards. My legs (attached to a rather trim touchas) were sufficient for the trip, and up to the task. Anything more than 1-1/2 miles, my bicycle is called to duty. In winter, never is a trip to the supermarket for groceries executed unless returning from a sojourn to meet a friend, to see a movie, to go on a date with an under-sized woman, or just to enjoy a night out. Call it multi-tasking. Sure, the 53 rings on my tree trunk come with a superfluous extra inch around the gut, but not 20 inches as is the norm.

Lastly, are Olympic figure skating medals decided before the events? I wonder. Reigning world champions sometimes offer up less than stellar performances, yet win top medals.

CORRECTION
It was brought to my attention that my last article used 2004 TIC data. Mine had it improperly labeled as 2005 data, whose tabled source can be found here (2005). I stand corrected, and thank that keen eye (CBeagan from The Great White North) who pointed out my error. Here is the corrected table. The message is slightly different from what was described last week. The Caribbeans are less significant in their changes. However, London based banks have seen a skyrocket in USTBond holdings, up over 73% in seven months up to Aug2005, then up over 33% to the end of year. My interpretation is that OPEC nations are attempting to conceal and sneak their USTBond purchases, after a broad holdout until a higher yield was offered, or until broader security was promised for their corrupt regimes. On a more sinister level, illicit USFed agencies (under direction by the US Treasury) might deploy their London connections for serious monetization of bonds under the radar.

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Jim Willie CB is a statistical analyst in marketing research and retail forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com. For personal questions about subscriptions, contact him at [email protected]