Financial Crises Over? Not Yet…

Groundhog Day was a few days ago, and apparently ol’ Punxsutawny Phil saw his shadow.  I guess that means eight more weeks of winter, and although there are significant portions of the US that haven’t had much of a winter, the news that more might be on the way is never a welcome sound, at least for someone like me.  Anyone who knows me will tell you that I hate winter and am highly intolerant of cold.  Were it not for the hurricanes and high housing prices, I’d be living in south Florida.  I started thinking about the economy and the weather, and it’s funny how the media and government treat them as though they are similar animals.

We’ve all heard a lot of talk about how the US economy is making a recovery or more jobs were created or some such thing.  If we’re being totally honest, I don’t think there are too many people in the private sector right now who would be willing to make the claim that things are getting better.  They’re not.  The government and the media, however, insist that they are.  Everything is fine!  Things are getting better every day!  Lighten up, people! That would be like telling me that winter is over when there is six inches of snow on the ground.  I would be far more willing to look at the hard-to-miss evidence of snow on the ground versus some pie-in-the-sky claim that “winter is over.”

US Treasury Secretary Tim Geithner has made the claim, according to an article on Business Insider that “the worst is behind us.”  Geithner made the erroneous claim that the weakest parts of the economy have been shut down or restructured and that we are getting stronger every day.  In spite of this statement, however, the Treasury released a statement that it will consider allowing investors to participate in negative-yield auctions.  Yeah, I didn’t know what those were either, and frankly, they didn’t sound like anything I’d care to buy.  In layman’s terms, that just means that investors are willing to take less yield now in exchange for the perceived financial security of US Treasury bonds.  In other words, Wall Street investors are worried about where to put their money and perceive a lack of recovery in the global markets.  Therefore, they are putting their money into something that they believe will keep it safe: Treasury bonds.

The Treasury, if it decides to go ahead with this, will be issuing the bonds at premium rates.  This is notable, because normally Treasury bonds are sold at a discount.  In this case, the bonds would mature at par.  That means that the investor receives the difference between the amount it paid at purchase (premium) and the amount received at maturity (par).  Translation: the investors are receiving less at maturity than what they put in at purchase.  Investors are currently willing to take what appears to be a loss in order to secure their money.  Wow.  In my eyes, that is incredibly telling about the current state of financial affairs.

It is truly interesting that Secretary Geithner (who will not seek a second term as Treasury Secretary) is willing to, in my view, lie to the American people about a recovery when clearly market investors are not all convinced of this fact.  Why in the world would we choose to believe the weatherman when he says it’s sunny, a man who has been proven to be wrong on many occasions, when we can look outside and see for ourselves that it is snowing?  Is it just me, or does the emperor have no clothes?  In my mind, the actions of the market speak far louder than anything some government-Fed crony is saying.

I think it would behoove most of us to be cautious and be prepared, financially.  With rumors of QE3 swirling around and investors making moves to stash their money in safe havens, it seems that the worst may not be behind us yet.  That is not welcome news for anyone but unfortunately, anyone who is willing to look outside and see sun when it is snowing is either insane or so good at playing pretend that (s)he may as well be nuts.