Crisis Brewing As Gilt Market Meltdown Continues.

Tuesday June 13 2023 Marine Echo 64 home of alternative economics and contrarian views we're going to look at the UK housing market I think it's on the brink of uh some chaotic events I'm not sure how it's going to translate into whether there's going to be people defaulting on their mortgages whether the government in the Bank of England is going to help but guilt yields are

showing me that it's getting serious so that's what we're going to look at and I have to cover that quite a bit in the last month or so because I've noticed that yields had been rising they looked technically bullish which is a bad thing because when yields rise the uh value of mortgages the value of bonds drop and people also that need to renew their mortgages

they're going to have to pay more of course and there's a lot of renewals coming by the end of this month and by the end of the year it's a total of about 750 000 mortgages are coming dude deals are coming due before we go into that just wanted to look at some some stories that I've seen in the last 24 hours that are interesting uh

we've got one here from someone I follow on Twitter who's got a lot of followers uh Ben Rickett yes that's uh known the plume for this individual but he notes that uh some U.S Sports have shut down and trade is collapsing the shutdown of ports like Seattle is being blamed on labor disputes but that does not explain the collapse in demand for cardboard boxes a Mainstay

of trade well that's something I never thought of looking at but here you go this is from Charles Schwab and it's Bloomberg data cardboard box recession industry shipments of corrugated boxes in billions of square feet year on year so we are at levels last seen in the 0809 crisis in terms of percentage drop it's even worse than uh 2020 during the pandemic so keep that in

mind because that the next uh headline uh is that the People's Bank of China uh cut the seven day reverse repo rate for the first time in nine months it was a small cut but the the rate is quite uh low they cut it from two percent to to 1.9 so uh 0.1 percent well what does that mean well that means that uh arguably uh the

second not arguably but the second or arguably the the biggest really economy in the world is uh cutting rates and slowing down that that goes uh hand in hand with that card box sell recession doesn't it and the other one that came out is to do with the UK and you might look at it and think how can the UK uh economy be in trouble how

can GDP still be uh expected to come out at minus 0.1 quarter on quarter uh on an annual basis tomorrow and we have like a huge numbers for employment it came out at 250 000 for the the uh for the previous three months and um the other thing though that is worrying for the bank of England and the guild Market is the fact that uh wage

growth accelerates to 7.6 percent and so that was higher than expected it was expected to uh to come out around uh 6.1 and 6.9 so wage growth the bank of England is going to be concerned uh they're going to say that that's inflationary of course we know that that's the consequence of currency debasement uh people are going to ask for higher wages they need to because

they can't survive uh with what they're earning all the costs are going up taxation is going up because we're not seeing the um thresholds for for the tax brackets being lifted uh up until 2028 that's just gonna be another extraction of wealth from from the workers in the UK yeah and I said that uh it's interesting because yeah employment uh change uh on the yeah in

the past three months has been uh 250 000 employment new new jobs created and it was expected at 150 so you might think how come the economy seems to be doing well new jobs created uh wages Rising uh and then we have something like uh GDP which is coming out tomorrow and that's expected uh to drop on the three-month basis by 0.1 but at the same

time employment went gangbusters it doesn't make any sense at all maybe the employment is on the public sector who knows um oh yeah the other thing I wanted to talk about is that uh we were told of course by the bank of England back in March that uh the taxpayer did not bail out svb UK um yeah Silicon Valley Bank was bought by HSBC by a

pound and the government was involved but yet they made sure they told us oh no we we did not bail them out but yesterday I saw this tweet by the Prime Minister Rishi sunak and he said back in March we acted decisively to rescue Silicon Valley Bank rescue so in my book a rescue is a bailout you just have to look at the dictionary uh go

in the Bank of being facilitated a private sale of Silicon Valley Bank to HSBC deposits will be protected with no taxpayer support so my question is what does facilitate mean and what does deposits will be protected well will be protected on the back of the taxpayer I'm sure the government guaranteed it or else Rishi sunak wouldn't have said it was a rescue or a bailout so

there you go and with that the late the last piece of news uh I'm going to show you and it's to do with the UK economy so doing really well right the economy great jobs growth uh while not for toughness one of the biggest moving companies uh removal companies in the UK they've gone into Administration and uh they're gonna there's gonna be 2 000 jobs lost

of course uh government is not going to bail out a removal company uh I'm not saying uh that's a a good thing or a bad thing what I'm saying is they bail out to svb UK which is heavily involved with all the fintech companies they're probably helping the bank of England design the new cbdc wallets right because they're going to Outsource that yeah they're happy to

bail them out but not a removal company in the real economy so there you go with that I wanted to talk about the guilt Market because things are getting uh precariously serious if that is a term I think I just made that up but uh as we speak here this morning we've got the two-year yield actually uh testing the daily high from last year in September

October time when we had the the guilt crisis the guilt meltdown the ldi defined benefit pension crisis we saw cable get down to 103 versus the dollar so we're back there it led to the uh resignation of prime minister trust and her Chancellor quasi-core tank shortest serving prime minister ever 44 days so here we are retesting those levels um am I saying uh sunac and uh

hunt are gonna go uh yeah maybe maybe even worse we might even get a general election and why do I say that a general election before next year before the end of this year well because and I don't follow politics but I I follow the markets and I follow interest rates and the bond markets and I worked in that market for over 20 years and I

know what this means it means big trouble for the UK and yes uh the numbers are good today but look just look at this chart this is a two-year guilt yield and I sat here the scariest chart in finance UK sovereign debt crisis imminent so yes it is you can see I I drew this chart yesterday we were at 467. and this is a weekly chart

and uh you can see that uh last year we got up to around 480. so right now uh as I speak here we're around 475. so aside from doing fundamental analysis of the economy and the system I always looked at technical analysis as well and some people might think technical analysis is is useless but I I don't think so um and what we're seeing here is

a huge move from around the end of uh 2021 as you can see here uh from around September and uh just notice how two-year gear yields were at zero or even negative which is ridiculous of course but we moved almost in a straight line from uh the end of 2021 till last year when we had the crisis we went from negative to 480 and of course

the bank of England stepped in the government stepped in last year to help everything how do they step in well more guarantees more QE and they've been able to to stop the rot and that formed what we call again consolidation and that little flag or pennant that that's the consolidation in a consolidation pattern usually resolves itself itself three out of four times uh going the same

the same direction as the previous Trend so the previous Trend was rise from zero let's say or negative to 4.8 then we had the consolidation and now we've broken out of the triangle and now the next and we've broken out of the triangle uh quite a while ago and that's why I've been warning about this the the next important level here is breaking out of the

uh the the high here from last year and what would be the target well it's pretty scary actually the target you just add the distance from the first move you you project uh zero to four point eight from the break of the triangle so you add 4.8 to around 3.7 and that gives you you know a rate about uh eight and a half percent in the

two year and in how long well I think by 2025 and I've been warning about this I did a video uh probably a few weeks or a month ago saying we could see double digit mortgage rates and why the two-year yield uh yield well because that's what they price the two-year swaps off and the mortgage rates are priced off the two-year uh swap so I expect

more deals to be canceled by the mortgage lenders and the bankers you'll hear more headlines not that I know that it's coming out but it will come out because this is pointing to it and I just wanted to show you another chart a weekly chart going back to 1991 for the two-year guilt yield so you can see here a bigger picture and that trend line from

1991 that was broken back in 20 beginning of 2022 there's another one that I warn people about last year and it was just before the crisis and it was around 2.7 on the 10 year because the 10-year is very important as well so you can see uh it doesn't look good and I think the uh the 40 years that we had of declining interest rates or

yields is over and uh I thought that was going to happen back in 2021 2020 that the bond bull market was over but my uh only that was whether the unwinding of that would be really sharp and quick or protracted more smooth and it doesn't look like it though it's almost like um bond prices went up you know massively for 40 years and now they're coming

down the Elevator Shaft that's the analogy so this is going to be a big uh problem for the government for the treasury I don't know how it's going to translate into in terms of Crisis I'd never heard of ldi and the Define the fact that Define benefit pension schemes were so leveraged and that's the other problem all the derivatives and all the leverage but I'm sure

we're gonna start hearing about some trouble in the financial system and we might not have heard of it before yeah interesting times and of course there could be intervention by not just a bank of England by the government I think they're desperate to keep things going of course because they have a general election to be called by next year and as I said I think we

we could be on the uh cusp of a huge uh sovereign debt crisis for the UK so I'm not too sure uh they'll be able to survive even before the end of 2023 so maybe Boris Johnson resigned because he's preparing to run again who knows uh there you go um so with that let's quickly look at the markets and we're going to start with the uh

the bond market we'll look at the Gill yields right now so yeah the uh two years at 4 76 so it's up 12 basis points so it's up quite a bit I think now that the key level is going to be 480 the 10 year is up uh seven basis points at 441 but right now we need to focus on the two-year that's the important one

and uh yeah interesting times there for the us we've got um yeah the 10 years down three at 373 uh the two years at 455 down three and a half of course we got CPI today and we got the FED tomorrow a lot happening and we could see a lot of noise and volatility in the short term for the markets so I'm not sure I said

it's 8 22 a.m London time by the way we got spot gold at 1965. so that's up about seven bucks or a third of a percent we're right near the highs the low has been 1955. a silver is up 15 cents at 24.20 up 0.6 of a percent the uh stock market index Futures are yeah except for the NASDAQ everything is pretty much unchanged NASDAQ is

up about half a percent uh the currencies are fairly strong here versus the dollar the the pound is up 0.4 at uh 125.64 the Euros back above uh 108 here up 0.4 as well dollars down slightly versus the yen 139.50 and the dollar is up about 0.2 versus the U1 at 7 16. so not much of a move there after the repo rate cut reverse repo

rate cut Aussie dollars at the third at 67.75 dollars down about point one versus the Canadian dollar 133.55 and the Kiwi dollar is up half a percent at 61 uh 50. uh to the Commodities here let's have a look where they are if I can get them up uh we got WTI Crude up three quarters of a percent sixty seven seventy Brent is up one percent

72.50 high grade copper is up one and a half percent 382 and the Platinum uh that's up three dollars just trading below a thousand right now so with that I'm gonna wish you all a very good day take care bye