What is Real and What is Fake ? : 6 Trillion US Treasury Certificates Seized

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First Thought : No wonder the Chinese has been selling. Fakes are cheaper.  www.businessweek.com/news/2012-02-16/china-trims-holdings-of-treasuries-to-lowest-level-since-2010.html

How much does China own, as the largest holder of US debt in the world ?  Just $1.1 trillion.

Second Thought : The Greeks could do with some of those.

Who in their right marbles would counterfeit not  1, not 2 but 6 trillion worth of bonds ? What is the size of US’s total debt ?

For FY2012, as it turns out. It’s $16.4 Trillion. www.usgovernmentdebt.us/

And what is the US GDP ? In 2010, it was $14 odd Trillion. http://www.usgovernmentspending.com/us_gdp_history#copypaste

My sleuth-work naturally led me the big DEBT/GDP debate.  Of all things, not another economic lesson.  (Read the book  “This Time Is Different: Eight Centuries of Financial Folly,” a valuable new book by Carmen Reinhart and Kenneth Rogoff, makes clear, what these and dozens of other nations do is produce financial crises that devastate their own economies. Moreover, they explain, we are somewhere in the middle of a big such crisis right now, and it is far from clear how it will play out before it is all over.” – Idaho Statesman, Edward Lotterman, November 2, 2009)

Fortunately for us, the US DEBT/GDP ratio is only a paltry 100.3% (Rogoff says 90% is destructive), making them look like a dream compared to the 120% of the EU. And it is quite unnecessary to erupt into Tea Party’s “living within your means” theme song.

http://www.zerohedge.com/news/us-closes-2011-record-1522-trillion-debt-officially-1003-debtgdp

But what if, just what if the 6 trillion was real ?

I mean, if the 6 trillion was printed on the side and disbursed to sources preferably not identified ? And now declared void, with no recourse to them. Could be Qaddafi, could be Mafia, could have been LTRO collateral till now.  This is heavy stuff for Sunday.

Running on Empty and Just a Tad Full ?

Data has been turning to the upside. The Dow has overrun itself to a new 4 year high. Nasdaq is on fire.  Makes me wonder if the APPS industry which has provided the 500,000 jobs in the US alone is responsible.

Because these headlines don’t say so.

Looking at the simple layman chart above. It does seem the S&P 500 and Non Farm Payrolls are correlating with the ISM while 10Y Treasury Notes do not share the euphoria.

S&P actually running quite ahead of the ISM Manufacturing Index. The ISM Non Manufacturing does look a tad better correlated.

Yes.  Everything is looking a tad better in the US. It could be a reason to cheer.  Yet I can’t help but wonder if it is a case of running on empty and just a tad full.

Debt markets are 10 times the size of equity markets. They are an irreplaceable asset class which is currently trading at historical high prices. A devaluation of this asset class would have severe repercussions across all manners of investors.

This is the conundrum I am struggling with. That the equity rally is funded by an explosion in debt.

It is a thought for the medium term which does not affect the fact that the EURUSD is going to rally tomorrow and stocks are going to try for new highs barring Iran talks.

Trading for Next Week : Intraday EUR/USD. Buy S&P puts. Structural long USD/JPY. Structural long VIX. Short UST ETFs (PST US and TBT US)  : Hold. Sell Gold vs Silver ?

….. Really ? Or Fake ?