Business

Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke.

The United States has recorded a trade deficit in each year since 1975. This is not surprising. After all, we spend more than we save, and this deficit is financed via a virtually unlimited U.S. line of credit with the rest of the world. In short, foreigners in countries that save more than they spend (read: record trade surpluses) ship the U.S. funds to finance America’s insatiable spending appetites.

The most notable thing about today's Treasury auction of $34 billion in 5 Year paper is not what happened after the 1pm announcement of its pricing, but what has been taking placed in the last few days, where as the following charts from SMRA, there has been a major surge in shorts, who have in turn sent the underlying paper "super special" in repo, to the tune of -2.50% as of this morning.

October saw exisitng home sales (SAAR) surge to 5.60mm (handily better than the 5.44mm expectation). These are deals essentially done in August and September - weeks before mortgage rates exploded higher - and with median home prices hitting new highs as the cost of funding spikes, it is hard to se how this is sustainable.

What happens next?

The 2013 taper tantrum spike in mortgage rates created a 10% plunge in existing home sales in the following 4 months.

If everything is so awesome, with a growth/inflation miracle just around the corner, then why is the US treasury yield curve collapsing in a dismal-growth-outlook-implying manner?

Followingthe kneejerk spike on the election, 5s30s have crashed to 6 week lows...

Nowhere is this decoupling from reality narrative more obvious than in the banks as NIM is a spread not an absolute...

2Y German bond yields are collapsing, hitting record lows at -72bps this morning as Commerzbank reports a collateral squeeze into year-end. Since the election, the spread between 2Y UST and 2Y GER has exploded by over 50bps, spiking Treasuries to their 'cheapest' to Bunds since 2005...

Bloomberg reports that Commerzbank says in note that the demand for German collateral ahead of year-end continues to rise, reflected in repo funding levels reaching new lows; 3- month GC moves below -70bps, with little on the offer side