Has it* started? — *the meltdown

The big question that I am asking myself today is: Has it finally started? And by it, I mean the total meltdown of the US paper market: the USD, the USD government's debt, USD denominated debt, and to some extent, the US stocks as well.

Indeed, for the past couple of days, the markets have dropped a bit, but contrary to what happened in October-November 2008 and Feb-March 2009, the last couple of days, the USD dropped along with the stock market and the US treasury bonds: the USD has fallen to its lowest level against the EUR since January, bonds have fallen to almost their worst levels since Jan as well, stock have declined a few percentage points and commodities, specially precious metals have rallied. And the drop of the USD has been violent enough to catch me by surprise (Disclosure: I am quite massively short the USD, as well as the US long bonds and long the precious metals):

So, has it started? Difficult to say. And I am being really careful about what I wish for. Because even if this collapse would be highly profitable for my portfolio, it would also probably mean that chaos will be spreading around the world. So let's be clear about that: I am not hoping for it to happen. I am actually quite frightened by it for dreaming that it would never happen, even if it seems more and more inevitable...

Here are some news:

Dollar Is Dirt, Treasuries Are Toast, AAA Is Gone: Mark Gilbert :

“All currencies are being debased dramatically by their central banks at extraordinary speeds and so in relative terms it appears there is no currency problem,” Lee Quaintance and Paul Brodsky of QB Asset Management said in a research note earlier this month. “In reality, however, paper money is highly vulnerable to a public catalyst that serves to acknowledge it is all merely vapor money.”

The only thing holding the current value of the US debt is the Fed printing. But as soon as they will stop, the bonds should collapse:

May 21 (Bloomberg) -- Treasuries fell, pushing yields on 10-year notes up by the most in two weeks, after the Federal Reserve bought a smaller amount of debt than some investors expected and the U.S. said it will sell $162 billion of notes and bills next week to finance the budget deficit.
[...]
“The Fed buybacks are over and it’s taken the market down,” said Michael Franzese, head of government bond trading for Standard Chartered in New York. “We thought the Fed would have bought more. Supply is carrying a heavy amount of weight. Supply keeps coming and there’s no end in sight.”

Even the incompetents and market cheerleaders at the Fed seem to be opening their eyes:

May 21 (Bloomberg) -- Federal Reserve officials, who see possible signs of “stabilization” in the U.S. economy, signaled they’re not convinced those improvements will persist.

Policy makers, meeting April 28-29 in Washington, saw “significant downside risks” to the outlook for the economy, with the global financial system still “vulnerable to further shocks,” minutes of the session released yesterday said.

And of course, and unfortunately, the unemployment rate is soaring:

May 21 (Bloomberg) -- More Americans than forecast filed claims for unemployment insurance last week, and the total number of workers receiving benefits rose to a record, signs the job market continues to weaken even as the economic slump eases.
[...]
The total number of people collecting benefits rose to 6.66 million, a record reading for a 16th straight week, and a sign companies are still not hiring.

Finally, since there are a lot of concerns about Obama/Geithner/Bernanke spending and printing until they run out of paper, they are now playing their favorite game: talking up the USD, and saying one thing to just do the exact opposite.

May 21 (Bloomberg) -- Treasury Secretary Timothy Geithner said the Obama administration is committed to reducing the federal budget deficit after concerns rose that the U.S. debt rating may eventually be threatened with a downgrade.

“It’s very important that this Congress and this president put in place policies that will bring those deficits down to a sustainable level over the medium term,” Geithner said in an interview with Bloomberg Television.

The dollar, Treasuries and American stocks slumped today on concern about the U.S. government’s debt rating. Bill Gross, the co-chief investment officer of Pacific Investment Management Co., said the U.S. “eventually” will lose its AAA grade. [My Comment: even Bill Gross, who profited quite substantially from Henry Paulson's and Tim Geithner's policies seems to worry a bit?]

Even Alan Greenspan left his grave to come out and contribute to the bad news stream and try to act as if anybody cared about him. So I just won't quote him, it simply isn't worth the 2min you'd spend reading him!