All posts by olairet

Oswaldo Lairet (“Lairet”) currently serves as Chief Investment Officer for Systemic Risk Averse Funds SPC, Ltd. (BVI), and Principal for companies in Delaware, Venezuela, and the Caribbean. As a derivatives trader for Citibank Caracas, Lairet introduced innovations that led him, first to head Northern South America Trading from New York’s Investment Banking division at Citibank and ultimately to become treasurer for the region

BREXIT OR GLOBALEXIT?

Typically, the Minsky Long Cycle ends with Trade retreating until it reaches global scale, while present-day “Trade War Warriors” such as Trump, Le Pen, Farage and other isolationists  begin winning elections worldwide. Hence why, in my view,  we’ll see the collapse of our current Globalization economic model over 2016 and 2017.

Yet, as per the essay linked above, the crash is bad for the “predator,” but good for “the prey” …Over the long-term.

AND J.R.R. TOLKIEN SAID, “NEVER LAUGH AT LIVE DRAGONS”

As the Steel-Dragon flies over its 2009 high, it validates our premise that China’s colossal money printing is what truly underlies the world’s economic “recovery” since 2008. Just as it created $30 trillion of Yuan-denominated debt in 7 years, China may have injected upwards of $2 trillion over the past three months.

Putting these numbers in perspective, explains how Chinese steel makers were able to produce in March (first chart), about 80% of annual US production or nearly ten times more than US steel makers over the same month. Yet, as shown on the second chart, the same money that brought steel production to a global record in March, helped fuel its price to $407/ton at the close today. That’s a 48% increase since December.

Oh well, China continues to upend the laws of Supply and Demand, as it’s been doing since 2008, when it discovered the modern central banker’s alchemy: QE Levity!
Sound familiar?

Steel Production

Steel Price vs Chinese Production

WAIT! IS IT 2016 OR 2008? QUICK, DIAL BACK THE DELOREAN!

While preparing a summary for a client, I went over presentations I gave, ahead of “The Great Recession.” Among them,I found a Veneconomia January 2008 Conference describing what could pass for January 2016. The material was so predictive then, you might as well check its contents…just, in case!

The link again is Veneconomia January 2008 Conference

BITCOIN > BLOCKCHAIN > INTERNET 2.0 > EQUAL INFO ACCESS

Ethereum

03-26-2016
BITCOIN > BLOCKCHAIN > INTERNET 2.0 > EQUAL INFO ACCESS  
Oswaldo Lairet – Sequoian Financial Group Research

Time-decay makes this post more valuable as is (Spanish), but headings may help you choose what part to translate, if any!


I. AMSTERDAM 1609 ALL OVER AGAIN!

Nos aproximamos al punto en la historia, donde la élite politico-financiera mundial (el 0.1%) pierde su milenaria ventaja informativa…En una sola palabra: “Blockchain,” una base de datos* cuya emisión, verificación y compilación histórica es compartida y actualizada cada cierto tiempo (10 minutos en el caso de Bitcoin) por miles de computadoras conectadas entre sí, vía internet. La automatización del proceso fue creada en 2008 por alias Satoshi Nakamoto (white paper) para crear Bitcoin. Hoy, el potencial de Blockchain para descentralizar el poder se evidencia en aplicaciones como EthereumCryptoNoteBitnation y otras, diseñadas para eliminar alcabalas erigidas por el 0.1% hace milenios. Bitcoin, por ejemplo, comienza a surtir sus primeros efectos “igualadores.

*En la mayoría de los casos, un registro contable de tres entradas.

II. TO OWN THEIR PIECE OF THE WORLD, ALL THEY NEED IS A CELLPHONE…AND SOME ETHER!

Desde hace unos 15 días, Ethereum hace afirmaciones de gran transcendencia en su página1. Primero, aun cuando Buterin podría haberlas hecho desde que diseñó el algoritmo hace 5 años, no lo hizo hasta tener todo comprobado. Segundo, para entender el grado de veracidad de sus afirmaciones, el mejor ejemplo lo proveen aquellos Bitcoin Wallets, que ni siquiera sus creadores pueden intervenir. De hecho, si el dueño de una des éstas cuentas, pierde su clave privada (el protocolo PGP requiere una clave pública y otra privada), perderá todo el dinero almacenado allí, tal como sucedería si pierde una cartera con dinero en efectivo.

Los actores financieros buscan la forma de crear sus propios blockchains, pero para ser inmanipulable (censorship resistant2), el registro contable debe compartirse con miles de computadoras (nodos o nódulos) que confirmen cada nueva versión y ninguna red bancaria podría llegar a tener mas de varios cientos. Sin embargo, un registro compartido siempre sería una mejor opción para ellos, que el sistema actual3. Algunos de ellos, parecen haber infiltrado sus programadores en los equipos de blockchain mas avanzados. Otros han creado empresas tipo Coinbase, Coinsetter, Gemini, etc., que no dejan de ser simples intermediarios financieros. Es decir, el dinero que tengas allí, sigue siendo tan susceptible al fraude, intervención, riesgo sistemático, etc. como el que tienes en el banco4.

“Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third party interference. These apps run on a custom built blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.

2Censorship Resistant: If enough of the validators collude maliciously, they can prevent a particular transaction from being confirmed in the blockchain, leaving it permanently in limbo.

3A mayor cantidad de nodos, menor el poder que cada uno (o de un grupo de ellos), para crear transacciones falsas, modificar la base de datos que comparten o de cualquier manera realizar una infracción al protocolo original que gobierna su base de datos. En una contabilidad de activos, por ejemplo, esto significa que la posibilidad de crear dinero o activos falsos, transferir a terceros o modificar la cantidad total de activos se va reduciendo a cero, a medida que sube el número de nódulos.

4Cuanto menor sea el número de nodos, mayor es el poder que tiene cada uno (o un grupo de ellos) para influir indebidamente en el contenido de la base de datos compartida. En todo caso, cualquier sistema de validación tipo blockchain, le confiere menos poder a los nodos que al titular de una base de datos centralizada tradicional (caso de cualquier banco actual o de los bancos centrales que los regulan).

III. REGARDING BASIC CONCEPTS AND CURRENT STATS

Pregunta: ¿De dónde sacan los bitcoins…siendo que es una unidad de intercambio finita? Respuesta: El intercambio no es finito: Existen en circulación unos 15.3 millones de bitcoins, pero aun cuando lleguemos al total de 21 millones que permite el algoritmo, el precio y los préstamos denominados en Bitcoin, hacen que su capitalización sea ilimitada (anda por $6.3 billones). Entender este punto se hace mas fácil, comparándolo con el oro: La mayor parte de las reservas ya fueron explotadas, pero eso no limita su capitalización, ni el numero de transacciones que se realicen con él. Posiblemente el infográfico abajo sólo sirva para enredar mas las cosas, pero en mi opinión, el autor hizo un gran esfuerzo para reducir el proceso a sus partes principales.

BTC Diagram

Los principales afectados están preparándose de múltiples formas para proteger sus parcelas de poder. Por ejemplo los bancos,  por sus activos intelectuales y organizacionales pueden entender que si no absorben, manipulan o de alguna forma neutralizan este nuevo tipo de Internet (el verdadero 2.0), pronto terminarán como las tiendas de música, las librerías, las editoriales y muchos otros actores en sectores avasallados por Internet 1.0.

Por otra parte, los burócratas que pueblan las alcabalas territoriales, aun no le tienen suficiente respeto a esta amenaza tecnológica. Tienen tantos milenios usufructuando sus barreras de peaje tradicionales (y las que inventan todos los días), que no se molestan en averiguar si en este caso, pueda ser necesario prepararse.

Con simplemente ilegalizar Bitcoin, creen que resolvieron el problema: El mapa abajo, muestra que hasta ahora los primeros en erigir barreras legales a Bitcoin (amarillo y rojo) son países socialistas, comunistas o de pasado socialista/comunista. Sin embargo, la mejor prueba de lo fútil que es tratar de ponerle el cascabel al gato, cuando no hay gato! es que en China, uno de los mas autocráticos entre este grupo de países, es donde se transa el mayor volumen de Bitcoins en el mundo (abajo).

BTC Legal Map

BTC Volume

WHY THE US DOLLAR WILL KEEP GETTING STRONGER

Regardless of experiencing a 25% GDP Decay since 2007 (Table 1, Page 3 &updated graph, above), the USD has appreciated by 15% since 2011 (DTWEXM), as the US decreased its oil imports by 60%.

Recently, the US became once again, the world’s largest oil producer, while oil imports have dropped from a 2006 high of 13.5 million barrels per day (mbpd) to 5.0 mbpd in May (EIA chart). The corresponding reduction in dollar payments to foreign oil producers, created a scarcity effect that eventually, begun revaluing the dollar.

Revaluation dynamics should continue, as US companies/workers refine their unparalleled Shale Oil expertise, to ramp up production. Additionally, to the extent total US oil production surpasses other producers by an even larger margin, conditions become ideal for repealing the country’s 40 year old crude export ban.

 

QE IS EXACTLY WHY THE SKY IS FALLING!

07-05-2013
QE IS EXACTLY WHY THE SKY IS FALLING!
Oswaldo Lairet – Sequoian Financial Group Research

Summary:

Since our start in 2005, we have sought to keep reports entertaining, even while including the charts, links, mathematical proofs or documentation supporting our opinions.

Like our 2006 and 2007 reports, this one is meant to warn you in advance of potential market trouble. This time, however, we set up a hedging structure that may help you protect your current investments from such a possibility. We chose this approach, after confirming that regardless of the detailed strategies and ample lead-times, we provided our readers, before the housing and financial crises, respectively, few were able to book major gains from either crisis. Fewer still, set up legal and operational safeguards, we believe were essential to preserve potential gains, had systemic meltdown ensued. This time, all they need to do is Ask!

In the next three monthly-reports, starting with this one, we expect to explain our reasoning for the coming crisis and with it, the   principles behind our hedging structure. But, as you will confirm, serious issues never prevented us from introducing funny charactersprovocative themes or insane story titles. We’d much rather make you laugh, than take ourselves too seriously!


Foxy Loxy:”How do you know the sky is falling?”

Chicken Little: “Well, if you look at Chart 1, since Dec.11, the total amount in OTC (Over The Counter) Derivatives Notional (Notional), as published by the BIS (Bank for International Settlements) has been hovering near $650 trillion, the level it reached, heading into the Jul.08 market collapse!”.

 Chart 1. (click-to-enlarge)

Foxy Loxy: “Actually, if you had included all contracts in your slightly-outdated chart, the figure would be closer to $700 trillion by Jun.12 and that´s not counting the $300 trillion that were effectively subtracted from pre-2010 aggregates through “Notional Compression” in IRS (Interest Rate Swaps) and CDS (Credit Default Swaps).”

Chicken Little“Are you saying that, in terms of pre-2010 Notional, the Jun.12, BIS aggregate was really One Quadrillion Dollars (one thousand trillion USD)? That would be almost twice the level of Notional at the start of theHousing Credit Crisis ($586 trillion), marked by Dec.07 in Chart 1″

Foxy Loxy
: “Yes, but Notional itself doesn’t represent ON or OFF balance-sheet risk, it´s a nominal value upon which derivative-market participants compute a percentage to settle periodically, among themselves. AND …of course, it´s also “the living proof” for every fantastic legend out there, whether it´s planetary hyperinflation, gold´s inevitable rise to $5,000/oz or the “end of (take your pick) …the US dollar” …all fiat currencies” …the financial system” …modern civilization”, etc. What these sources never mention is that next to Notional, the BIS table shows GMV (Gross Market Value) and quite explicitly, the actual balance-sheet risk: GCE (Gross Credit Exposure). In fact, using the same BIS table you used to draw Chart 1, I drew Chart 2. But, note that from Dec.08 to Jun.12, while Notional hits $6 to $7 hundred trillion in Chart 1, GCE actually drops from $5 to $3.7 trillion.” 

Chart 2. (click-to-enlarge)

Chicken Little: “Funny you´d mention that 25% drop in GCE, having just acknowledged that 30% of Notional magically disappeared from the aggregate after 2010! Also, while referring to the $5 trillion top in GCE, you forgot to mention howthe world´s financial system spiraled “like a headless chicken” into that amount! Oh well, I´ll fill you in: When markets were collapsing in 2008 and net settlement obligations had reached $5 trillion, banking giants had only $3.1 trillion in collateral (at market price) plus $1.2 trillion of net worth (tangible equity as opposed to Tier 1 capital). In case you want to keep as a secret “who put up the missing $700 billion” or want the whole episode to remain unreported, as themedia did “not to scare anyone”; just have one of your high-placed, furry friends reap page 20 from this sobering OECD recount.”

Henny Penny: “Sorry to interrupt Chicky pie! But, you forgot telling Foxy dearest, that Notional Compression is a lovely, but rather sumptuous manner of saying “Netting”, which in our last brush with systemic meltdown, didn’t quite work as advertised by those charming young fellows at “Sacs of Gold”! Had the Fed not intervened to save the bottoms of our beloved “netters“, just the CDS blowup at AIG (American International Group) on its own, would have many of them, furry critters from around the planet, still “netting” in bankruptcy court! Again, my apologies and heartfelt thanks for accommodating my disruption.”

Chicken Little: “Much obliged! Henny Bunch! I am glad; all of us birds are keeping track of Foxy´s unintentional slips of memory! I was about to say that if Notional is irrelevant, then: why did rollovers from Dec.07 to Jul.10 in Fed letter-soup, liquidity-programs credits reached over $16 trillion for the banks listed on page 131 of the GAO Report to Congress? And why then, is Reserve Bank Credit (short-term liquidity assistance) still rising in Chart 3, having already jumped 600% since Aug.08?”

 

Chart 3. (click-to-enlarge)

Foxy Loxy:”You really are …the ultimate Chicken Little! Why would anyone add up the nominal size of rollovers? Theonly conceivably useful information from that report page is the relative amount of assistance received by each of those banks! Regarding Chart 3´s significance, just answer one question for me: Has any of you birds, experienced anything close to a 600% increase in Real Economy prices since Aug.08? By the same token, take a good look at Chart 4 and note that not even doubling public debt to $16 trillion (in red) since Aug.08, has kept Money Velocity (in green) from falling to a 67-year low! Oh, and BTW, notice how the banks you criticize so much, have actually slashed $3 trillion of their own debt over the same period (in blue).”   

Chart 4. (click-to-enlarge)

Turkey Lurkey: “Foxy dear, you really need to get out of the woods more often! Banks didn’t stop borrowing out of self-restraint! What keeps decimating the aggregate balance of US financial debt is brutal interbank-lending attrition! Remember that following the world´s “Lehman Momentthe TED spread spiked 500% because banks worldwide stopped lending to each other and didn’t budge until central banks intervened? Well, from that point on, interbank lending has continued to implode as much of the maturing bank debt is being repaid by central banks. That´s why Chart 4’s $3 trillion drop in financial debt, coincides with Chart 3’s $3 trillion top in Reserve Bank Credit.”

Foxy Loxy
: “Darling, you obviously skipped the chapter on Fisher´s equations in your Econ.101 elective! But, never mind, just Google up “MV=PQ=GDP” and be sure to check what each letter means! If you still don’t get it, here is what´s really happening: Banks have generally trimmed down on interbank borrowing, not only to diminish their dependence on wholesale funding, but also, because they can’t start lending massively to unqualified borrowers a la “pre-housing crisis” style, while qualified borrowers have been repaying debt and decreasing new borrowings. So, while money turnover (lending) decreases and Monetary Base (M) increases, Money Velocity (V), which is the quotient betweenthe two (turnover as dividend and M as divisor), must drop in value! In effect, what´s behind the drop in interbank lending is a drop in Economic Demand, which in turn, affects Output (Q) and Price (P) and thus, GDP.”

Chicken Little: “Wow Foxy, that´s quackery only Ducky Lucky would understand! That is…until Chart 5 confirms to him, that domestic orders (green) and imports (red) are up 26% and 29%, respectively, over their 2009 lows! So, your argument that “demand contraction” is behind the drop in Money Velocity is probably unfounded! Regarding Fisher´s monetary interpretation of Mill’s equation of exchange, you should know that it’s meaningless in the absence of interbank lending. Again, I’ll fill you in: In the centuries after the arrival of central banking, most observers had posited that fractional banking had a measurable effect on M and therefore on GDP. By the time Fisher formalized that relationship, using Mill´s formula, he realized that although you can control M, through central banking, V needs to be an unbound (independent) variable. That is possible, only if “fractional lenders” (private banks) have “unconstrained” access to funding from other fractional lenders (the interbank market).”

Chart 5. (click-to-enlarge)

Turkey Lurkey: “That might explain why $3 trillion of incremental Fed liquidity plus $8 trillion of incremental public debt have not been enough to outweigh $3 trillion in financial debt reduction. Obviously, public debt has none of the“fractional banking” power of financial debt, but the Fed’s money printing does! If the power of fractional banking is not working for the Fed, could it be, because much of its newly-created liquidity assistance has gone to repay the creditors of undercapitalized banks? If so, then a substantial part of incremental Fed liquidity is not available for bank lending.”

Foxy Loxy: “WHAT? What do you mean?”

Turkey Lurkey: “Well, Foxy, let’s say Bank ABC lost its capital during the credit crisis, as the value of its assets dropped below the sum total of its capital plus liabilities. But, then Lehman happened and regulators decided that, to avoid “financial catastrophe”, banking system losses should go temporarily unrecognized (A la Japan circa 1990). Since ABC’s debt was mostly short-term and from wholesale lenders, it needed to borrow funds quickly against the registered-value of its value-impaired assets. Since only the Fed can create money from thin air, this was the only entity that could lend against ABC’s assets at registered-value. Next, the Fed took ABC’s assets onto its balance sheet and lent itthe funds to repay its creditors in full.”

Ducky Lucky: “It gets even worse Foxy! By lending against the registered value of ABC´s credit portfolio, the Fed not only extinguishes interbank lending (which could still occur at some price below registered value), but eliminates thepossibility of negotiated renewals, which would preserve some of the interbank debt outstanding. Over time, as each new dollar of repayment, unwinds a geometric multiple of credit-dollars created over three decades of unconstrained interbank lending, Money Velocity approaches its historical minimum.”

Foxy Loxy: “So there is no bank hoarding of excess reserves, as much of the 600% increase in short-term liquidity assistance provided by the Fed since 2008, has gone to repay pre-crisis debt on the books of bank-creditors! In theprocess, capital markets have not been allowed to clear prices for pre-crisis financial assets, effectively suspending interbank lending and with it, the astonishing amount of leverage that fractional banking could be providing to theunderlying growth potential of the US economy.”

Chicken Little: “Exactly why THE SKY IS FALLING!”

IN OUR NEXT ISSUE, GOLDILOCKS & THE THREE BEARS DISCUSS, OVER PORRIDGE AND COFFEE:

 

  • Why central bank “assistance” and not inflationary expectations, is the reason behind the post-2008, price-rise in Currencies, Commodities, Stocks and all other types of “Marginable Securities”. 
  • Why Inflation and Deflation are determined by Demographics, not Central Banks.  
  • How RWA (Risk Weighted Assets) and other Tier 1 Capital allowances are promoting “London Whales”. 
  • The launching date for Systemic Risk Averse Fund of Funds (SRAFOF), developed after years of research on which are the key strategic, operational and legal systemic issues to hedge for.

Central Bank Reserves

This month, investors absorbed some important news announcements, among them: the nationalization of the last four oil fields, a 35% drop in Central Bank Reserves, the IMF-withdrawal statement and the threat to nationalize the banking industry. Below we will try to figuratively deconstruct what these messages may mean for all “three” sides of the fence.

THEIR SIDE

Suppose you are subsidizing several economies at once, including yours, but their demands keep increasing every month. Unfortunately, last July your economy’s gross monthly income suddenly stopped growing and has actually been decreasing since then. In effect, you have been running an escalating deficit that only became publicly visible when you had to pull out 35% from savings, even after issuing the largest one-day debt obligation in history. Yet, you tell creditors (especially those holding your currency) you are merely switching pockets and… they believe you. But, there is another problem, in the past few years, although you repurchased every external-debt bond submitting you to SEC surveillance, you still belong to a guild you must regularly open your financial books to. How do you get them out of your hair? Simply drop out. Foreign creditors may be a bit flabbergasted at first, but not to worry, they always come around. Finally, there is the issue of how to prevent local creditors from eventually deciding to cash in their chips and try their luck elsewhere. Easy, tell them that the tellers are just part of the casino and as such they can be nationalized anytime, together with the chips. At least you forewarned them!

YOUR SIDE

All this time, no matter how obvious the direction we are going, there has been little you could do. In fact as time has passed, you have accumulated the largest amount of chips you ever had, because even after it became legal to exchange chips [through negotiable securities]; converting them would cause an accounting loss. By now the size of that potential loss is so huge; it leaves you no choice but to let balances grow and accept the puny interest rates they pay you locally. To top it all, the nationalization threat just complicated things further, because, no matter how big, well-known or international your local chip-holder is, as long as your account with him is under local jurisdiction, it just became an immeasurable risk.

OUR SIDE

Not everything is bad news though, until recently, no mechanism existed that allowed you to maintain your assets free from the risk of devaluation and/or nationalization, while keeping them in local currency. Last November, our parent company unveiled a Money Market Fund whose shares are local currency denominated, but as shown in the Bloomberg price-history graph below, they track exactly the movements of the parallel rate (shown in the next graph).  This price behavior allows you to hedge against devaluation without converting your chips to foreign currency (to avoid conversion losses). But the best feature of the fund is that it completely shields your assets from intervention: No matter what laws are changed or how many banks get nationalized, they have no jurisdiction over the fund. Additionally, as in any Money Market Fund, shares are 100% redeemable and can be liquidated every Friday in any currency you want.

If you would like to know more about the fund and why the financial service providers behind it are as large and trustworthy as your local provider, just send us a note to corporate@sequoian.com

image001

image002

Collateralized Debt Obligations

Collateralized Debt Obligations, or CDOs for short can be created from many types of collateral, but the most popular lately are CDOs from MBS (Mortgage Backed Securities). The idea is to create some higher risk assets and some much safer ones, slicing up the MBS into what are called equity, mezzanine and investment-grade bonds. The equity takes the higher risk, and so it earns the higher return if things go well. But if things start to go wrong, the equity is lost first…and then the mezzanine. However, even if there’s quite a high rate of failure in the higher risk end, the investment-grade bonds still get fully paid out. In this way the bankers might, for example, convert a large package of MBS into perhaps 70% investment grade bonds, 15% mezzanine, and 15% equity. It is relatively easy to sell the high-grade investment bonds. Stamped with an investment-grade rating, these bonds are sold off to mostly respectable investment institutions. But the mezzanine, and particularly the equity, are harder to sell. In effect the 30% of the mortgages in the original MBS which were deemed on a statistical basis to be likely to fail, are concentrated into what investment insiders call “Toxic Waste”.  Enter the case of the Bear Stearns hedge funds:

Last week, increasing losses and redemptions induced the lenders of two highly leveraged (at least 10 to 1) hedge funds in “structured” instruments (Toxic Waste) to hit The Street with bid lists of CDO collateral loaded with subprime exposure.  The dearth of buyers willing to pay anything close to their “marked” prices forced the sponsor, Bear Stearns to step up and loan the hedge funds $3.2 billion. However, the specter of downgrades of similar securities and a possible contagion de-leveraging of CDO exposures throughout the market initiated a stock market plunges that is continuing today.

On the other hand, we keep telling you that 10-year US Treasuries is the only investment we believe in, no matter how much of them the Chinese may be selling. Last Friday, for the first time since the 10-year treasury yield started rising from a low of 4.602% on May 11th to a high of 5.316% on June 15th, it rose as equities dropped. This is quite significant in that it confirms a new top from which 10-year treasury yields will probably drop as they have over the past 20 years. You can check this behavior in Chart1 below. Notice that the RSI Readings over 70 (se dotted line) have marked peaks in interest rates and the current reading near 90 hints at either a pause or a pullback in rates.

CHART 1. Source: StockCharts.com
image001

In the meantime, the slowdown in retail sales is quite visible after peaking in early 2006, and has turned south sharply following the bursting of the housing bubble. This trend will likely continue heading if retail sales follow its historical relation to the yield curve as it has in the past, as the yield curve leads the trend in retail sales by roughly two years (advanced in chart 2 below).

CHART 2. Source: Moody’s Economy.comimage002

With such a negative housing backdrop, it’s understandable why retail sales are falling and consumers are putting off their plans to purchase big ticket items. Business equipment industrial production has clearly peaked on a year-over-year (YOY) basis and lags the shape of the yield curve by one year, indicating continued weakness for the rest of 2007.

CHART 3. Source: Moody’s Economy.com
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Finally, if you are going to keep some Treasury securities in your portfolio, you can either buy them from us or consider buying them yourself. It is quite easy to buy Treasury securities with a broker. Just go to the Treasury Direct web site (www.treasurydirect.gov) and follow directions. The purchases are paid for by direct debit to your current bank account.