Government Sells Debt This Week….Here’s How It Went

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The United States Treasury sold quite a bit of debt this week and here is the round up of how it went. Quick note: 10 Year Treasuries have been spiking lately suggesting that investors are now demanding the government pay more on their interest on debt. July 2012 it was 1.38%. It now stands at 2.17%. 

– On Thursday, $29 Billion was sold in 7 year notes at a yield of 1.496%. This is the highest since March 2012. Almost 40% of the debt was bought up by indirect bidders which include foreign central banks. Another 20% was bought up by direct bidders which is money managers. 

– On Wednesday, the Treasury sold $35 Billion in five year notes. Indirect/Direct buyers accounted for 67% of the purchases because interest rate was higher. Bidders got 1.045% which is the highest since October 2011.

-On Tuesday, the government ran into some problems with their 2 year notes. They sold a total of $35 Billion in debt to mostly primary dealers. Indirect/Direct only accounted for 33% of the buying. This was the fewest bids for two year notes since February 2011.

Overall the government sold $99 Billion in debt. Obviously this has to be paid back in 2-7 years with either more tax revenue(which means tax increases) and/or new bond sales. Interest rates appear to be going up by investors wanting more comfort since government has so much debt and with other investments paying higher percentage of return. The government has to play just like everyone else seeking investors to buy their debt.

May “Interest on Debt” payments have not been released yet. But so far in the fiscal year 2013 (which began in October 2012), United States Treasury has paid around $228 Billion on interest on debt. You can track the interest on debt yourself at this site

Beef Prices and Future Outlook

Get ready to feel the pain of high beef prices. Not only is inflation rising naturally due to Federal Reserve printing of money, but beef farmers are leary of coming back into the market from last years drought.

I recently spoke to two farmers here in the central Indiana area about cattle herds. Straight up “No’s” were issued. The typical length of time for cattle to hit the market (birth to sale) is one and half years. Farmers are staying away this year because many sold off last year. Word they told me is “three years” in seeing any recovery.

Nationally the U.S. is under 90 million head of cattle for the first time since 1952.

Gold & “Detroit Is Back”……To Being Broke

Detroit, MI is broke but not a lot of people want to accept it publicly. People are leaving in droves and the city is deteriorating physically. Personally, it is amazing passing through the city then crossing over into Windsor, Canada and seeing the stark difference of economic situations. Two different worlds separated by one body of water. From a satire point of view, watching the Presidential 2012 Election, our current President touting “Detroit is Back” was a flat out lie but the masses accepted his message.

Less than three months after the elections, the city was taken over by the state itself. The city is bleeding money and has debt that probably will not be paid back. Now CBS Detroit is reporting the latest:

Detroit’s emergency manager says the city is bleeding much more red ink than originally thought. That’s what Kevyn Orr told WWJ City Beat Reporter Vickie Thomas in an exclusive one-on-one interview. “The situation is severe,” Orr said. “It’s worse that we originally thought. It ain’t good.” With just 39 days under his belt, Orr is already putting the final touches on a draft of his 40-plus page financial report, which must be submitted to the state on Monday.

They have accumulated about $15 Billion in long term debt. Operating debts are now pinging at $18-$20 Million/year.

Bottomline, Detroit is going to go bankrupt and the news will wave it off as “No big deal”. Cities are facing enormous pressure due to geographical population shifts and long term financial promises that are very generous.

GOLD
Some interesting data on gold has come out. Gold value has suffered some price drops in the last few months due to money moving out of it and into equities(stock market). Now some new data is showing massive purchases of it. Here is some data I received from my investor advisor:

Chinese gold imports in March exploded to an all time record high of 223.5 tons. This follows 97.1 tons in February, and brings the total imports for the first quarter of 2013, to 372 tons, on par with what China imported in the entire first half in 2012. It also means that since January 2012, China has imported an absolutely stunning 1,206 tons of gold. Putting this number in context, this is 20% more than the entire report of official gold holdings of 1054 tons of the PBOC, and represents roughly half of the total 2500 tons of gold mined every year.

One more interesting financial aspect of gold….

US bullion dealers have characterized the demand for the physical form of gold as the strongest since the immediate aftermath of the Lehman Brothers collapse in 2008 and, in some cases, the strongest on record. The spike in demand caused a shortage among American Eagle gold bullion coins at the U.S. Mint in April. The U.S. Mint told authorized purchasers on April 22 that it was temporarily suspending sales of the one-tenth-ounce gold bullion coins “while inventories can be replenished,” as year-to-date demand for those coins was up 118% from the same time last year.

Gold could be very spectacular in price movement in the next six months. It maybe wise to accumulate some now to enjoy the plus side in the long run.

Is The Indianapolis Mayor Worried About The Airport Finances?

Indianapolis Airport Authority(IAA) and a private company wanting to build an off-site parking facility for traveling passengers of the airport are at odds legally according to The Indianapolis Star.

Legal fees have reached at least $45,000 as the city-owned airport continues its effort to stop Cincinnati-based Chavez Properties and Parking. The company seeks to develop a 3,700-space parking lot south of I-70, near the main freeway entrance to the airport. The legal dispute involves what a 1990s-era land-use plan allowed in the Ameriplex park. The airport, which sold the land nearly two decades ago, argues that a private parking lot there would violate the intent behind the plan. Instead, airport officials contend, the space should be reserved for large warehouses and office buildings.

The airport authority has already loss this case once in Marion County Court and will probably lose again through the Indiana Appeals Court. The contract would have to be very clear in terms of the sale. The airport is getting beat on competition in where passengers choose to park and what experience they receive. This worries the airport immensely because parking fees make up 25% of their revenue they bring each year. The Star also reports on the rates of the current private companies already existing:

Its base drive-up rate, $8.50 per day, is cheaper than the airport’s surface lots, though a fuel surcharge and airport access fee can push up the total cost to between the airport’s $9-a-day economy lot and $12-a-day long-term lot. However, there are discounts for parking a full week and other promotions.

Here is an account from one passenger on parking away from the airport:

Duncan Giles, a federal union leader who travels occasionally for work, opts for the valet service at the off-site lot. Lot workers usually are chipper as they unload his car, he said, and he said the place feels secure. Upon his return, the car is warmed up and cleared of any snow. While the airport’s garage valet service is $20 a day, “I usually can get it for under $12 a day (off site), everything included,” said Giles, 51, who lives on the Southeastside. “You really can’t beat it.”

I have been watching the IAA and their numbers the past six months. This airport was heralded as a major economic stimulus to the area with a lot of promises attached to it when completed in 2008. Total cost ran about $1 Billion while being backed by bonds. Passenger numbers are dwindling which affect landing fees the airport takes in. Last year alone the airport only had two months of passenger counts beating expectations (February/March). The rest of the months they fell short of projected goals. First three months of this year the airport is down 1% in passenger traffic.

On top of the passenger decline, costly repairs are mounting up from inadequate construction. One example is the $100 Million dollar parking garage that is only 5 years old is facing up to almost $2 Million in repairs in fixing major leaks from faulty drainage.

On Sunday in The Indianapolis Star, it was reported the IAA is relying on parking, retail and landings fees to repay the bonds that financed the new airport terminal. Mayor Greg Ballard weighed in:

“We’ve got a whole lot of bonds (to repay) at the airport. We’ve got to repay them”

Obviously, the Mayor has taken the side of IAA in this legal battle because he knows what damage this could do to revenue generated long term. For all intensive purposes if IAA starts losing more money the city would have to step in to shore up losses. In my experience following politics, someone like a Mayor making comments like this shows he is seeing the same numbers I do. He probably hasn’t had the best of meetings in long term financials numbers the accountants are presenting to him.

Indiana Farmers “Make It Rain” on Crop Losses 2012

Indiana went through a major drought last year.  While many suffered through the horrendous heat, none got hit harder than Indiana farmers. In the past few months making my economic rounds, I went and talked with a few farmers about crop insurance payments and many said they faced no income level drops compared to a regular crop season. This has been backed up by Gary Truitt of Hoosier Ag Today:  

Indiana farmers so far have received more than $1 billion in crop insurance payments from losses last year when drought ravaged crops throughout the state. The payouts are double the previous record. The previous record amount of insurance indemnity payments to Indiana farmers for the three crops was $522 million in 2008.

You can read the rest here