Norcini - If This Happens, It Will Signal A Collapse

With global investors concerned about key markets, today King World News interviewed legendary Jim Sinclair’s colleague and fellow trader, Dan Norcini. Norcini told KWN that a decisive break below the 1.8% level on the US Ten-Year Note would signal that a tsunami of deflation could engulf the globe. Norcini said this could trigger “a collapse in tax revenue” and budget deficits would “blow out of control.” Here is how Norcini described the precarious situation: “If we see the yield on the US 10-Year Note break below the 1.8% level, what it’s to signal to bond traders around the world is that we have a deflationary wave coming. I think the reason the 1.8% level has been a floor so far is because most traders are convinced the Bernanke-led Fed will not allow deflation to occur.”

“If you look at the following weekly chart of the US Ten-Year Note, notice the yield has never closed, on a weekly basis, below the 1.8% level. It has penetrated that level on more than once occasion, but always recovered to close back above that level by Friday.

If we were to see a weekly close below the 1.8% level, that would definitely confirm the market would be expecting a serious bout of deflation. When the Citibank analyst, Fitzpatrick, mentioned in his http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/10_Stocks_to_Crater_27,_Bonds_to_Rally_&_Gold_to_Remain_Firm.html">KWN interview that the US Ten-Year yield could fall to as low as 1.15%, people have to understand that the conditions around the world would have to be absolutely horrific for that to occur (see chart below).

If we hit Fitzpatrick’s 1.15% target area on the US Ten-Year, you would be talking about global conditions that would literally be terrifying. Just imagine what the unemployment numbers would look like. Conditions would have to deteriorate horrendously. Think about the collapse in tax revenue. The budget deficit would blow out of control....

“The Fed can’t let this happen. What alternative do they have? I’m not a fan of central banking, but what are they going to do? Do they just let this deflationary tsunami engulf the planet? This is the Great Depression II that Bernanke fears and he will not let this happen.

In my opinion you will see creative additions of liquidity that will be added to the system in ways that will initially shock market participants, but they will come to expect it and embrace it over time.

The bottom line is Bernanke may not want to do another round of QE, due to the political implications, but the market may force his hand if stocks and interest rates really begin to plummet.”

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