Tuesday, December 22, 2009
TIPS Give Way to Inflation as Deflation Yields Drop
The market for Treasury inflation protected securities is showing Federal Reserve Chairman Ben S. Bernanke won the battle with deflation, paving the way for him to start withdrawing cash pumped into the economy since 2007.
The gap between yields on Treasuries and so-called TIPS due in 10 years, a measure of the outlook for consumer prices, closed above 2.25 percentage points four days last week, the longest stretch since August 2008. That’s the low end of the range in the five years before Lehman Brothers Holdings Inc. collapsed, and shows traders expect inflation, not deflation in coming months, said Jay Moskowitz, head of TIPS trading at CRT Capital Group LLC in Stamford, Connecticut.
Bernanke has cited tame inflation expectations for keeping the target interest rate for overnight loans between banks at a record low range of zero to 0.25 percent and the unprecedented stimulus that prevented more bank failures during the worst financial crisis since the Great Depression. Now, TIPS show the improving economy may change sentiment and spark further losses in bonds. Yields on the benchmark 10-year Treasury note hit a four-month high of 3.62 percent last week. (more)
What’s Next for the Stock Market?
“A nightmare decade for stocks,” says a headline in The Wall Street Journal.
“Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade.”
The 1990s was the best calendar decade in history for stocks, with an annual gain on average of 17.5%. This decade, by contrast, was the worst calendar decade for stocks going all the way back to the 1820s…
Which gives us a sense of triumph…you know, that’s the thing that comes before a fall. Ten years ago, we warned readers that the US stock market was going into a bear market that would be like the Japanese market following the stock crash in Tokyo in ’89. It would be “long, soft and slow” we said. (more)
The Coming Shortage Of All The World's Most Important Industrial Metals
There's beena a lot of dicussion lately about so-called peak gold. But as gold's fans will tell you gold isn't a commodity, it's a form of money. Gold isn't actually intended to be used in anything.
But what about metals that are meant to be used in industrial purposes.
In an excellent presentation, André Diederen presents an argument that all of the world's important industrial metals are dwindling, and that despite increasing explortation budgets, our sources of them are becoming rare and more concentrated. (more)Weapon of Monetary Destruction
In an extended propagandistic interview in Time magazine, Ben Bernanke is finally asked the crucial question:
Q: So, I'm a fringe economics type, I'm not personally, but I'm saying a reader picks up TIME Magazine, and they see this and they go, oh, my God, Ben Bernanke, low interest rates caused this whole thing. He's just an extension of that devil man, Alan Greenspan. Low interest rates, this is the whole cause. What's your bullet answer to that?
A: It's hard to give a bullet answer.
Q: Myth-busters answer.
Dollar Carry Trade at Risk
Borrowing the dollar cheaply to fund purchases of higher-yielding assets was a no-brainer in 2009, thanks to the Federal Reserve's repeated assurances that U.S. interest rates would stay low "for an extended period."
The "carry trade," as this strategy is known, may not be as sure a bet in 2010, though, particularly if fears of deflation in Japan and unsustainable deficits in Europe escalate, making the dollar's path unclear.
Investors received a sneak preview this month when the euro retreated from a 16-month high above $1.51 to a 3-1/2-month low below $1.43.
That was in sharp contrast to the "sell-the-dollar" trend that persisted for most of 2009, as the greenback shed over 15 percent against major currencies between March and November. (more)
The "carry trade," as this strategy is known, may not be as sure a bet in 2010, though, particularly if fears of deflation in Japan and unsustainable deficits in Europe escalate, making the dollar's path unclear.
Investors received a sneak preview this month when the euro retreated from a 16-month high above $1.51 to a 3-1/2-month low below $1.43.
That was in sharp contrast to the "sell-the-dollar" trend that persisted for most of 2009, as the greenback shed over 15 percent against major currencies between March and November. (more)
Massive Hike in Military Spending Financed by Cuts in Health and Education
With overwhelming bipartisan support, the United States House of Representatives on Wednesday passed a massive $636 billion military appropriations bill for 2010. The bill includes some $128 billion for the wars in Iraq and Afghanistan, but it does not fully fund the Obama administration’s escalation in Afghanistan, making likely further appropriations for war spending next year.
The deployment of 30,000 additional US troops is expected to cost $35 to $40 billion a year. On Wednesday, the Pentagon announced that the first of the new troops ordered to Afghanistan have begun to arrive.
All told, US military spending in 2010 will be close to $700 billion. If one adds the hundreds of billions of dollars in military-related spending included in the budgets of other departments, the total is as much as $1 trillion. (more)
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