There are TWO, not ONE, Achille's heals in this so-called economic recovery theme that had been making the rounds earlier in this year. The first is the lack of job growth; the second is the horrific numbers that keep coming out of the housing market.
I suspect that if the yield on the Ten Year keeps plummeting along with the equity markets, we are going to hear more and more talk about QE3.
Keep in mind that this Bernanke-led Fed fears DEFLATION more than anything. In the past Bernanke has deliberately led the markets to expect inflation based on the QE programs. They wanted that mindset to kill any talk of deflation. It did seem to work until the hedge funds, which do the bidding of their masters at the FEd, got too carried away and trained their guns on the energy markets and started to bid up the price of gasoline. That was a big, "No-No". Out came the Hawks at the Fed talking up the ending of QE2 and the need to raise rates at some point and down went the entire commodity complex along with gasoline prices.
However, the bond market is now signaling deflation once again and when that is coupled with stagnant wages, no job growth, a moribond housing market and overall economic weakness, the word dreaded most by Central Bankers, the "D" word, deflation, is now surfacing once again.
If this continues we are going to see QE3 sooner rather than later.
And don't forget the lowered margin rate on the ES, SP and YM! They need to encourage everyone to put in a bid!
ReplyDeletehi Dan, i am a bit confused, isnt low yields a good thing for Treasury? or the fed? cause that would make borrowing money cheap and it indicates everyone is running to bonds. why would they want to have high yields? i thought that by removing the koolaid, the yields would rise and not fall. Maybe i am missing something.
ReplyDeleteTrader DAN! dead head feds playing blind mans bluff and your commentary enlightens the mind of even the dullest bulb market player, in the retail field. Keep up your great commentary. I don't post daily but you can be certain I read every one of your posts. You'll help many keep packing their self sufficiency life boats to get off the sinking Keynesian paper printing ship of fools and their increasing folly!.
ReplyDeletegjervis,
ReplyDeleteI'm not 100% sure, but the fact that the yields are falling is most likely due to the market anticipating the fed adding additional stimulus. Once the market gets that confirmation, it becomes a "buy the rumor, sell the news" scenario. If you have some excess cash and are looking for an opportunity, look at some calls on TBT in the near future (history repeats itself). S&p looking very shaky.
Really strong commentary - for which I am most grateful. Keep up the good work.
ReplyDelete