[quote=garysears]
The big surprise to me is the fact that rates are about the same as they were when the Federal Reserve stopped buying MBS. That can’t be expected to last, but what do I know?[/quote]
I dont know. I think rates will be low for a long long time.
1) Everyone assumes Bernake means 4-6 months when he says ‘exceptionally long time’. I think he means ~12 months, from now. Seriously. he may do some lame ass quarter point move, or just go to a .25 but he will wait WAY TOO LONG on this one, just like last time. The fed has learned nothing, and is taking a very narrow view of their responsibilities of ensuring maximum GPD/employment at a minimum of inflation. If they set off a bubble that causes problems in 2020, well then we can cross that bridge when we get there.
2) Fiat currencies are just compared to each other. The Euro was suppose to be the other reserve currency last year, now look at it. China is in bubble mode and people know it. Yen is going for 3 decades of blah, 2 just wasnt enough. Resource minors like Aus, Brazil, NZ, Canada rely on exports to bubble China, and will go with them. Plus 2-3 have their own bubbles as well right now.
We all hate what they are doing to the dollar, but everyone is doing it. The USA has the best understood problems in the world, and that is what is making it ‘safe’. We fear the unknown more than the known.
3) The imbalances of the 2001-2008 world are still in place. China still export dependent. Euro still politically weak and fragmented. OPEC still raking in dough with no were to go with all their oil dollars. Uncle sam still delusional that deficit spending doesnt have to be paid back.
4) Banks can borrow at 0%, buy treasuries at 4%, and do nothing making 4%. Or they can take risks, and make 5% (minus losses). What one do you think they are gonna do?
And when they load up on treasures, then what? Do you think the FED is gonna raise rates and kill the banks profit margines and capital ratios as their 4% bonds loose value? That uncle sam will stop being willing to loose money on fannie/freddie? I dont.
