30 year Treasury @ 3.90%

[moneymaker]

Could this be it? The beginning of the inflation that everyone has been expecting! Okay maybe not everyone, but a vast number of people.

[livinincali]

I’m going to go with the popping of the bond bubble that most people say doesn’t exist. The result should be a deflationary depression because credit spends the same as money.

[SK in CV]

No. This is the petulant market reacting to the Fed saying almost exactly the same thing they’ve been saying month after month for what seems like years. The free flow of candy MIGHT begin to be reduced sometime before the end of the year, if, and only if, inflation, GDP growth and unemployment hit projections. Inflation remains very low. Unemployment remains very high. GDP growth remains positive but sluggish. This is classic over-reaction to nothing changing.

[no_such_reality]

[quote=SK in CV]No. This is the petulant market reacting to the Fed saying almost exactly the same thing they’ve been saying month after month for what seems like years. The free flow of candy MIGHT begin to be reduced sometime before the end of the year, if, and only if, inflation, GDP growth and unemployment hit projections. Inflation remains very low. Unemployment remains very high. GDP growth remains positive but sluggish. This is classic over-reaction to nothing changing.[/quote]

No SK, this is a junkie spasming over the hint that the juice is going to stop in the future.

[SK in CV]

[quote=no_such_reality]
No SK, this is a junkie spasming over the hint that the juice is going to stop in the future.[/quote]

I’m pretty sure that’s the same thing I said, with only slightly different words. The only thing that makes it a petulant reaction is that that the hint wasn’t significantly different than it has been in the past.

[no_such_reality]

[quote=SK in CV]
I’m pretty sure that’s the same thing I said, with only slightly different words. The only thing that makes it a petulant reaction is that that the hint wasn’t significantly different than it has been in the past.[/quote]

Slightly different. Yours implies they are acting like a child getting denied something they want but won’t really affect them.

Mine implies they’re addicted and going to have real problems when the juice stops.

I think the later is true and not the former.

[SK in CV]

[quote=no_such_reality]
Slightly different. Yours implies they are acting like a child getting denied something they want but won’t really affect them.

Mine implies they’re addicted and going to have real problems when the juice stops.

I think the later is true and not the former.[/quote]

I’m not sure I made any such implication, you may have inferred it nonetheless. It will have some effect. But what Bernanke said was that he won’t pull back on the juice until there is other juice to take it’s place. (higher employment, higher GDP growth, higher inflation) Bernanke’s predictions of future growth of these measurements are consistent with recent Fed history. I suspect overly optimistic. Anyone having watched the Fed reduce projections time and time again over the last 3 years should recognize that. The only slightly bullish thing that he actually said is that the economy faces diminished risk of deflation. In another context, that’s like a doctor telling a patient his likelihood of survival has improved from 10% to 20%. Better than it was, but hardly pretty.

It’s a good day for bond shorts to close out, reverse, and be prepared to do another 180 over the next 90 days. I think its gonna get back up to 138 or 139.

[The-Shoveler]

Personally I don’t see an exit that does not involve 7-10% inflation for several years.

Any attempt at an exit without the inflation would be a drastic event IMO.

(IMO I don’t see an exit anytime soon)

[moneymaker]

I agree that the Fed “wants” to continue the stimulus, however we are not in a vacuum here in the US. When safety and yields start increasing elsewhere will there be a choice. I think I heard US treasuries are being sold by some holding them, when that happens on a large scale, seems to me that it will be harder for the US to sell without raising yields. The government seems to be in a credit bubble.

[XBoxBoy]

[quote=The-Shoveler]Personally I don’t see an exit that does not involve 7-10% inflation for several years.
[/quote]

I don’t follow this logic and wondering if you can explain. I would think that reducing money printing would decrease the chances of inflation. Given that inflation is currently running at about 1% why is it going to jump to 7-10% when the fed reduces stimulus and ultimately tightens interest rates?

[SK in CV]

[quote=moneymaker]I agree that the Fed “wants” to continue the stimulus, however we are not in a vacuum here in the US. When safety and yields start increasing elsewhere will there be a choice. I think I heard US treasuries are being sold by some holding them, when that happens on a large scale, seems to me that it will be harder for the US to sell without raising yields. The government seems to be in a credit bubble.[/quote]

I don’t know about the credit bubble part. But the rest of it is exactly what is happening today. Treasuries are being sold, yield is going up. It’s not a safety thing, its a yield thing. The Fed has been the primary buyer in the bond market for a long time. There have been days when they were the only buyer.

But so long as we continue to have a large trade deficit, foreign central banks will have few options but to buy our paper. Today, they’re buying dollars.

And nobody wants gold today. At 32 month low.

[The-Shoveler]

OK I will take a stab at it knowing full well I am about to be flamed.

If they raise interest rates without wage inflation then the housing market will crash followed by state and city bankruptcies one after the other because their main source of revenue is property tax.

This will cause a lot of other economic issue etc…

A lot of people I think fail to put two and two together and think housing crash existed in some sort of vacuum.

[SK in CV]

[quote=The-Shoveler]OK I will take a stab at it knowing full well I am about to be flamed.

If they raise interest rates without wage inflation then the housing market will crash followed by state and city bankruptcies one after the other because their main source of revenue is property tax.

This will cause a lot of other economic issue etc…

A lot of people I think fail to put two and two together and think housing crash existed in some sort of vacuum.[/quote]

If mortgage rates went to 10% overnight, that might happen. But they won’t. Since the Volker days, the Fed is pretty quick to the trigger when there’s real heat in the economy. But we won’t see those 50 and 75 basis point moves without that heat.

I agree that wage inflation is more important that any price index. If we actually hit the Fed target of 6.5% unemployment, there will be some wage inflation to go with it. Though I don’t expect to see it by a year from now.

I’m not sure if you’re only referring to CA with regards to the municipal bankruptcies, other states have much better flexibility. If I remember correctly, we had a housing crash, and we didn’t have a rash of municipal bankruptcies. I think there were 3 in California, one having nothing to do with the housing crash. And maybe 5 across the rest of the country.

[livinincali]

[quote=The-Shoveler]OK I will take a stab at it knowing full well I am about to be flamed.

If they raise interest rates without wage inflation then the housing market will crash followed by state and city bankruptcies one after the other because their main source of revenue is property tax.

This will cause a lot of other economic issue etc…

A lot of people I think fail to put two and two together and think housing crash existed in some sort of vacuum.[/quote]

The fed isn’t going to raise interest rates. It’s going to be those that hold bonds, coming to the realization that they aren’t going to get paid, that’s going to raise the interest rates.

I think city bankruptcies are inevitable and declines housing are likely too, but I don’t know that it will be a crash. There’s too much debt in the system and I think it will be defaulted on rather then inflated away. I could be wrong but there’s so many people playing the lever up and bet on inflation game that I think they are going to end up being the losers.

The thesis has always been that the fed can create the right level of inflation and fix the debt problem. My bet is that they can’t and those people expecting them to be able to do so are wrong. Congress fiscal policy might be able to trigger hyper inflation but the fed cannot.

[The-Shoveler]

There were a lot of hidden close calls (take Texas for instance),

Los Angeles barely escaped last year, I don’t think they have long.

There was a lot of stress out there, (well maybe not in north dakota, but really they don’t count much).

If the housing crash played out again, I think you will see it.

Do a web search on “pension crises”.

[Author]

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