The Latest On The Bond Market

Below is a copy of some data I received from a bond market data service I use. It reports on bond market news several times daily. It helps me get a gauge on which way interest rates may go for the day and in general. I wanted to paste a recent email they sent me, and in parentheses and in CAPS give you my interpretation. Below is the data with my comments.

“With little progress on the fiscal cliff talks (LITTLE SURPRISE HERE, THERE WILL BE NO SOLUTION UNTIL THE VERY LAST POSSIBLE DAY) and few surprises in this week’s economic data, the Fed meeting was this week’s big story. Policy changes announced in Wednesday’s Fed statement raised investor concerns about higher future inflation, and resulted in mortgage rates ending the week a little higher.

The Fed announcement contained two major policy changes. The first, which was widely expected, is that the Fed will purchase $45 billion per month of long-term Treasury securities beginning at the start of 2013 to replace the Operation Twist program which expires at the end of this year. (THE FED WILL CONTINUE TO PAPER OVER THE ECONOMY UNTIL THE MARKETS DON’T ALLOW THEM TO, NO SURPRISE HERE)

This will be in addition to the $40 billion of mortgage-backed securities that the Fed now purchases monthly. The second change from the Fed was not expected. For the first time, the Fed announced that it will keep the fed funds rate at very low levels until certain economic targets are reached. Specifically, the fed funds rate will remain low until unemployment falls below 6.5% and inflation tops 2.5%. (THIS IS ASTONISHING TO ME, THE FACT THAT THEY’D ACTUALLY GO ON RECORD AND SET A TARGET IS AMAZING. AND ALSO FOOLISH. UNTIL THE GOVERNMENT GETS OUT OF THE WAY AND LETS THE MARKET CORRECT, WE WON’T SEE JOB GROWTH).

Despite four years of extraordinary levels of Fed stimulus, the economic data released this week revealed that inflation is not a problem right now (IN PLAIN ENGLISH THIS MEANS THE FEDS CANNOT STIMULATE THE ECONOMY AFTER 4 YEARS OF TRYING).

This week’s data showed that Core CPI, the most widely followed measure of inflation, was only 1.9%. The concern for investors after the Fed statement is that the Fed appears to be willing to tolerate a higher level of inflation in its efforts to boost the economy, and inflation is negative for mortgage rates. (SO IT SEEMS THE BOND MARKET HAS MORE FAITH IN THE FED’S ABILITY TO CAUSE INFLATION/GROWTH THAN THE REAL WORLD).”

Well, good luck to all of us. After four years of printing more money and issuing massive debt, all at record levels, we are no better off. Shouldn’t some people lose their jobs over all this failure?