Does the bond market shows low inflation expectations?
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M$2 Answers
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M$
Barron's Magazine.
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M$
1. Will the dollar gain strength against the euro and yen? (Yes) - US economy will stronger in manufacturing than Europe and Japan.
2. Will commodity prices drop as manufacture capacity remains low domestically? (Yes)
3. Has the China economy heated up causing a commodity bull (Yes) but it will be temporary. Will commodity boom last? (No) (Commodities have heated up because the Chinese government is subsidizing but consumption but performance levels can't be sustained long term)
4. Have 5,10,30 bond yields increased (Yes)
5. Has the stock market increased in volume (Yes) Will Stock growth continue into 2011? (No)
6. Has consumer confidence increased (No)
7. Have banks started lending more money (No) Banks are lending to large companies and avoiding medium and small companies
8. Is unemployment still high (Yes)
9. Will there be more unemployment surges (Yes)
Conclusion:
1. Inflation has increased slightly
2. The fed is desparately fighting depression economics
3. Depression economics are the natural consequence of too much debt. Stimulus spending does not stop depression economics. It takes time to heal from debt. Debt is temporary and eventually forgiven or paidoff.
The fed spent $465 billion purchases in MBS. The plan is to spend $1.25 trillion. The expected result is for every trillion spent on MBS, one percent drop in yield rates. The spending will short term drop rates, a mini recovery will start, and then inflation will rise. I was surprise that the media claimed inflation was rising and the market was looking out years, instead of months, at the potential for inflation.