Bernanke Is Clueless

The Apple Pie, flag waving, no bailouts for anybody Free Market capitalists on this thread (and I'm one) are missing an ultra salient point. It's actually the only point. The 2 year Treasury Note is 100 basis points cheap to Funds.

There are those who say Fed policy on the targeted funds rate should be in the hands of the market. Well the 2 year market (it's the biggest) has spoken. The verdict. It wants FOUR rate cuts in the next 2 years.

I happen to agree with Bernanke. However the market, the greatest arbiter of sentiment in existence, well it disagrees. Treasuries have been saying for years that the post 9/11 recovery is shallow, built upon asset inflation and that real inflation as measured by wages, is suspect. That's where we are. With credit cards maxed, home equity tapped and in a recession of sorts, their ain't going to be growth.


I suggest you inflation hawks short Treasury futures . It's a lonely crappy trade.....
 
LOL...nice.

What gets me is the claimed conservative dildo know nothings (read:AAA) who demand Govi intervention the second anything goes wrong.


Quote from Pa(b)st Prime:

There are those who say Fed policy on the targeted funds rate should be in the hands of the market. Well the 2 year market (it's the biggest) has spoken. The verdict. It wants FOUR rate cuts in the next 2 years.

I suggest you inflation hawks short Treasury futures .........
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Quote from Pa(b)st Prime:

The Apple Pie, flag waving, no bailouts for anybody Free Market capitalists on this thread (and I'm one) are missing an ultra salient point. It's actually the only point. The 2 year Treasury Note is 100 basis points cheap to Funds.

There are those who say Fed policy on the targeted funds rate should be in the hands of the market. Well the 2 year market (it's the biggest) has spoken. The verdict. It wants FOUR rate cuts in the next 2 years.

I happen to agree with Bernanke. However the market, the greatest arbiter of sentiment in existence, well it disagrees. Treasuries have been saying for years that the post 9/11 recovery is shallow, built upon asset inflation and that real inflation as measured by wages, is suspect. That's where we are. With credit cards maxed, home equity tapped and in a recession of sorts, their ain't going to be growth.


I suggest you inflation hawks short Treasury futures . It's a lonely crappy trade.....
More...

I can't disagree more - and I trade treasuries in size from short side for quite some time (of course a little painfully recently but opportunities are still there).

A. 2yr 100 bps below funds does not imply 4x 25bps cuts - check your math. These rates are completely different - and practically non arbitrageable. Since about 1.5yr we have Tsy below funds and that was in times of rising target....and inverted curve for most of the time.

B. even when trading FF futures you could see in the past 3 years that for 99% of time they understate hikes (or overstate cuts). Currently it looks like we should have 3x 25bps cuts by Jan08 as implied by cbot BUT! these numbers have nothing to do with unbiased estimate of (probable) cuts. It is simply a risk neutral probability implied by the market and reflect mostly other hedging needs of the street, e.g. buying financial stocks and hedging it with FF futures etc...

Finally, don't get your Bond trade to screw your judgement :)
good trading
cheers
 
Far be it from me to argue with your expert opinion, since I don't trade bonds at all. However, like a whole lot of people I still follow interest rates because they're so important.
As an exercise for myself, about a year ago I ran regressions of all the different markets from the early 80's until then and then from late '99 until then, to see what had changed.
Very interesting results. The S&P went from a strong uptrend to a weak downtrend. Gold stocks were almost exactly vice versa.
But two trends hadn't changed at all, almost: the Russell 2000, and the 10 year. In both cases, the 80's trend was still firmly in place. On that line, 4.16 is where the linear regression line is, and 4.73 is one standard deviation over. Now that we've busted through 4.73 pretty decisively, I'm figuring that the path of least resistance is down to 4.16.
Like I said, I don't trade this, so I don't have the feel for it that I would if I had actual money riding on it. But it sure looks like 4.16 is more likely than, say, 5.38, which would be two deviations over the trend.
 
with $600 billion in mortgage resets coming up in the next 9 months and a cliff diving housing sector.....the Fed. will have to do something

You'll know it's a bottom when the TV show "Flip This House" is renamed "Flip This Repo"
 
Quote from daddyeaux:

with $600 billion in mortgage resets coming up in the next 9 months and a cliff diving housing sector.....the Fed. will have to do something

You'll know it's a bottom when the TV show "Flip This House" is renamed "Flip This Repo"
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everybody who bought a house on mortgage and does not have money to repay it should burn in hell - the same goes for financial intermediary or prop desk that bought all this crap with a view to make 20%+ annualized yield and now wants to bail out.
Let's have few defaults and scandals - strong will survive. I do not see a reason why other (innocent) people should baild these idiots out either directly via taxes or indirectly via inflation.
 
Quote from dhpar:

I can't disagree more - and I trade treasuries in size from short side for quite some time (of course a little painfully recently but opportunities are still there).

I knew I felt a kinship with you.

A. 2yr 100 bps below funds does not imply 4x 25bps cuts - check your math. These rates are completely different - and practically non arbitrageable. Since about 1.5yr we have Tsy below funds and that was in times of rising target....and inverted curve for most of the time.

Two homes across the street from each other aren't arbitrageable either but one wouldn't pay a mil when an identical house is only 600k. The same way that one wouldn't lock up for 2 years at 4.25 if they thought they could keep rolling each night until summer of 2009 at anything resembling the current funds rate.

B. even when trading FF futures you could see in the past 3 years that for 99% of time they understate hikes (or overstate cuts). Currently it looks like we should have 3x 25bps cuts by Jan08 as implied by cbot BUT! these numbers have nothing to do with unbiased estimate of (probable) cuts. It is simply a risk neutral probability implied by the market and reflect mostly other hedging needs of the street, e.g. buying financial stocks and hedging it with FF futures etc...

You certainly have the motivation of participants down but I disagree that the "polling" can be skewed by hedgers. I think we do agree that Treasury prices are their own unique liquidity driven bubble. Most participants though do in fact look upon commodity inflation as nothing more than a few select cases. Clearly there's a pervasiveness toward the thought that the consumer is spent, job creation topping and that an American slowdown will hit Asia and then in turn bring down food and energy and as we've seen strengthen the dollar (non inflationary.)

Finally, don't get your Bond trade to screw your judgement :)
good trading
cheers

Thanks and likewise. My shorts are not only screwing up my judgement but calling into question my reason for existing.
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It seems like you guys might enjoy the gold standard. Once wealth is gone from the country, the country is poor and the road is long to recovery.

Bernanke will do something, let's see how long the system can go on. It's sad, because the democrat winning the election will probably not change anything about the system.
 
the world's CBs have dumped $400 billion on the problem with little to show for it........

the late rally today had the Plunge Protection Team's fingerprints all over it......
 
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