Did Bernanke just change expectations today?

S

scriabinop23

Look at the 30 yr bond and the Fed Funds.

Put in your opinion. One day event? Or beginning of a new trend for mounting inflation expectations ?
 
Quote from scriabinop23:

Look at the 30 yr bond and the Fed Funds.

Put in your opinion. One day event? Or beginning of a new trend for mounting inflation expectations ?
More...

Expectations changed with the bond top several days ago.
 
Quote from scriabinop23:

Look at the 30 yr bond and the Fed Funds.

Put in your opinion. One day event? Or beginning of a new trend for mounting inflation expectations ?
More...

I was a lucky guy today when I read about 120.000 OTM call spreads trading in the Bunds :

http://www.elitetrader.com/vb/showthread.php?threadid=205717

But to answer your question :

he did not change inflation expectations. He changed growth expectations. To talk about any sort of inflation in the moment is way too premature. Let´s wait and see how the Christmas rally ends and let´s talk again at the end of December ! :)

And here is uncle El Erian from PIMCO with his assessment - as usually self serving ( but PIMCO has been selling into the latest T Bond rally), so expect them to slow down with their public appearances... ;=)
 
Quote from ASusilovic:

I was a lucky guy today when I read about 120.000 OTM call spreads trading in the Bunds :

http://www.elitetrader.com/vb/showthread.php?threadid=205717

But to answer your question :

he did not change inflation expectations. He changed growth expectations. To talk about any sort of inflation in the moment is way too premature. Let´s wait and see how the Christmas rally ends and let´s talk again at the end of December ! :)
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i agree. we'd hav to c growth b4 we can begin to talk about inflation; however inflation does seem to b around the corner.

wut else can the fed do????
 
It's hard to see how it can be anything else but a one day thing or at best a short retrace to the lower trend line or some support in which case the bubble continues. Yeah growth at 1.6% was better than 1.4% but it was cut from 2.4%. With these numbers where else are investors to put there money except in U.S. debt.

However...

This is from the Wall Street Journal editorial from over a year ago...

"The Obama Administration's epic spending spree means the Treasury will have to float trillions of dollars in new debt in the next two or three years alone. ... No wonder the Chinese and other dollar asset holders are nervous. They wonder--as do we--whether the unspoken Beltway strategy is to pay off this debt by inflating away its value. ... It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors, otherwise known as the financial markets. When in doubt, bet on the markets."

It seems they have been spot on with China confirming by diversifying out of US dollars.

http://blogs.reuters.com/great-debate/2010/08/19/flight-to-safety-eases-china-diversification/

The WSJ line... "It's not going too far to say we are watching a showdown between Fed Chairman Ben Bernanke and bond investors" troubles me.

Is it possible that eventually enough investors will take China's lead and not buy the US treasurys especially with the possibility of more QE? I don't think today's price action reflects this because of the rally in the equities. But give it a couple of day's or weeks to sink in. I think the continued fall in equities and fall in treasuries will confirm this. In which case it is another arguement to why we may not see the rally in equities this fall which is best 50/50.

Also keep in mind next week leads to the holiday weekend and may effect next weeks price action.
 
I must admit that I do not really understand why so many seem to have been so pleased with what Bernanke had to say on Friday. Maybe there was something in his speech that I missed.

I did not expect him to say that he was afraid of a double dip into recession, had he done that the Dow might have sold off 500 points or so. So of course he will try to say something "positive" for the economy and the markets. Especialy since the administration needs some good headlines concerning the markets and the economy at this point.

Bernanke also made statements that if the economy started falling back into a recession the FED will act. I am wondering exactly how effective the remaining tools that they have will be?
If the main reason that companies are hoarding cash and not expanding and hiring, is because they lack confidence in the economy and govt policies, how will more liquidity in the system, via the FED buying mortgage bonds, promote more corporations to borrow funds and expand? In this environment how would corporations, many of which already have cash, benefit from increased liquidity or anything that the FED can do? As far as the already deeply indebted American public, can they borrow more and should they? How will home buying increase when the few people who are qualified to buy a home, and need, one are still waiting for price drops?

It seems that increased gridlock in Washington is what many corporations are placing their hopes on. I just wonder if this is a time when the nation really needs gridlock and will that really help the economy? It seems that we may be entering a time when action is needed more than ever before and the best that we can get is a "nothing done".
 
I just don't understand why we even care about what Fed does.

When economy is good, businesses are hiring and expanding, the Fed expands their credit (print money)

When economy is bad, business layoff and contracting, the Fed also expands their credits (print money)

It seem their only solution is to print money no matter what happens.
 
Quote from MoreYummy:

they tighten the liquidity when economy is hot.
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Yes, they tighten the liquidity. That doesn't meant they they stop printing. They just make money less cheap.
 
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