The Credit Crisis Financial Stocks Short Journal

Rogoff debunks 'rates are low lets spend' ideology
http://www.ft.com/cms/s/0/6571e6c8-93f5-11df-83ad-00144feab49a.html
"Indeed, it is folly to ignore the long-term risks of already record peace-time debt accumulation. Even where Greek-style debt crises are unlikely, the burden of debt will ultimately weigh on growth due to inevitable fiscal adjustment. The fact that the markets seem nowhere near forcing adjustment on most advanced economies can hardly be construed as proof that rising debts are riskless. Indeed, the evidence generally suggests that the response of interest rates to debt is highly non-linear. Thus, an apparently benign market environment can darken quite suddenly as a country approaches its debt ceiling. Even the US is likely to face a relatively sudden fiscal adjustment at some point if it does not put its fiscal house in order."
 
Vince Reinhart and Alan Blinder(both ex-fomc) say that Bernanke cant do much in terms of saying the Fed will ease more because he cant speak for the committee. I believe that is true but only up to a point, back in 2008 when the rate was at 2%, Bernanke in a speech after LEH failure said something to that effect 'the committee will have to analyse further easing of monetary policy', which translates to 'ease or dissent the chairman'. If he pulls something like that today I'm sure a ton of FOMC people will suddenly 'change their mind'
 
Quote from Daal:

Rogoff debunks 'rates are low lets spend' ideology
http://www.ft.com/cms/s/0/6571e6c8-93f5-11df-83ad-00144feab49a.html
"Indeed, it is folly to ignore the long-term risks of already record peace-time debt accumulation. Even where Greek-style debt crises are unlikely, the burden of debt will ultimately weigh on growth due to inevitable fiscal adjustment. The fact that the markets seem nowhere near forcing adjustment on most advanced economies can hardly be construed as proof that rising debts are riskless. Indeed, the evidence generally suggests that the response of interest rates to debt is highly non-linear. Thus, an apparently benign market environment can darken quite suddenly as a country approaches its debt ceiling. Even the US is likely to face a relatively sudden fiscal adjustment at some point if it does not put its fiscal house in order."
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Pettis had a nice piece about if sovereign debt ratios are good predictors of default. Obviously, they are a factor, but not as much of one as you might think. Good stuff.

http://mpettis.com/2010/07/do-sovereign-debt-ratios-matter/
 
There might be some truth to this
'Reducing the interest rate on reserves would be “more problematic than stimulative,” Joseph Abate, a money-market strategist at Barclays Capital Inc. in New York and former Fed researcher, said in a report.

A reduction would lower yields as banks used their reserves to buy Treasury securities, encouraging the departure of $500 billion in deposits from money-market mutual funds, Abate said.'

http://noir.bloomberg.com/apps/news?pid=20601110&sid=aH76LXcFTyYI
 
http://krugman.blogs.nytimes.com/2010/07/21/notes-on-rogoff-wonkish/#more-10782

Krugman debates rogoff article. Provides a valid criticism for the 90% debt to gdp relationship but acts as if that criticism somehow made Rogoff study useless and pilling on debt ok for growth. Its like someone says 'because I disagree with the method of your trans fat study on human hearts, its okay to have high transfat diets'

Then says this
"And then the question is, given whatever long-term solution you’re proposing, how much difference does a few percent of GDP more or less in current spending make to the feasibility of that solution? The answer, almost surely, is not much: at current interest rates, a trillion dollars of spending would add at most around 0.1 percent of GDP in real interest payments, and might actually improve the long-run budget position if a stronger economy now means less long-run damage"

Somehow implying that deficits does not contribute to rising interest rates. Yes rates are low, but they were likely to be even lower had the deficits not been as big. There is a correlation between deficits and bond yields, its not as strong as inflation or fed policy but its significantly above 0(0.39 IIRC)

And to finish he lays this really silly argument
"And there’s also the invisible bond vigilante thing, the claim that markets are going to demand that you have immediate austerity even though the math says that it’s more or less irrelevant to the real fiscal problem."

I'd say the math is irrelevant, the bond market is not a Keynesian running a portfolio with a copy of the general theory in his desk. When people see governments spending going wild they will get worried, it doesnt matter that there is speculation on the final outcome being good being done by some Keynesian economist

He acts as if the US congress could announce a $5T spending project tomorrow backed by Keynesian work that would 'pay for it self because we are in a liquidity trap' and nobody would mind, as if the congress had much credibility with the markets
 
Amazing, ZQ from Jul 2010 to Jan 2011 are all virtually trading in the same level. First time I've even seen something like this
 
I think its time to fade the deflation trade for a little while. I bought a few puts on 2011 Eurodollar futures over the past couple of days. Bought a few puts on TBonds as well. Talk of deflation is everywhere and the short term interest rate markets are stacked at nearly the same price going way out.

At the same time as all of this, much of the economic news isn't confirming, especially in Europe, where the power of currency devaluation has been made evident.

Fade devaluation for a trade
 
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