Fed will prefer slow growth and high inflation, since servicing debt is a main cost in US. IE : weak dollar policy. At some point, this will backfire and bond rate will go up and we will be in stagflation and high interest rate era. One thing will come out of this is : anyone earning a salary will be a lot poorer and trade deficit will go down. I think Fed is willing to fight only wage inflation, not commodity inflation.
recent bond auctions for Port Authority, student loans, etc. are already signalling this to be the case. A "free market" rate that properly adjusts for potential defaults and/or inflation is MUCH, much higher than people can imagine.
The reality is todays market draws undeniable parrallels between 1970s US AND 1990s+ Japan. Jacked oil, commodities, more rate cuts on the way with massive Gov debt still printed. This is all very stagflationary. Like Japan in the 1990's, we're in a liquidity trap today. US lenders got the most exposure on shit CDO's. To recoup losses, lending was restricted despite lowering Fed rates. The result is an effective rate of interest for the general economy that is much higher than the Fed funds rate. And very recessionary. The Congressional bailout package is unofficial confirmation we're in a liquidy trap and embodies an attempt to short circuit it. Demand side - Bernacke has made every indication (both academic and professional) he intends to inflate us out of a slowdown. Treasury has no problems with bail outs. Dont be surprised if more tax cuts or war on the horizon. The only arguments for a severe deflationary scenerio are Government unwillingness to devalue the dollar or handout money. Bernacke, Paulson, Bush and the entire Congress are willing to do both.
someplace on friday i caught the tail end of a comment or report that municipalities couldn't float 30 day cash management paper due to no bids.... the ABK MBIA situation is growing fangs....
agree dadyo. The Student Loan situation is a little alarming. The big banks, which are about bust IMHO, have stated they will not stop lending for University. Cough Cough.
The demand for milk took a steep increase, primarily because of export demand for dry-milk (primarily China) as well as other milk products. Naturally, American dairymen increased production to meet demand. The limiting factor, is not so much enough cows, but not enough milk processing facilities. I know of dairymen having to dump milk because of not enough creamery capacity (I know of one dairyman having to dump 15,000 gallons of milk on any given day because of too much supply at the processor plant. It is difficult to increase processing capability because of all the government environmental laws which can take years to wade through. Dairymen are squeezed by lack of processing facility capacity and the doubling of feed cost do to ethanol demand for competing feed-stocks. I don't see any significant drop in the price of milk at retail anytime soon.
Thought I'd dig up this relic to see how my call turned out. The lowest performing Commodity Index since Feb 14th is the RJ/CRB. Up ~17% The highest performing Commodity Index since Feb 14th is the S&P GSCI. Up ~27% Not a bad 5-month return on a fundy trade.