Great, great article. But hey, I may just be biased and all the empirical data cited is fabricated. I mean, I know the permabulls don't think economic fundamentals, such as consumer spending, matter when it comes to earnings and equity market performance. Nor do capital inflows or outflows, I guess. Nor does the willingness of banks to lend money. http://www.bloomberg.com/apps/news?pid=20601087&sid=aHEC_V2WPS_k&refer=home Treasuries Rise on Speculation Report Will Show Slowing Growth By Wes Goodman and Aaron Pan March 19 (Bloomberg) -- Treasuries rose, halting a tumble from yesterday, on speculation a central bank report tomorrow will show manufacturing shrank for a fourth month, a sign that credit-market losses slowed the U.S. economy. Two-year notes gained after the biggest loss since 2001 as Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. is facing a financial crisis and interest-rate cuts will do little to help. The Federal Reserve reduced its benchmark rate by 75 basis points to 2.25 percent yesterday, with futures showing 50 percent odds of another half-point move by June. ``You're still going to have the flight to quality,'' supporting Treasuries as credit losses spread, said Roger Bridges, who oversees the equivalent of $5.59 billion as head of fixed interest at Tyndall Investment Management Australia Ltd. in Sydney. ``There have been various times when we thought the all clear could have been sounded on the U.S. economy and it hasn't happened.'' The two-year yield fell 9 basis points to 1.53 percent as of 2:27 p.m. in Tokyo, according to bond broker Cantor Fitzgerald LP. The price of the 2 percent security due February 2010 rose 5/32, or $1.56 per $1,000 face amount, to 100 28/32. Ten-year yields increased 5 basis points to 3.45 percent. Treasuries extended gains on speculation that another unspecified hedge fund is in trouble, said Kenny Borowicz, a bond-futures broker at MF Global Singapore Ltd., part of the world's largest broker of exchange-traded futures and options contracts. Great Depression The two-year yield was 72 basis points less than the Fed's target for overnight bank lending, near the smallest difference since October. The deficit was as much as 1.90 percentage points on Jan. 21, the day before the central bank made an emergency 75 basis point cut in borrowing costs. A basis point is 0.01 percentage point. The difference, or spread, between two- and 10-year yields was 1.92 percentage points, widening from 1.88 percentage points yesterday. The increase reflects greater demand for shorter maturities, which are more sensitive to interest-rate changes. The Fed has brought its benchmark down 3 percentage points since September as it tries to address a financial market meltdown tied to a housing slowdown and defaulted subprime mortgages. ``This is clearly the worst financial problem we've had since the Great Depression,'' Stiglitz told Radio New Zealand today from Auckland, where he's attending a conference. ``That has to have very major ramifications for the American economy and the global economy.'' TED Spread Banks' willingness to lend declined, according to the so- called TED spread, the difference between what lenders and the government pay to borrow for three months. The spread widened to 1.66 percentage points, the most this year. Treasuries tumbled yesterday after the Fed cut rates and said measures of inflation are ``elevated.'' Stocks rallied after the Fed's decision and on higher earnings, with the benchmark MSCI Asia Pacific index of regional shares gaining 2.2 percent. The gap between yields on 10-year Treasury Inflation- Protected Securities, or TIPS, and similar-maturity conventional notes widened to 2.40 percentage points from 2.27 percentage points before the Fed meeting. The difference reflects the rate of inflation traders expect for the next decade. ``We've reduced our holdings,'' said Marc Fovinci, who helps oversee $2.8 billion as a portfolio manager at Ferguson Wellman Capital Management Inc. in Portland, Oregon. ``With all the Fed has done to keep the financial markets on an even keel, the economy shouldn't go into a tailspin.'' Cheap Levels The Fed Bank of Philadelphia's manufacturing index may be minus 18 for March, versus minus 24 in February, according to the median forecast in a Bloomberg News survey of economists before the report. Readings less than zero signal contraction. Futures on the Chicago Board of Trade indicate a 50 percent chance the central bank will cut its rate by another half point to 1.75 percent by its June meeting. The odds of a quarter-point cut in April were 38 percent. ``Some market participants view these levels as cheap, with the Fed still in play to move rates lower in the future,'' said Borowicz at MF Global.