Rates improved today as mortgage bonds continue their upward price movement from yesterday as demand for US Treasury debt increases somewhat…from what appears to be risk averse money coming out of Europe. Today brought some positive economic news with Leading Economic Indicators showing marked improvement in a number of areas within the economy … of course the continuing housing mess and high unemployment aside. Pundits are viewing the passage of the pork laden tax-cut extension plan by the much maligned and gridlocked congress (the one that President Obama is scheduled to sign later today) as a positive for business and for equities but much less certain for the debt markets.
It is very hard to get a read on the bond market this morning as the positive economic growth data dump should provide upward pressure to rates…but that has not materialized as of yet … thankfully. Although the US has its own looming and massive sovereign debt crisis of its own and a central bank hell bent on destroying the US Dollar and monetizing our government debts, the growing sovereign debt mess in Europe should drive safety seekers back to the US dollar temporarily and increase the demand for Treasuries….pushing up prices and driving down yields. At some point, however, in this evolving, slow motion sovereign debt and monetary crisis, the market will not whiplash back and forth between the crises on opposite sides of the Atlantic but will merge its view of the overall crisis into one singularity. That transition will telegraph the next phase of the crisis.
The tax rate extensions (in existence for 10 years now), the small new tax rate reductions and the pork spending should be a boon for stocks in the very short term, but so far today the DOW is trading in negative territory. Go figure. The Fed has made it clear that the improving economic indicators are not strong enough to withdraw QE2 or the proposed QE3 or the myriad of other schemes the Fed has employed to pump up the money supply. As we have discussed before, these Fed schemes are highly inflationary and form the argument on broader macro-economic trends that still look to be very negative for the longer term value of the US dollar and for bonds in general and mortgage rates in specific. The bond market really is ground zero in this war..so pay close attention and learn all you can about the debt markets. Remember … only 7 shopping days left people!
In the news today…(Click on the Market Headlines attachment for more detail)
- Congress Passes $858 Billion Tax-Cut Extension Plan
- Leading Indicators in U.S. Gain by Most in 8 Months
- Fed policy makers said economic growth isn’t strong enough to bring down the unemployment rate
- Moody’s Puts 6 Greek Banks on Review for Possible Cut
Reading Suggestion for Today… Constitution of Liberty, Friedrich A. Hayek
In this classic work, Hayek restates the ideals of freedom he believes have guided, and must continue to guide, the growth of Western civilization. Hayek's book, first published in 1960, urges us to clarify our beliefs in today's struggle of political ideologies.
In this classic work, Hayek restates the ideals of freedom he believes have guided, and must continue to guide, the growth of Western civilization. Hayek's book, first published in 1960, urges us to clarify our beliefs in today's struggle of political ideologies.
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