Interest rates USA, must be on up trend

[icm63]

Ok, CPI has bounce back to 3% from -2%. Fed QE is ending in March ( I think), and there is $2T of the stuff to sell before year end.

The long term bonds are ticking up..(TBT, PST etfs).

BUT..some say look at Japan, there rates stayed low at 2% or so for years, .... So can USA long term rates stay low like Japan, or are we off the to interest rate races ! Say 4.5% on the 10yr and 5.5% on the 30 yr???

[GRG55]

Re: Interest rates USA, must be on up trend

Ok, CPI has bounce back to 3% from -2%. Fed QE is ending in March ( I think), and there is $2T of the stuff to sell before year end.

The long term bonds are ticking up..(TBT, PST etfs).

BUT..some say look at Japan, there rates stayed low at 2% or so for years, .... So can USA long term rates stay low like Japan, or are we off the to interest rate races ! Say 4.5% on the 10yr and 5.5% on the 30 yr???

So do you think that rates are heading up temporarily in a display of the volatility we are witnessing in all markets? Or do you see them heading up as part of a secular trend? The investment implications are significantly different under these two alternative circumstances...

[Starving Steve]

Re: Interest rates USA, must be on up trend

So do you think that rates are heading up temporarily in a display of the volatility we are witnessing in all markets? Or do you see them heading up as part of a secular trend? The investment implications are significantly different under these two alternative circumstances...

My guess is that Bernanke will be replaced at the Federal Reserve Bank; that will be the big story of the year 2010. I would also posit that interest rates will be dragged higher by the market, regardless of what Bernanke wants. Inflation will be back. All of this will lead to the removal of Bernanke from the Fed.

We already have negative real interest rates: almost 3% inflation with a 0.25% Federal-funds lending rate equals -2.5% real return on money, or even worse. And that is the cost of money to the banks. The stink from Bernanke's failed policy is unbearable at this point. Bernanke's days of QE are over. He is finished at the Fed.

Imagine as inflation ticks higher during 2010, what the real return on money is going to be. This is a disaster that is now ready to unfold!

[GRG55]

Re: Interest rates USA, must be on up trend

My guess is that Bernanke will be replaced at the Federal Reserve Bank; that will be the big story of the year 2010. I would also posit that interest rates will be dragged higher by the market, regardless of what Bernanke wants. Inflation will be back. All of this will lead to the removal of Bernanke from the Fed.

We already have negative real interest rates: almost 3% inflation with a 0.25% Fed rate equals -2.5% real return on money, or even worse. Bernanke's days of QE are over. He is finished at the Fed.

I doubt there's any real danger of Bernanke being removed from the Fed.

The danger to Ben, I suspect, is that parts of the Fed get removed from Bernanke...;)

Bernanke battles Senate efforts to strip Fed of banking oversight

JEANNINE AVERSA
AP Economics Writer
2:49 p.m. CST, January 14, 2010

WASHINGTON (AP) — Federal Reserve Chairman Ben Bernanke waged a fresh battle against Senate efforts to strip the Fed from banking supervision...

..."Elimination of the Federal Reserve's role in supervision would severely undermine the Federal Reserve's ability to obtain in a timely way and to evaluate the information it needs to conduct its central banking functions effectively," according to the [Fed] paper...

[Quincy K]

Re: Interest rates USA, must be on up trend

I would assume that the Vegas line on Bernanke being replaced at the FED would be close to 50-1.

As for the -2.5% real return on money, exactly what is anyone going to do about it? Stop buying our Treasuries?

That's okay because we'll just keep buying them ourselves.

[icm63]

Re: Interest rates USA, must be on up trend

So I restate my question: If japan could keep there 10yr low through there money print years, can the USA ?

Or was the deflation sickness the reason Japan's 10 rate was so low.. and that USA does not have reported deflation ( not yet knock on wood)..thus rates will rally soon !

[c1ue]

Re: Interest rates USA, must be on up trend

If japan could keep there 10yr low through there money print years, can the USA ?

Yes. But to quote the maestro:

We can guarantee cashTreasuries/Fannie/Freddie/deposits, but we cannot guarantee purchasing power!

Japan had a currency account surplus and was not borrowing externally - this made it possible to do their own thing for 10+ years.

The US is already artificially holding down interest rates - both via Fed funds rate, Treasury rates via Fed buying, and mortgage rates via Fannie/Freddie.

The only question is when the resulting inflation becomes noticeable to the sheeple. This might be a long time depending on the stupidity involved. 10 years is feasible, but then again it might not be. :rolleyes:

[metalman]

Re: Interest rates USA, must be on up trend

..."Elimination of the Federal Reserve's role in supervision would severely undermine the Federal Reserve's ability to obtain in a timely way and to evaluate the information it needs to conduct its central banking functions effectively," according to the [Fed] paper...

should have thought of that before... back when the fed blew off its responsibility to supervise the banks. use it or lose it.

not that the fed was the only one. recall... Twenty One Flavors of Mortgage Fraud - Howard Lax

[icm63]

Re: Interest rates USA, must be on up trend

How. CPI is already at 3%...last report.

So when the FED QE ends surely market reality will hit !

[c1ue]

Re: Interest rates USA, must be on up trend

So when the FED QE ends surely market reality will hit !

Who says the Fed's QE must end just yet?

Did not iTulip specifically state an expectation of additional Treasury buying programs at regular intervals?

Plus there are many ways to 'pump' besides outright Treasury purchases - the Fannie/Freddie guarantee increases for example.

Yes, when the music stops it will be ugly - and ever more ugly as the music prolongs, but prediction of the end presumes being able to predict clearly irrational long term behavior.

[GRG55]

Re: Interest rates USA, must be on up trend

How. CPI is already at 3%...last report.

So when the FED QE ends surely market reality will hit !

You appear to be referring to the y-o-y headline CPI number [actually 2.7% unadjusted], within which energy alone increased 18.2% y-o-y [gasoline and fuel oil increased 46.5% and 53.5%, respectively].

The "core" inflation rate increased "only" 1.8% y-o-y. As iTulip forecast there are now clear indications that inflation is becoming imbedded not only in non-traded services [as before], but also in traded goods. New automobiles increased 4.9% y-o-y, used automobiles increased 9.2% and transportation services [energy dependent to some degree] increased 3.9%.

The Fed QE is just one of the more prominent manipulations of the credit markets underway. Just because it "ends" doesn't mean:

1. other manipulations won't continue, and perhaps become more aggressive;
2. new manipulations won't be dreamed up and instituted by agencies other than the Fed;
3. the Fed won't be forced to reconsider and re-institute some form of "Credit Easing" [their definition].

Don't forget...this is an election year. Never, ever underestimate the desire of the politicians to be re-elected, and the lengths that they will go to to achieve that.

[icm63]

Re: Interest rates USA, must be on up trend

1. other manipulations won't continue, and perhaps become more aggressive;
2. new manipulations won't be dreamed up and instituted by agencies other than the Fed;
3. the Fed won't be forced to reconsider and re-institute some form of "Credit Easing" [their definition].

These are just toys, the FED has out right purchased $1.2T of there own poop since mar 09 (end is march 2010, they say). When this type of buying stops, foreign central banks must step up, sure they will but at what rates...I say 1% higher than current levels..

[hayekvindicated]

Re: Interest rates USA, must be on up trend

So I restate my question: If japan could keep there 10yr low through there money print years, can the USA ?

Or was the deflation sickness the reason Japan's 10 rate was so low.. and that USA does not have reported deflation ( not yet knock on wood)..thus rates will rally soon !

Japan had the highest savings rate in the developed world and the Japanese Ministry of Finance has for years ensured that the average Japanese investor cannot readily access investments in other countries. so, forced to choose between a deflating stock market bubble, a deflating property bubble and a government bond market offering some returns, what would you choose if you were an average Japanese investor with little knowledge of finance?

The position with the US is totally different as the US doesn't have the savings of the Japanese of the early 90s, a much higher budget deficit to start with and dependence on foreign creditors. The two countries are as different as chalk and cheese.

[icm63]

Re: Interest rates USA, must be on up trend

Japanese Ministry of Finance has for years ensured that the average Japanese investor cannot readily access investments in other countries.

Well why have the mum and pop japanese investors being buying bonds in AUS and NZ .. that seams to work !

But I get your point, that there market is not a free one !

[GRG55]

Re: Interest rates USA, must be on up trend

[/list]These are just toys, the FED has out right purchased $1.2T of there own poop since mar 09 (end is march 2010, they say). When this type of buying stops, foreign central banks must step up, sure they will but at what rates...I say 1% higher than current levels..

Which brings us back to the question I asked earlier in this thread...

So do you think that rates are heading up temporarily in a display of the volatility we are witnessing in all markets? Or do you see them heading up as part of a secular trend? The investment implications are significantly different under these two alternative circumstances...