Bond Market Worried
The stock market tried to figure out what the latest Fed moves meant to it, and after being down most of the day, it ended up slightly. This is the normal noise in the stock market, and it is to be ignored.
The Bond market on the other hand decided it really didn’t like what the Fed is doing. It has been 3 days in a row that 10 Year Treasury interest rates have increased. Does this sound counterintuitive?? The Fed just dropped the Fed Funds rate right? Why didn’t the 10 year drop too? Well, the 10 year interest rate is projecting what the market thinks our economy will be looking out about 10 years from now, and it doesn’t like it. It doesn’t like the Fed move, and the way the Fed announced the move. It doesn’t like the uncertainty introduced by the Bush Plan. It doesn’t like today’s PPI being so high (including energy and food). There are rumors floating around the bond market that tomorrow’s CPI will be extraordinarily high too. So, the bond market interest rates move up. The message is: Inflation could be coming down this road – even if we go into a recession next year.
If that is true, the Fed will continue dropping interest rates, and the longer term rates will continue increasing. Not a pretty picture.
Here are some details on the PPI increase.
A record jump in gasoline prices pushed wholesale inflation (the PPI index) up by the largest amount in 34 years. The Labor Department said Thursday that wholesale prices soared by 3.2 percent last month, propelled by a record 34.8 percent rise in gasoline costs. (one of my favorite hates.) Even outside energy, inflation pressures emerged. Core inflation, which excludes energy and food, posted a 0.4 percent rise in November, double what had been expected.
Don’t get too excited about the PPI going up so much — unless it happens again next month. Then you should worry a lot. The PPI jumps around a lot from month to month, so one month should be ignored, but not two.
Business is slowing down in the US
In a Commerce Department report, business inventories grew by just 0.1 percent in October. That was far below the 0.4 percent rise that had been expected and was the weakest showing since inventories were unchanged in March. The small rise in inventories was seen as an effort by companies to control inventories in advance of an expected period of sluggish growth.
Don’t miss the importance of this report. It means that business is slowing down. This is a small sign of that recession that people are trying to “hope away.”
And here is what Alan Greenspan thinks of the future.
Former Federal Reserve Chairman Alan Greenspan says the odds the
Greenspan said, “We are far more vulnerable at levels where growth is so slow than we would be otherwise. Indeed, it’s like someone who has an immune system that’s not working very well is subject to all sorts of diseases and the economy at this lever of growth is subject to all sorts of shocks.
Alan Greenspan’s words really speak for themselves. He is warning that we are on the brink of a recession, and any little problem could push us into it.
Here are Thursday’s closing details:
