Tuesday, December 27, 2005

 

Yield Curve Inverts

The yield curve finally inverted this morning. "The yield on benchmark 10-year US Treasuries fell below that of 2-year notes, inverting the yield curve for the first time since December 2000. An inverted yield curve has often preceded an economic slowdown, sparking worries that the U.S. economy could lose steam soon and spell trouble for the dollar."

"The yen fell against the dollar and euro on Tuesday in choppy trading as the outlook for a prolonged period of near-zero interest rates in Japan prompted investors to seek higher yields elsewhere. The dollar was up around 0.8 percent at 117.07 yen , bringing its gains this year to more than 14 percent."

"Market participants said the yen could continue to suffer amid zero interest rates. Japanese rates have been stuck around zero for nearly five years. The Fed, in contrast, has repeatedly lifted rates since last year, bringing its fed funds rate to 4.25 percent."

"The European Central Bank raised rates earlier this month to 2.25 percent, its first tightening in five years. Some traders think the yen will see little benefit even if the BOJ raises rates once or twice as there would remain a huge yield gap between Japan and the rest of the world."

"And Market Watch has this on gold. "Gold futures rose Tuesday, pulling the broader metals sector higher, amid forecasts of continued strong physical demand from China, India and the Middle East."

"Gold for February delivery was recently trading up $4.80 at $510 an ounce on the New York Mercantile Exchange. The metal had pulled back to as low as $492.30 last week as traders locked in gains ahead of the year end. Silver futures were last trading up 14 cents at $8.785 an ounce. Platinum was up $3.70 at $969 an ounce and palladium rose $2.45 to $260 an ounce."

Comments:
Being in manufactureing, the smell of smoke from this inversion started in october. It's manifistation is no different from the last inversions.

I think that we could be prepareing to print money and raise interest rates further. This should put China in a sticky situation, where if they dump US treasuries and other financial vehicles(MBS etc.), they lose the largest consumer of their goods, where if they hold them they hold paper thats declining in value.

Devalueing the US Dollar may be the FED's only way to let the American Consumer of the hook for their debt(consumer=voter, and unfortunately they care about that).

It is just an opinion obviously but hiding the M3 allows them to devalue everyone's holding of Tresuries, and attempts to keep secret ther doing's, while raising interest rates gives the illusion of keeping the dollar strong.

Interesting note: this morning on the open on Bloomberg, individual in the pits was asked who was buying all those S&P futures on the open, the reply was more than vague it was basically non-existant. PPT back at work helping Banks/Funds/etc...make there year end statements??

The next 36 months are gonna seperate the Men from the Boys.

Good Luck to All
 
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