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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Michael Pento
April 19, 2010
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The Fed’s program of buying $1.25 trillion in MBS caused rates to fall to 4.71% in December of 2009. However, since their departure from the market, thirty year fixed mortgage rates have already jumped to 5.21% last week, which was the highest level in nearly eight months and up from 5.08% in the week prior.

Unfortunately, this is just the beginning of interest rate woes as we now see the warning signs of burgeoning inflation all around us.

The Institute of Supply Management’s prices paid index surged in March from 67 to 75, oil prices are up 65% in the last 12 months and gold has reached a 4 month high as it creeps back towards its all time high of just over $1,200 per ounce. Even base metals such as copper and iron ore have seen their prices surge recently. But for the Fed theses warning signs are just things to ignore. Instead of dealing with our inflation problem they are choosing to seek refuge in the stubbornly high unemployment rate and the troubles in Greece. However, people sitting home and being unproductive in the U.S. or in Greece cannot obviate the need for the Fed to eventually deal with their mandate of providing stable prices.

Unlike his counterparty in Australia Glenn Stevens, who recently raised rates to 4.25%, Ben Bernanke seems undaunted by the warning signs all around him. In a speech he made in Dallas last week he said this, “The economy has stabilized and is growing again, although we can hardly be satisfied when 1 out of every 10 U.S. workers is unemployed and family finances remain under great stress.” And if investors still need further conviction regarding the dovish mindset of Mr. Bernanke there’s this, “We have yet to see evidence of a sustained recovery in the housing market. Mortgage delinquencies…continue to rise as do foreclosures.” He is correct about the real estate market. Lender Processing Services (LPS) data released today showed mortgage delinquencies rose to 10.2% and foreclosure inventories reached a record high 3.31%!

Of course what’s most troubling is that none of Bernanke’s concerns have anything to do with inflation.

Not to be out done, New York Fed President William Dudley said on April 7th that the Fed Funds rate “needs to be exceptionally low for an extended period to contribute to easier financial conditions to support economic activity.” What these Phillips Curve thinkers believe is that a weak economy along with falling home prices equates to deflation. The truth is that those factors can lead to deflation but are not deflation in of themselves.

It is clear that the Fed isn’t moving anywhere on rates in the near term. However, market forces are taking rates up on the long end of the curve. Rates are being pushed higher by three forces; the superficial recovery in the economy—which is prompting investors to cease seeking shelter in the bond market, a tsunami of supply issuance and a credible concern of an increasing inflationary threat.