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Monthly Archives: May 2009

As we continue the buying spree of Treasuries under the auspices of the Federal Reserve Bank and there is growing evidence that economic growth will be much more gradual than first anticipated, hyperinflation- the sum of all economic fears remains a risk.  Ben Stein, in his latest piece from the NY Times, takes a glimpse of the future following the subsequent collapse of the American economic system.  He identifies the primary source of decline- a political class that, under the guidance of a stimulus-oriented Obama administration, undermines the entire economy through spending sprees and a degradation of the currency.  Although the collapse of the dollar may not come in weeks, there has been strong momentum lately in world currency markets that signifies a reversion to dollar-denominated assets.  Yields on 10 and 30 year treasury bonds have been surging, indicating an exhaustion of investors willingness to fund this debt-ridden nation.  There has been no real political leadership on this issue, either.  As KargBlog evolves, we will shift our focus to this very real possibility of runaway inflation and the indicators which could signify such events.

Back to blogging…  Much of the recent talk of “green shoots” in the economy can be accurately dismissed as noise.  Noise in that we do not know what numbers coming from housing and unemployment are fuzzy math or adequate measures of the real economy.  There is no doubt that there will not be significantly better numbers in jobless claims for a long while and the effects of those numbers will drag on (foreclosures, retail spending).  However, the financial markets have continued to prove resilient.  Despite last week’s setback, the S&P 500 is up approximately 30% since the beginning of March, and financials are leading the way.   One forward indicator we may be overlooking but just as important, if not more, than equity indices is the steepened yield curve.  A steepened yield curve is historically a proven leading indicator of a strong economy moving forward.  As Caroline Baum from Bloomberg notes, the yield curve is a very good predictor of future economic conditions, regardless of the Why?.  For instance, as she writes, between 2006 and 2008 policymakers were terribly vexed as to the reasons that there was an inversion in the yield curve and longer term rates were being dragged lower than shorter maturity treasuries.  The most widely given reason was increased purchases of the longer term securities by Chinese investors.  Regardless of the reason, the inverted yield curve predicted a major economic disruption that equity indices were late in the game to acknowledge.  So, taking history as a clue, one could discount the barrage of news stories that pundits are claiming as green shoots and simply look at these ever-so-important spreads.

Douchebag?

Douchebag?

Major D-Bag

Major D-Bag

Pick-A-Douche

Pick-A-Douche