yes, there are certainly problems with the govt's version of consumer end prices. it doesn't capture housing inflation, or education or health-services inflation. but that doesn't mean it is meaningless. just perhaps not as all-meaning as they make it out to be.
i don't have an opinion on the ED. you may be right--obviously other CBs now want the USD to appreciate, and the one sure way is for Greenspan to raise the policy rate. whether they can make him do that, i do not know. can ED rise even without a change in the policy rate? it seems the easier adjustment for now is just the USD correcting down. it is a roundabout way of the market forcing a higher policy rate, it seems to me.
from what i gather from the likes of Hoisington, they do not really voice an opinion on the short rates. they are bulls on the long rates, as you know, because they think a significant rise is not sustainable (because the economy will tank).
that certainly leaves open the possibility of a curve flattening, or even inversion, perhaps, though i don't know if that is possible with our current Fed.
read the Bernanke speech, and can't ever recall reading or hearing more fuzzy thinking in my life
the thing is, Bernanke IS actually very smart, in an IQ sense. he is not the idiot he appears to be at all. this is why he will replace Greenspan by 2006 even though he is new to the Fed.
Bernanke is much more intelligent than people have been led to believe by all the stuff written about him in the "Bear Press". but the Bear Press cannot be blamed in a way--Bernanke intentionally dumbs down his stuff, i am convinced. he seems to have this theory about making the Fed more communicative.
thus i am sure Bernanke would recognize all the nonconfirming data points you raise. he probably just fits them into his theory somehow.
the obvious answer, in the case of commodities, is that they have basically tracked the dollar, plus there has been the China impact. if China falls apart, so will commodities (in the aggregate; the impact of Brazilian rain patterns on the price of this or that crop notwithstanding).
That's why I'm shorting Eurodollars (about half E1 and half E2, (basically an E 1 1/2) next week, if they trade at Friday's level. It will be my Bernanke fallout trade. I can easily visualize EDs trading up 150-200 bps by mid-year, given how far behind the curve the Fed
this would normalize the curve with the long end. but what will prompt the Fed to act? will there be enough angry voices at the upcoming G10 meeting (whatever they call it)? i don't have an opinion one way or another. |
