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To: Nadine Carroll who wrote (391232)	11/4/2010 1:45:48 PM
From: ManyMoose	1 Recommendation Respond to of 794294

I keep wondering when hyperinflation will begin. I thought the discount rate had hit bottom and congratulated myself on refinancing my house a year and a half ago. Now the interest rates are 3/4 point lower, just out of logical range for a second re-fi. My broker says it's all going to come to a screeching halt sooner or later.

To: Nadine Carroll who wrote (391232)	11/4/2010 1:47:27 PM
From: Brumar89	Respond to of 794294

The Unintended Consequences of QE2 1 comment \| by: Investment Underground November 04, 2010 \| about: ATPG / DBC / GDX / MON / MOS The Fed plans to purchase approximately $600 billion in 5-6 year Treasury notes over the next 6 months. The Fed's theory is that the direct purchase of long-term Treasury notes will push down interest rates on those notes (so far, so good); second, the rates of other debt instruments including mortgages will fall (more tenuous); and third, borrowers will benefit from lower borrowing costs. Lower mortgage and loan rates should spur loan growth and refinancings, which in turn puts discretionary cash into borrower hands once monthly payments are lowered. The Fed's final, and most tenuous, assumption is that consumers will use those funds to make capital and discretionary purchases, stimulating the economy and job creation. QE1 scorecard The Fed's last attempt at this game had mixed results. The entity's purchases from December 2008 to March 2010 included $1.7 trillion in Treasury notes and mortgage-backed securities. New York Fed economists have estimated that the purchases lowered longer-term Treasury yields by one-half percentage point. Ten-year notes are nearing a 2.5% yield with the 30-year around 3.9%, however. As yields approach zero, Treasury purchasers will question the negative real returns (with inflation factored in), making it even more difficult to lower rates another 0.5%. The good news for the Fed is that long-term mortgage rates fell in the range of 0.75% to a full percentage point as a result of the Treasury purchases. This means that the mortgage market may be more influenced by Fed purchases than the market for Treasuries. QE2 has a likely target The Fed just announced that it’ll be purchasing $600 billion in Treasurys. With this number in hand, we can calculate the Fed's likely target. Given the results of QE1 on the mortgage market, QE2's target is likely a more modest 0.25% reduction in 30-year mortgage rates and a similar or slightly smaller adjustment in the 15-year mortgage rate. The Fed is going to be more concerned with 30-year rates because borrowers faced with a refinance or loan origination are more likely to reach for loan duration when they are more cash-strapped. Thus, a lower 30-year rate has a bigger impact on the economy as borrowers enter into longer-dated loan arrangements to free up cash due to lower payments. (Un)intended consequences Commodities have been on fire in the last few months in the wake of impending news on a second round of quantitative easing. The Fed's Treasury purchases tend to push down the value of the dollar because it uses dollars to purchase the Treasury notes. With more dollars available, each one is worth a bit less. Unfortunately for commodity users, most commodities are exchanged for US dollars. Cotton prices climbed to a 140- year inflation-adjusted high in October, while benchmark gold, silver and other precious metals are up 20% and more since early to mid-summer. The question remains whether Bernanke wants this surge in commodity prices and the re-entry of the “risk-trade” whereby market participants are encouraged to seek out riskier assets with more business uncertainty and speculative characteristics. Lower interest rates will help these companies and commodities in a two-fold manner: First, borrowing costs decrease even more dramatically for junk status debt. Second, oil and gas production companies such as ATP Oil & Gas (ATPG), gold miners (GDX), and agricultural goods like Monsanto (MON) and Mosaic (MOS) will benefit from higher commodity prices. This secondary effect may be just that for Bernanke. In his view, it is more critical to effect the slumping housing sector and stimulate borrowing at any cost. The inflationary damage can be dealt with later. Disclosure: Author is long MON and short ATPG puts seekingalpha.com

To: Nadine Carroll who wrote (391232)	11/5/2010 9:09:24 AM
From: carranza2	7 Recommendations Read Replies (1) \| Respond to of 794294

Buy gold. No matter how 'well' the stock market is allegedly doing, the gains are not real because it is doing 'well' on a nominal, not real, basis. If inflation is miss-measured and the USD is in the dumpster, how much are stock market gains worth in real terms? So long as real interest rates are negative or exceedingly low and inflation high [don't for a minute take a fraudulent measure like CPI seriously], gold will continue to appreciate. There is a real chance that gold might go parabolic in the next two or three years. I doubt that the USD will exist in its present form in the next 5-7 years. I hate to say it, but we are bankrupt. It is only the recognition of this fact that is missing. Thanks to globalization, we have exported our wealth creating industries and manufacturing overseas. Finance, a Ponzi scheme under our present circumstances, has become too significant a part of our economy.