Conspiratorial? Certainly Not!

We’ll see quite a little data this week folks. Some carries no mkt-moving potential. Some does, beginning with Jan Retail Sales tomorrow, then on to the Jan PPI, Housing Starts and Ind Production data, all on Wed., then finally to Jan CPI and the Phil Fed’s Regional Manuf’s Outlook survey on Thur.

By Friday we will have seen that core price pressures remain contained (because that which in not “contained” is ex’d out). We will see that consumer activity continues to grow, that manuf is booming. If longer-term interest rates where only impacted by this data, in isolation then they would be just a tad higher at the end of the week, and only a tad as the mkt crowd is told there is no inflation; they take that home with them.

We can peer offshore for just a moment however to see what would happen to US rates if the mkt view grew for inflationary pressures. The UK Gilt (10 yr UK obligation) is now 50 or so basis points (each “basis point” is .01 of 1%) higher that beginning year levels, last at 3.85%. The US 10 yr is only 30 bps higher for the same time period, last 3.66%. Measured inflation in the UK is almost double that in the US and the Fed-fueled spike in global commodity prices has had a heck of a lot to do with it (along with a weak currency). But Bk of Eng gov King won’t budge, won’t brake with a hike, parroting Benanke that inflation is near zero if one ex’s food and energy.

Well folks, we are not of a conspiratorial bent. However, if we were we might say that the Fed is going to extremes, looking for any excuse to keep rates in the cellar, because of its incestuous relationship with major St firms - the two are linked at the waist. We know from personal experience this to be a fact. Unusually and unnaturally low rates make a ton of $ for St firms; they can finance practically any inventory at a profit. There is a good part of your answer why the Fed, and maybe even the Bank of England are looking the other way.

Oh, but then we’re not conspiratorial. Forgot that.

Robert Craven