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in a deflation (but not in an inflation) bond prices tend to be higher, and interest rates lower, than justified by economic conditions. This is what baffles the Bond King, and this is the “conundrum” of King Al. Be that as it may, this effect ought to be taken into account in reading deflationary signals, or in searching for inflationary signals
In the first case bond prices are high and rising, as they would be in deflation. If there was no bias, then speculators would resist the rise and take profit in selling the bonds. But bias is introduced by the central bank’s buying of bonds in an effort to combat deflation. Therefore speculators will let their profits ride. What is more, they will pyramid. Rather than opposing the central bank, they will join its buying spree with all what they have and finance their bond pyramiding through liquidating their holdings of commodities, causing prices to fall
It is unrealistic to assume, as most financial journalists do, that speculators don’t take advantage of profitable opportunities in the bond market inadvertently created by central bank intervention. Actually they do, and have done so since the 1930's when the Fed first started using what has come to be known as open market operations, in line with Keynes’ contra-cyclical monetary policy prescriptions. It is not recognized in the existing economic literature that bullish bond speculation played a big role in prolonging and deepening the Great Depression. Unfortunately, the deficient understanding of the Great Depression will result in a repetition of the mistakes and may be instrumental in bringing about a Second Great Depression, worse even than the first
U.S. government prosecutors are investigating whether Swiss banking giant UBS misled investors by reporting inflated prices of mortgage-backed securities it held despite knowing those valuations had eroded, the Wall Street Journal said Saturday.
posted by traderonwallst
We discussed the markets that day and the inherent risk to the economy. We all agreed that immediate action would be taken. I figured 50 bps so they cut another 50 bps at the actual meeting. The 75 bps was a surprise.
posted by traderonwallst
A lot goes on behind the scene s you don;t know about. I knew that morning the FED was making the move. No need to tell how, but I knew.
Originally posted by Nailer
DIJA down 309. pts as of 5 ,minutes ago.. Sing low the dollar as the feds are going to destroy you more. The recession began last year and we(the feds) are working hard and fast on the Depression.