Greenspan: Government can't fully prevent another crisis - Apr. 7, 2010

This is not just disingenuous, it's a bold-faced lie.

Greenspan was wrong a lot more than 30%. He was wrong from the first day Ronald Reagan gave him the job, and was still wrong 20 years later when they dragged his cold, stinking carcass away from the biggest disaster to strike the US and world economies since 1929.

His tenure began in 1987 with the biggest stock market crash since '29, and ended in 2006, with the biggest stock market crash since '29 on its way. Perfect bookends to a breathtakingly incompetent career.

The final disaster began in 2004 when the Fed began to raise interest rates from 1% to 5.25%. By the time the crash was over, in 2009, the mortgage market was in shambles, home sales and values plunged to historic lows, the stock market returned to the values of a decade before, and tax revenues began their long decline.

Congress started this disaster by lowering mortgage lending standards, and the Fed finished it off with disastrous interest rate policy.

Into a mortgage market filled with adjustable rate loans made to borrowers with bad credit, no down-payment, and insufficient income, the Fed's blunder raised mortgage payments by a factor of two or three. The Fed should have known the certain impact of its Fed Funds policy on mortgage securities.

But they didn't, because they are clueless.

And the idiot Greenspan led the way.

* * * * * J B K * * * * *

San Francisco

Alan Greenspan acknowledged Wednesday that mistakes were made during his long tenure as chairman of the Federal Reserve, but he argued that the low interest rate policy he championed at the central bank didn't inflate the housing bubble.

In testimony before the Financial Crisis Inquiry Commission, Greenspan said the recent financial meltdown was possibly "the most severe in history." He admitted that regulators failed to grasp the severity of the crisis, but he maintained that his policies and predictions were correct most of the time.

"When you've been in government for 21 years, as I have been, the issue of retrospect and what you should have done is a really futile activity," Greenspan said. "I was right 70% of the time. But I was wrong 30% of the time, and there were an awful lot of mistakes in 21 years," he added.

http://money.cnn.com/2010/04/07/news/economy/Greenspan_financial_crisis_commission/index.htm

10s today, 30s tomorrow, and we're at major support

This is the week that helps predict the future for long-term interest rates.

The auction by the US Treasury of 10-year notes today, and 30-year bonds tomorrow provides the first data point in the new Fed-less bond market regime.

At the close of business yesterday, April 6, their respective yields were 3.98 and 4.84.

We will certainly revisit this data often in the months and years to come. Make a note.

The bond futures contract closed yesterday at 114.11. Make another note.

As the US Treasury sells more and more debt to refinance existing debt, and create new obligations to fund the expansion of government programs, rates are certain to rise.

Combined with the Treasury's added supply, the US Federal Reserve will be selling both mortgage-backed securities and treasuries to reduce the amount of inflationary fuel in the banking system before the banks can use it to make loans to credit-worthy borrowers.

As banks make loans, and the economic expansion takes hold, inflation grows. Further pressure on bond holders will come from the deteriorating value of the currency. Inflation kills bonds.

The combined pressure from these three sources will be too great for bond yields to hold, and they will certainly continue the rise that began more than a year ago, when 30-year bond yields bottomed at 2.58 in late December of 2008.

Our trader is shorting bonds at every resistance level, and will soon be aggressively selling when support breaks - like today and tomorrow.

Paterson's analysis suggests that the bond contract has a long way to fall, and will probably break par, with yields above 6%.

Get short and get rich.

* * * * * J B K * * * * *

San Francisco

James B. Klein
Paterson Financial Services

WEBSITE: paterson.com
WEBLOG: paterson-financial-services.blogspot.com
NEWS WEBLOG: paterson-financial-services-news.blogspot.com

Ford Sells Bonds as Junk Rallies for 14th Month: Credit Markets - Bloomberg.com

Credit spreads continue to fall, as Treasuries rise to meet them.

* * * * * J B K * * * * *

San Francisco

Ford Motor Co.'s finance arm sold $1.75 billion of five-year debt, taking advantage of investor demand for high-yield bonds, on pace for the longest rally since 1996.

Ford Motor Credit Co., the biggest issuer of speculative- grade securities last year and the only one of the three largest U.S. automakers to avoid bankruptcy, sold the notes with a 7 percent coupon. That's the lowest fixed-rate yield Ford has paid on dollar bonds since June 2005, and compares with the 8.7 percent rate on similar notes sold in September, according to data compiled by Bloomberg.

http://www.bloomberg.com/apps/news?pid=20601087&sid=av5._aEmn93I&pos=7

Fed says extended period may last a long time | Reuters

Bank lending is too weak to allow the Fed to push up the funds rate.

Until bank lending increases, the Fed seems happy to leave things as they are, and to focus on the long end of the curve.

Instead of bank lending, we see banks securitizing their loans and keeping their balance sheets flush with cash.

* * * * * J B K * * * * *

San Francisco

The Federal Reserve could keep interest rates ultra-low for even longer than investors expect if the economic outlook worsens or inflation drops, minutes from the central bank's last meeting suggested.

The minutes of the Fed's March 16 gathering, released on Tuesday showed lingering concern about the economy's prospects, with policymakers indicating they were in no hurry to raise interest rates.

"The duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further," the minutes said.

"Such forward guidance would not limit the committee's ability to commence monetary policy tightening promptly," they said.

http://www.reuters.com/article/idUSTRE6354CM20100406

Washington Business Journal: Fannie Mae, Freddie Mac touch off swaps scrap

Finally.

Now we get real prices for swaps from Fannie and Freddie.

Watch the investment banks howl, as this source of profit and influence disappears.

* * * * * J B K * * * * *

San Francisco

The Federal Housing Finance Agency, which oversees the government-owned mortgage giants, expects them to start using a clearinghouse to trade the swaps by year's end, according to The Journal. The impending change away from private "over-the-counter" contracts has generated behind-the-scenes meetings among officials at Fannie and Freddie, the banks that now command their business and the exchanges that want it.

http://washington.bizjournals.com/washington/morning_call/2010/04/fannie_freddie_touch_off_swaps_scrap.html

Pimco continues to snub UK gilts, US bonds | Reuters

Two words: in flation.

It's coming, and just like the dinosaurs, investors only see a faint light in the sky.

Gross has it right.

* * * * * J B K * * * * *

San Francisco

Pimco, which operates the world's largest bond fund, continues to avoid UK gilts and U.S. Treasury bonds because debt levels in the two countries pose a serious threat to investors' returns, Bill Gross, Pimco's co-chief investment officer, said on Monday.

Even though the UK and the United States are "decently positioned" to escape their individual debt crises, Gross said they are not good portfolio investments.

"There are more attractive choices" than UK gilts and U.S. Treasuries, Gross wrote in his monthly report to clients on Pimco's website. "Simply comparing Greek or UK debt to U.S. Treasury bonds is not the golden ticket to alpha generation in investment markets," he said. "U.S. bonds may simply be a 'less poor' choice of alternatives."

http://uk.reuters.com/article/idUKN0523626720100405?feedType=RSS&feedName=rbssFinancialServicesAndRealEstateNews&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+reuters%2FUKBankingFinancial+%28News+%2F+UK+%2F+Financial+Services+and+Real+Estate%29

‘Unloved’ Junk Debt May Be Best Bond Investment: Credit Markets - Bloomberg.com

Reaching for yield and taking risk.

It's that time in the business cycle.

GS already has theirs, and they now want to sell it to you.

It's a good trade.

* * * * * J B K * * * * *

San Francisco

April 6 (Bloomberg) -- Speculative-grade bonds with the highest rankings may offer the best returns after trailing the riskiest debt in a record credit-market rally.

Goldman Sachs Group Inc. is recommending high-yield, high- risk bonds with rankings in the BB tier, the first below investment grade on the Standard & Poor's scale. Pioneer Investment Management Inc. favors BB and B bonds, the next lowest bracket, while saying the riskiest debt is overvalued. Debt ranked in the BB category gained 39.1 percent in the past 12 months, underperforming the CCC tier by 66 percentage points, according to Bank of America Merrill Lynch index data.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a7P22sf_Lf4Q&pos=3