April 29, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 108 basis points from 5.59% to its current 4.51%.

Let’s start the day with an interesting fact from the Fed….Did you know that the Fed is one of the most profitable institutions in the world???? It made a profit of $23 BILLION in 2003. (They haven’t finished counting the profit for 2004)….They have the best business model of any company…they pay no interest on their liabilities and earn interest from their assets (mostly US government securities) Just in case you think that every central bank has the same bottom line…the European Central Bank LOST money in 2004 …

Oil fell sharply and closed at $49.72 the lowest level since February 18th thus giving the stock market (Dow + 122) a reprieve from its recent decline…..

The Fed’s loan stats were released this afternoon and sure enough our mystery (GM?) bond holder made another $2.3 BILLION last week as long term interest rates declined thus narrowing their unrealized loss to $2.1 BILLION. For more on the GM story see the current issue of Business Week that hit the newsstands today. Revised loan stats show the real estate sector continues to grow with the HELOC category basically flat for the month of April.

Fed Chairman Greenspan’s favorite inflation indicator was released today and showed that inflation is up just 1.7% in the last 12 months and yet according to a piece in today’s Wall Street Journal the Fed is more concerned about inflation than economic growth. With Mr. Greenpsan retiring in January 2006 he wants to make sure he leaves office with no inflation in sight….if the Fed keeps tightening there will be no inflation and NO economic growth…he probably figures that the next Fed chairman can always lower short term rates early next year and that will stimulate demand??? How do you stimulate demand when the US savings rate is 0.4%??? The answer is that real estate prices need to continue to rise at 10%+++ per year rates so home owners can borrow more form their house ATM’s and I’m afraid that doesn’t look likely…..

Next week is a BIG week for the financial markets as the FED meets on Tuesday to raise the Fed Funds rate by .25% to 3.00% and the accompanying statement will be watched for clues to the future…..Thursday morning Mr. Greenspan speaks at 6:30am on bank structure and competition. Friday at 5:30am we receive the monthly jobs numbers so interest rates will be jumping around until all of the news is digested…..

Finally the Reserve Bank of India has caught a case of Greenspan fever as they raised their short term repo rate .25% to 5.00% and said that they feared inflation……Long term interest rates rose to 7.25% on the fear that the RBI might be right…I wonder if they will lower rates when Greenspan retires??? (01/06)

Last comment: Pork bellies look awfully cheap….not sure why and not sure if we should care……..

April 28, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 111 basis points from 5.59% to its current 4.48%.

It’s staring to getting very interesting….the Dow closed at 10,070 and I wrote last week that when (not if) the Dow broke 10,000 we would see a rush into US treasury bonds that would drive interest rates to new lows. We are close and we may see the stock market head south for the border either Friday or Monday……

The belly (5yr) of the curve led today’s bond market rally (down 10 basis points) as the GDP numbers showed less growth (3.1%) and a the biggest inventory increase since the spring of 2000. Tomorrow we have Mr. Greenspan’s favorite inflation indicator the PCE core index which shows inflation still increasing at a 1.7% rate.

Long term interest rates are declining because the economic numbers are soft but even more importantly the world is under invested in bonds and when when the markets receive weak economic news traders and investors scramble to cover their shorts. It’s like trying to push a basketball under water in a swimming pool, it just keeps popping back up….

Fannie Mae announced today that they reduced their mortgage portfolio by $11 billion in March. I wrote about this last year…these sales will continue to weigh on the mortgage market and unfortunately for home owners the spread between long term mortgage rates and US treasuries will continue to widen…..Bottom Line: Even though the 30 yr. treasury rate is declining you may not see an equal drop in the long term mortgage rate.

Finally let’s end the day with an interesting article from the Baton Rouge Business Report called “Who’s buying these homes?? http://www.businessreport.com/newsDetail.cfm?aid=5756

April 26, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 102 basis points from 5.59% to its current 4.57%.

The yield curve continues to flatten as the spread between the US 2 yr. Treasury note (3.65%) and the 30 yr. US Treasury bond (4.57%) is now at just 92 basis points. I continue to believe that the Fed will raise short term rates (next hike 5-03) to a level above long term rates before it changes monetary policy. The long end of the bond market is well aware of current Fed (Greenspan) desires to fight future inflation and that is the main reason why long term interest rates continue to fall……Every newspaper, expert, mortgage broker, etc. tell us that long rates must rise…why??? they say it is because this is the way it has always been…..bad reason…..when everyone expects something to happen it rarely occurs….

The stock market continues to hover just above Dow 10,000 and the interest rate markets are keeping a close eye on that magical (why?) level and if the Dow breaks below 10,000 we will see a quick drop in long term rates as it will be accompanied by a flight to safety (US bonds).

Did you know that according to http://www.hometrack.co.uk/ home prices in the UK have FALLEN in the last 12 months 2.98%. I thought housing prices never went down…….just maybe this trend will cross the big pond and arrive in the US later this year.

Most of the big economic news this week will be released on Thursday (GDP, jobless claims) and Friday (PCE inflation, Michigan Consumer Confidence) but I’m not sure that the interest rate markets are really focused on economic stats. Once in a while the market loses its focus and strays to the stock market, oil, etc. Long term rates are semi-directionless at this point while they wait for the Fed to end the tight monetary policy. The good news is that long term rates will be much lower next year after Mr. Greenspan retires and the new Fed chairman lowers short term rates for the first time. That will be the ideal time to lock in a fixed rate loan for both residential and commercial properties. The wait will be worth it…………

April 22, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 101 basis points from 5.59% to its current 4.58%.

The interest rate markets ended the week on a very quiet note after much volatility earlier in the week due to uncertainty over future Fed policy. A stronger than expected increase in the core CPI (0.4%) sent the stock market lower but as the Dow held at 10,000 stocks began to focus on strong growth rather than higher inflation. As you know I have been writing for months that Fed inflation worries for 2005 are misguided but it appears the Fed will not change its course of monetary policy until Fed Chairman Greenspan retires (1/2006) or we have an economic accident (25% probability). The good news for those that follow long term interest rates is that the more the Fed increases the short term rates (Fed Funds) the more likely that long term rates will continue to decline toward 5% on US Treasuries.

The vast majority of worldwide portfolio mangers continue to underweight long term US debt securities in their portfolios and that continues to give the bond market a “short” bid on almost every bond market decline (prices). The market rarely tends to turn the greatest worry (higher long rates) into reality and this surely will NOT be the exception to the rule. Remember it’s more important to know how the players are positioned (short duration) than it is to know the future course of economic activity. If someone had told you with 100% certainty on June 29, 2004 that the Fed would raise short term rates SEVEN times in the next 9 months you would have bet the “farm” that long term rates would have risen and you would have been WRONG….don’t worry Chairman Greenspan was also wrong in believing that long rates would also rise…The big secret is that the Fed over the past 20 years or so has been wrong in its economic forecasts more than 50% of the time (see the minutes from past FOMC meetings)….

In this weeks edition of the Economist magazine (always excellent reading) they have a chart of housing prices for 14 countries that shows appreciation for the last 8 years. Surprisingly the US is not #1 but tied for #7 with appreciation of 65%. South Africa is #1 at 195% and Japan is #13 at -25% and Hong Kong is last at -52% (ouch). I wonder how many mortgage brokers still have a job in Japan/Hong Kong???/ Cash out refi’s due to appreciation are rare in those two countries…..

The bottom line is that despite what we see each day concerning the strength or weakness in the economy….the pick up or lack of inflationary pressures from oil, etc…..I am starting to believe that the most important part of the interest rate equation for 2005 is that BIG portfolio managers that run fixed income portfolios (bonds) are sitting on so much cash (highest since 1990) that it’s going to be extremely difficult for US long term rates to rise despite continued FED tightening (next FOMC meeting (5/03)…I have been watching interest rates on a daily basis since 1966 and rarely have I seen everyone on the same side of the boat as they are now…..My forecast is unchanged for 2005….short term rates will continue to rise…long term rates will continue to fall….the yield curve will continue to flatten….the dollar will be the BIG winner in 2005….the next Fed Chairman will be……..Ben Bernanke who is Bush’s new appt. to the council of economic advisors…..

April 19, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 104 basis points from 5.59% to its current 4.55%.

Amazing……everyone including the Fed is focused on a strong economy, high inflation and higher interest rates…and then out of nowhere comes a freight train called “lower long term interest rates” and it flattens every bond trader in town. This morning’s Producer Price index was a great example: An increase of 0.1% in the core index and a decline in housing starts of 17.6% had bond traders selling with both hands for about 15 minutes and then when they ran out of bonds to sell they were forced to cover their short positions with big losses. If you haven’t figured it out by now it’s just so obvious: The world’s portfolio managers are short duration and under weighted in long term bonds awaiting the higher inflation that everyone (including the Fed) predicts is on its way…..The Fed continues it’s daily rhetoric about how it will continue its tightening policy by increasing short term rates at a steady pace .Oil rose $2 and is now trading at $52…..

The stock market seems to be listening as we are just a few points from a major washout as the Dow flirts with the “magical” 10,000 mark. When (not if) that occurs we will see long term rates plummet to new 2005 lows. Gm announced earnings this morning and have finally admitted what was obvious….they have BIG problems with high costs (health care) and low revenues (poor car sales). We will soon see a drop in auto prices as an all out war begins between car companies.

Tomorrow morning we have the Consumer Price Index release and again it should show inflation at the 2% level. It won’t impact current Fed policy but eventually a flatter yield curve (short rates up/long rates down) will push the Fed to stop raising short rates. Another event that would get the Fed’s attention would be more declines from the stock market. History has shown that the Fed usually stops after a 18-20% decline and so far we have only seen about 10%.Many of the other economic indicators are starting to slow but it will be many months before we receive confirmation of their turns in direction. IMPORTANT POINT: Because the long end of the bond market was so ahead of the Fed for this cycle, we will see the low in long rates (4%) soon after the Fed begins easing again……..

Early this morning I read a survey (RICS) from England that showed the number of residential properties for sale is now equal to the highs set in the summer of 2003. The dollar is pulling back again against the Euro as most investors are confused as to what is happening and more importantly the course of future Fed policy…..It’s a great time to be a discerning investor if you know what to look for………

Final thought: The price of sugar has reached multi year lows and pessimism is high (yes sugar is traded) so you might want to stock up…we might not see prices this low for many years……

April 14, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 91 basis points from 5.59% to its current 4.68%.

It’s time to scan the globe and we start in Moscow where it’s reported in Friday’s Moscow Times that because of high oil prices the Russian Central Bank has now accumulated $137.5 BILLION in reserves (much like China) and Russia will have a budget SURPLUS in 2006 of $14.56 BILLION. It’s amazing how higher oil prices can turn an economy from poverty to wealth. Most importantly Prime Minister Mikhail Fradkov is considering a proposal to limit the price of fuel to consumers. Instead of the government using it’s new found riches to drill and explore for more oil it wants to use the money to subsidize the buyers of oil. This is fine for a short period of time but is suicide in the long run because much of Russia’s oil is of the heavy grade and there needs to be much more work done on the conversion process to light sweet crude that is used in the US. For a copy of the article: http://www.themoscowtimes.com/stories/2005/04/15/061-print.html

Now let’s travel south to South Africa where early Friday morning the Reserve Bank of South Africa LOWERED their short term rate by 50 basis points to 7% due to a lower inflation outlook and a drop in consumer demand (sounds like the US) due to the high price of oil. article:http://www.businessday.co.za/PrintFriendly.aspx?ID=BD4A36406

Finally arriving back in the states IBM announced this afternoon that their earnings fell far short of street expectations and the stock fell over 3%. The key part of the earnings statement was that sales were below expectations because of softening demand from overseas…….

The dollar had another strong day rising against the Euro and yen and I still believe that the dollar will be the big winner in 2005. The Fed is on a mission to destroy inflation that simply doesn’t exist….The biggest loser is certain to be the real estate investor…..this wouldn’t be the first time in history that the smart money is getting out while the late arrivals get in before the trap door closes….

Friday morning at 6:45 we will see the Michigan consumer confidence numbers that Bill Gross spoke about on Tuesday with expectations for a drop due to rising oil prices……

Final thought: With the Fed tightening, the US consumer with record low savings, the stock market now seeing that the Fed is serious and hitting 2005 lows the last shoe to drop would be an end to rising house prices and thus putting a cap on cash out refinances…..we are getting closer and closer to the end……..

April 12, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 94 basis points from 5.59% to its current 4.65%.

Let’s start the day with another astonishing stat from the National Association of Realtors who announced this week that for the first 3.5 months of 2005…42% of first time home buyers put down 0.00% and acquired an interest only loan. Yes that does equate to 100.00% financing and no principal payments for 5 or 10 years. That leaves very little room for any price depreciation before a margin call but as many have told me this year: “house prices never go down, they either stay the same or go up”……the end of this real estate cycle is coming closer and closer and closer…..

Long term interest rates fell today and its now obvious that the “players” were all trading from the short side….somehow the experts were worried that the FOMC minutes that were released at 11am this morning would show that the Fed was increasingly worried about inflation and would have to begin 50 basis point increases in the Fed Funds rate. Yesterday I wrote that the interest rate market rarely reacts the same to an identical news event and today was no exception as the minutes basically told us what we already now….the Fed will continue to increase the Funds rate IF the economy grows faster than it is now and IF inflation picks up from its current rate of just under 2%. Bottom Line: Nothing new so rates fell and then shortly after 11am Bill Gross (biggest bond investor in the world) was interviewed on Boomberg TV and said that the consumer confidence numbers on Friday morning (6:45am) could be weaker than expected and cause a sharp drop in the 10 yr. Treasury Note to a level under 4%…..That interview (with millions??watching) caused a panic into the US bond market and amazingly triggered a fall in the dollar….The dollar rose on weaker than expected trade numbers (everyone was short into the number) and then fell at the end of the day as interest rates dropped. The dollar is now reacting more to interest rates than trade conditions…..

Oil fell again today reaching under $52 and copper pulled back to under $1.50 from yesterday’s 16 yr. high.

Did you know that the amount of bank lending in Japan has fallen for 87 straight months without an increase…it must be pretty hard to make a living as a banker in Japan…..

Final thought: Many of you have variable rate home loans and see the monthly mortgage payments rising month after month…so you are anxious to lock in a longer term fixed rate loan because of perceptions that if short term rates are rising then long term rates must also be rising…..I start every e-mail by showing how many basis points short rates have risen since 6-30-04 and how many basis points long rates have fallen since 6-30-04. If you had perfect foresight and knew the Fed was going to increase the funds rate 7 times in the next 9 months you would have switched from a variable to a fixed on 6-30-04 and it would have been a mistake because although short rates have risen you are still better off in the variable loans which are still lower than any fixed rate product you could have switched into since 6-30-04. You have had to manage higher monthly payments but these are still LOWER than if you had switched to a fixed rate loan…I know its hard to believe but pull out your monthly mortgage statements and do the comparison. As a variable rate borrower your greatest fear is that the Fed falls behind the inflation curve and with all of the current Fed speak about inflation that is a small risk………

April 11, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 85 basis points from 5.59% to its current 4.74%.

Good morning! This week should be a little busier for those that watch interest rates…last week was worse than watching paint dry…..except for the unlucky holder of a BIG losing position in bonds as long term interest rates fell a few basis points. According to Friday’s H.8 report the unrealized loss of $8.00 BILLION was reduced to $6.8 BILLION so although the Fed (Greenspan) continues to hope that long term rates go higher he must secretly be glad when they fall as the Fed does NOT want another “economic accident” to impede/stop this economic recovery. This same H.8 report also showed that commercial and industrial loans are basically unchanged for the last two weeks (the same for commercial paper) so although it’s early the Fed’s tightening seems to have slowed the pace of bank lending.

The bond market trades short in the long end (traders betting on higher rates and lower bond prices) so every sell-off last week was met with buyers and tomorrow we have the minutes from the last Fed meeting at 11am. Last month this event caused a sharp rise in long rates so there is some apprehension about this release but the market rarely reacts the same two months in a row……..More importantly for the dollar we have the trade balance at 5:30am and the consensus is for another record of $59 billion. I have written many times before but will say it again: Strong economies have trade deficits because their consumers have the money to buy goods and services from foreign sellers. If the US was in a recession we would have a trade surplus but no one would be happy….And speaking of trade the US congress must be bored because legislation has just been introduced that will impose 27.5% tariffs on all Chines products sold in the US unless the Chinese revalue their currency by 27.%%. I believe the chances of passage are slim BUT this is sure to cause a lot of political rhetoric in the US and it is not even an election year!!! One of these days the voters will realize that Congress should only meet for three months a year which would give them just enough time to take care of the real business of the US and nothing else…..

Oil has pulled back to $52.60 after seeing $58 last week. Inventory levels are at record highs so why is oil still above $50??? Yes, Asia does import over 40% of world oil but my feeling is that the market is concentrating on future production and the knowledge that 65% of the world’s remaining reserves are in the Middle East, Russia and Venezuela. These three areas are not the “safest” in the world and much of their production is “heavy” crude where the cost of converting to “light” crude is very expensive.

I read an article in Bloomberg over the weekend that was about people using their IRS tax refunds for real estate investments. We are getting very close to the end of this bubble…it may not burst but it could easily deflate slowly…One more note: 51,000 home buyers in the past year spent over $1million for a house and 65% of those purchases were in California…Finally Manhattan (NY) apartment prices rose 23% in the first three months of 2005….We are going to need oxygen soon if prices keep going higher and higher and higher….

Last note: It’s amazing what you can find at 2am….Mr. Greenspan wrote a letter on Wednesday April 6th to Sen. Jim Bunning (Kentucky) stating that “for the nation as a whole, I do not believe a “bubble has developed, but the extraordinary gains in some local markets may not be sustainable.” Do you think one of the local markets Mr. Greenspan wrote about could be Southern California?????

April 6, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 86 basis points from 5.59% to its current 4.73%.

There has been almost no economic news this week so interest rates have moved slightly lower but the belly (5yr) of the curve has led the rally and I would have preferred the long end (30yr). My thought is that the buying has come from a “flight to safety” bid instead of buyers believing that inflation will stay low. The remainder of the week will continue with a low flow of information with oil and other commodities in a holding pattern. The dollar is resting after its March increase and I have to wonder how much pain the shorts (Gates, Buffett, etc.) will take before they liquidate their formally profitable positions.

Let’s start the evening with some surprising news from the real estate sector. New residential foreclosure inventory ROSE in 47 states in March. The states that reported the highest number of foreclosures were Texas, Ohio, Michigan, Georgia and Indiana. The states that reported the fewest foreclosures were Rhode Island, Hawaii, Vermont, Washington D.C. and Wyoming. March’s new listings totaled 28,190 up from 18,824 in February. If foreclosures were a stock, it might be a good time to invest……Fore more information visit: http://www.foreclosure.com.

For those interested in understanding more about the Fed’s current method of communication to the public St. Louis Fed President William Poole gave a speech on Saturday titled: “How should the fed communicate”. It’s a quick read and it again points out that the Fed’s impact is very short term in nature: http://www.stlouisfed.org/news/speeches/2005/4_02_05.htm

I know many of you are wondering if we will ever see houses prices go back to their levels of just a couple of years ago and the answer is yes if you wish to buy in Anthem, Arizona. It may be hard to believe but they actually have a “glut” of houses on the market and many are sitting vacant. This might be a good read for any one who believes that house prices only grow to the sky. http://www.azcentral.com/php-bin/clicktrack/print.php?referer=http://www.azcentral.com/business/articles/0404anthem04.html

According to the Chinese Statistical Yearbook (now you know what I read on the weekend for pleasure) the average Chinese manufacturing worker made 12,496 yuan in 2003 which equates to $29 per week. It appears that much of the US manufacturing will soon be going to China or Vietnam, India or Cambodia. There is not a labor shortage in these countries nor will there be for many years.

Opec’s president announced that the cartel will be producing 500,000 more barrels of oil each day in May to prevent the price of oil from going much higher….Nice try but this oil is the heavy kind that really is of no use in the US unless it is converted and that’s too expensive….

Did you know that 50% of the jobs created in the US during 2004 were in the 55+ age category??? How about that the 35-44 category was flat in 2004…..very interesting…is the younger set playing poker to make a living????

An official from the Japanese Ministry of Finance said Japan will continue to maintain its currency reserves in dollars and they may consider investing some of those dollars into high yielding US bonds. That sounds like a risky bet when the spread between corporate bonds and US government bonds is near an all time low.

If anyone is still reading at this point…I encourage feed back and if you would like me to write about a certain subject feel free to let me know…..

April 1, 2005

Since June 30, 2004 the Fed Funds Rate (short term) is UP 175 basis points from 1.00% to its current 2.75%. The US Treasury 30 yr. interest rate is DOWN 87 basis points from 5.59% to its current 4.72%.

If someone had told you that the jobs number today would be 110,000 instead of the predicted (experts??) 220,000 you would have expected long term interest rates to fall quickly at least 10-15 basis points. Between 5:30am and 6am interest rates did fall quickly BUT with everyone long and right the first action was profit taking from those that bought call options over the last two days. There is nothing better than to be long and have the news go in your favor, you just sit back, relax and watch the profits roll in…….except when you fine that everyone else has the same position and heading for the exit (profit) door at the same time. Last night I pointed out: “BTW the bond market has rallied all week into the jobs number and that is usually the kiss of death for the interest rate market……..” It wasn’t quite the kiss of death but it wasn’t the expected result. Investing or trading is risky and not every trade is a winner (the best hit maybe 35-40%) so when things go your way it’s important that you win BIG….the point i am trying to make is that it’s more important to know how the players are positioned than knowing how hard the player can hit the ball…

Today’s edition of Business Week has the cover story of “After the Housing Boom” with an article on adjustable rate mortgages. Normally magazine covers are perfect contrary indicators but this time just maybe Business Week although early will be correct. For Federal Reserve purposes adjustable rate mortgages are anything that is NOT fixed for 15 or 30 years. Many commentators assume that the 37% of mortgages that fit this category are tied to one month/six month treasury or Libor indexes and as a result many borrowers are seeing rising mortgage payments. This is not true and these borrowers probably won’t see their monthly payment adjusted for another 3-4 years.

The really BIG news comes from today’s Federal Reserve H8 report that is released each Friday at 1:15pm. Back on Page 13, line 32 it has a category called “net unrealized gains (losses) on available-for-sale securities and normally this shows a small ($1-3 billion) dollar profit and is no big deal. But once in a while there is a nugget of information that shows a BIG accident waiting to happen. Today’s report showed a loss of $8.1 Billion that is $2.5 billion more than last week which was $1.5 billion more than the week before,. Someone big is losing alot of money and fast……The last time I saw losses even close to this magnitude was last year when WAMU was losing $$ in its mortgage portfolio which it soon disclosed when it reported its earnings. But this is even bigger and I’m sure that the folks at the Fed are watching closely…….my sources report these losses are from…………..General Motors….if true this spells the end of GM as we know it…..As a side note GM’s residential mortgage unit saw its bad loans increase to $3.4 billion in 2004 from $1.3 billion at the end of 2003. What’s bizarre is that this occurred in a declining interest rate and rising house price environment. Did they make loans to borrowers that were so bad that they had no chance to make the monthly mortgage payments??? Were these borrowers so impaired that GM was the lender of last resort??? The portion of loans that were overdue by 60 days or more rose to 8.8% in 2004 from 5.2% in 2003. This is a story that is sure to blow up big time in the near future and this looks like the beginning of the end for GM unless the federal government/Federal Reserve wants to bail them out…….Remember I wrote about the Fannie Mae/Freddie Mac situation over a year ago when no one was even aware of that problem….

P.S. Last night’s e-mail went out late and many of you have spam filters that go on late at night so I will repeat Fed Governor Ben Bernanke’s important remarks: Let’s start this evening with a quote from Federal Reserve Governor Ben Bernanke’s speech yesterday at a symposium in Dayton, Ohio: “The person in the street might tell you that the Fed “controls interest rates.” That statement is not literally accurate. In fact, the Fed has little or no direct influence over the interest rates that matter most for the economy, such as mortgage rates, corporate bond rates, or the rates on Treasury securities.” Every time you read or hear someone say that the Fed controls interest rates please take a moment to remember this quote because it comes from the mouth of the 2nd most important person at the Fed. (I assume everyone knows who is #1) One other important quote from this speech: “FOMC talk probably has the greatest influence on expectations of short-term rates a year or so into the future, as beyond that point the FOMC has very little, if any, advantage over market participants in forecasting the economy or even its own policy actions.” There it is maybe the most important point ever made by a Fed official admitting that the Fed has no reason to believe that it’s forecast for the economy is any better than anyone else!!! The Fed does have access to more timely economic information but even that does not give them an edge past a year or so……..The next time you read the Fed is fearful of inflation remember that those fears are realized less than 50% of the time…..