Forex Investment and Currency Trading

Governments everywhere are trying desperately to stabilize the global economy and financial system, but what may not be fully appreciated is the severe trauma that has hit the US household balance sheet – $20 trillion of net worth destruction that is very likely going to trigger a multi-year reassessment of the cash flows that the boomer population is going to require to cover its post-retirement quality of life. The supply of bonds is rising sharply, to be sure, but do not underestimate
what the demand for income-bearing securities is going to look like in the future. Just as long bond yields bottomed in 1941 below 2%, and JGBs bottomed below 1% in 2003, in both cases years after massive public sector reflationary policies and profligate spending, look for Treasuries to perhaps ultimately challenge those sorts of levels before we embark on the next up-cycle in risk assets and the economy, which may be years away if other post-asset and credit bubble eras are any indication.

Chairman Bernanke off “central”
In his semi-annual monetary policy testimony this week before the Senate Banking Committee, Fed Chairman Bernanke said that he expects recovery in 2010 “only if” the government is successful “in restoring some measure of financial stability.” However, he noted that the “downside risks [to the economy] probably outweigh those on the upside.” His comments place the central tendency forecasts of the Fed, which suggested a return to above-trend growth in 2010 and 2011, into context as they suggest that Bernanke may not share what we considered to be the relatively optimistic view of the economy offered in these forecasts.

Chairman Bernanke also highlighted the trend forecasts provided with the central tendency forecasts. He called the trend inflation rate of 2.0% the rate that “FOMC participants see as most consistent with the dual mandate given to it by the Congress – that is, the rate of inflation that promotes maximum sustainable employment while also delivering reasonable price stability.” In short, this is the inflation “target”, albeit a soft one.