Wednesday, May 27, 2009

Great Article Over at The Big Picture

German Subprime?

The FED is in a Box!

10yr Treasury yields have risen 160bp since the Fed began buying MBS in December and today these great ships of debt finance finally collided. MBS yields (and thus mortgage rates) have been remarkably stable since December evn falling a bit but in the last week and especially today mortgage prices got debacled and mortgage rates are up susbstantially from the lows. Probably 40-50bp in aggregate. This puts the housing recovery, refinancing rejuvenation policy at risk. The FED wants this to happen and has been putting its money where its mouth is. However, now the larger Treasury market and its participants (bond vigilantes anyone?) have started to call the FED's bluff. Does the FED let things go (my bet is no), does the FED significantly step up its purchase of Treasury debt and thus feed the monetization/inflation beast (my bet is very likely). The FED is supremely confident it can control inflation when the time comes (me not so sure they can or have to will to) but that is a story for another day. If the 10year gets near 4% look for the FED to announce at least another $0.5 trillion of Treasury purchases.

VAT is it all about

While the substance of a VAT is appealing, lower cost of tax collection and record keeping as well as not punishing savers over spenders but as a cure for govt deficits and fiscal issues when combined with massive new govt programs it is a crock of fecal matter. Here at the Directive we don't know of any government with sales/VAT taxes that are in great fiscal shape. Europe - Nope, Japan - Seen the Debt to GDP there, other suggestions are encouraged. The key problem is the propensity to consume by politicians and the voters they suckle is greater than the system to provide such suckling.

Trial Balloon courtesy of the Washington Post.

Good Article from David Reilly of

Why the SEC Matters to Investors