Wednesday, January 11, 2012

Shorting fixed income in the U.S. continues to be a good hedge.

Though Yale's Robert Shiller agrees with me on a possible bond bubble, shorting fixed income in the U.S. continues to be a good hedge against profits as the flight to safety persists.

Today's 10-year U.S. note auction was good, with a strong bid-to-cover ratio of 3.29 -- much better than the average over the last year at around 3.13, and the second-best ratio in 2011. Direct and indirect bidders took 56% of auction, in line with averages last year.

More scary stuff between Iran and Israel.

Lacker admits that he and the other Fed members only recently realized that the structural headwinds (fiscal imbalances, structural unemployment, etc.) in the U.S. will limit and be a governor on domestic growth.

I find this mind-boggling and scary, as, with 150-plus economists on staff, this is not exactly confidence-building and exposes a serious and fundamental flaw in the Fed's forecasting and in the policy based on that errant forecasting.

As a result, it shouldn't be too surprising that many, in support of Ron Paul, are in favor of abolishing the Federal Reserve.

I'm hearing rumors in Europe of a French ratings downgrade this afternoon.

Of note, last night the Goldman Sachs strategy group came out optimistically on the 2012 outlook for Chinese shares, looking for a 17% rise in value.

I suspect they are too low in their price target for the Chinese stock market.