DC Bernanke won't take your calls? Change phone...

DC

Bernanke won't take your calls?

Change phone companies......or get a better assistant:)

But I know what you mean - Obama won't take mine either - what am I doing wrong? :)))))

Perhaps we should all start by thinking we are a pioneer and explorer, the Burke & Wills of Financial Markets?

Like this is thought provoking for eg:

Hmmm - now this guy/gal is thinking like me ......


http://www.forexblog.org/2009/06/bubble-in-emerging-markets-fx.html
Bubble in Emerging Markets FX?

What’s wrong with a little optimism? Well, nothing, in theory. In practice, however, unbridled investor optimism usually spells disaster. Consider that emerging market stocks (based on the MSCI emerging-markets index) now trade for 15x-earnings, the highest level since December 2007. Does anyone remember what happened next? The index plummeted 22% in a matter of months.....cont'd

OR THIS:

http://www.prudentbear.com/index.php/creditbubblebulletinview?art_id=10240

Excerpt:

No Conundrum, Again:

Ten-year Treasury yields traded briefly above 4.0% this week for the first time since last October. Benchmark MBS yields jumped as high as 5.12%, up from 3.94% as recently as May 20th. Long-bond yields reached the highest (4.76%) since October 2007.

Despite a near zero Fed funds rate and about $25bn of weekly MBS purchases by the Federal Reserve, yields have surprised the marketplace on the upside. Those of the bullish persuasion are content to see rising yields as confirmation of economic recovery. Others are referring to another “Conundrum.” It is worth noting that 10-year Treasury yields are about 20 bps higher than their German counterparts today, after trading near 20 bps lower only a month ago.

When the Greenspan Fed finally nudged up the funds rate from 1% to 1.25% at the end of June 2004, MBS yields were trading at about 5.5%. By the end of 2005 - after Fed funds had been hiked 325 bps to 4.50% - benchmark MBS yields had only increased 30 bps to 5.80%. Mortgage and housing Bubbles continued to gain strong momentum. Greenspan began referring to the low bond yield “Conundrum” – the phenomena where market yields were failing to respond to so-called Federal Reserve “tightening.” The new “Bernanke Conundrum” is a problematic rise in market yields in the face of ultra-low Fed funds and massive quantitative ease (including MBS purchases).

I never bought into Greenspan’s Conundrum, nor do I see any current mystery with regard to U.S. market yields. During the period 2004 through 2007, Credit Bubble excess played a fundamental role in distorting the demand for U.S. securities, especially Treasuries and agencies (debt and MBS). Back then I titled a CBB “No Conundrum.”

In particular, massive speculative leveraging of mortgage-related securities during the boom created excess market demand and artificially low yields throughout the mortgage finance arena. Extremely loose financial conditions were self-reinforcing, as cheap and readily available mortgage Credit inflated home prices and (temporarily) deflated Credit costs. Market distortion-induced excess returns incited a fateful flood of speculative finance into the mortgage sector. At the same time, Credit Bubble-induced dollar outflows (massive Current Account deficits coupled with heightened flows seeking profits from dollar weakness) inundated foreign central banks (notably China’s), creating artificial foreign demand for U.S. Treasuries and agency securities. In short, the Fed's post-tech Bubble reflation had spurred unwieldy Bubbles throughout the U.S. securities and asset markets – Bubbles the Fed refused to tackle.

The Credit Bubble created incredibly distorted supply and demand dynamics for both mortgage securities and Treasuries. At the same time, Bubble-related price and financial profit distortions fostered demand for (“money-like”) U.S. debt securities. This process eased the burden of recycling massive U.S. global outflows back to dollar instruments. The “private” Credit system was expanding uncontrollably, while Fed rate tinkering provided no restraint. Today, with the Wall Street/mortgage finance Bubble having burst, our challenge is to carefully analyze dynamics in an effort to gauge the emergence of new supply/demand and price relationships.

Until proven otherwise, I will view the recent backup in U.S. market yields as indicating the emergence of important new global market dynamics. For much of the past year, the dollar benefited from various facets of a short-covering rally. This dollar strength reinforced the perception of U.S. Treasury and agency securities as premier global safe haven assets. Global financial crisis buoyed the dollar, albeit temporarily. U.S. market yields collapsed, bolstering the view in Washington and throughout the markets that U.S. policymakers retained virtually unlimited flexibility.

The belief in a renewed King Dollar, in combination with what appeared powerful global deflationary forces, had most convinced that inflation risk had been taken completely out of the equation. But after trading to almost 90 in early March, the dollar index again dropped back below 80. The combination of double-digit (as % of GDP) U.S. federal deficits, massive Federal Reserve “quantitative ease,” and renewed dollar weakness granted virtually unlimited flexibility to policymakers around the globe. China, the U.S. and Europe were on the forefront of unprecedented synchronized global monetary and fiscal stimulus. Government finance Bubble and global reflation dynamics quickly emerged.

Global reflation has the markets reexamining early held views. For one, the dollar has become much less appealing, both as a safe haven vehicle and as a longer-term store of value. To be sure, the U.S. is these days a fiscal blackhole. Moreover, global reflation is typically more constructive for the “emerging” and “commodity” economies. And the greater the flows from the “Core” (U.S.) to the “Periphery” the more incentive there is to diversify out of the devaluing dollar. The greater the relative outperformance of non-dollar asset-classes - the greater the self-reinforcing speculative flows available to fuel global reflation. Meanwhile, the combination of a weaker dollar and the emerging global reflationary scenario dramatically alter the prospective U.S. inflationary backdrop. Crude prices have more than doubled from February lows.

The rejuvenated dollar from a few months back appeared to assure great leeway to the Bernanke Fed. The expectation was that the Fed essentially had unlimited capacity to employ “quantitative easing.” This bolstered the market’s generally sanguine view of the yield impact from the Treasury’s massive funding requirements. Especially with the announcement of huge ongoing MBS purchases, the view solidified that the Fed would essentially peg long-term market yields - as it does short-term borrowing rates. And, importantly, the perception that the Fed could set artificially low long-term interest rates – hence Treasury funding costs – worked to bolster a more optimistic reading of the U.S. fiscal position (not to mention the U.S. household balance sheet).

Yet a much more uncertain world is emerging. Global reflation and international markets are – as inflation and market dynamics tend to do - taking on a life of their own. And just as Credit Bubble dynamics overwhelmed Greenspan rate tinkering back in 2004/05, there are now strong countervailing market forces working against the efficacy of Bernanke helicopter money. If global reflation takes hold simultaneous with a weakening dollar, inflation could easily emerge as a major threat here in the U.S. And if global markets begin determining longer-term U.S. Treasury and MBS yields – as opposed to the Bernanke Fed manipulating them artificially low – the U.S. recovery outlook becomes greatly more clouded.

During the 2005 “Conundrum,” market dynamics fed the U.S. Bubble, as artificially low rates boosted household borrowings, asset prices and consumption. Increasingly, it appears the new “Conundrum” is putting upward pressure on market yields. Such a scenario holds the potential to stop the mortgage refinancing boom in its tracks, while delaying a meaningful recovery in housing markets and household consumption.

It is fundamental to my analysis that the unfolding reflation will be altogether different than previous ones. On a global basis - and contrary to the consensus view - I expect the U.S. economy to under-perform. Already, a scenario is unfolding where reflation hurts the U.S. consumer through higher energy and import costs, rising borrowing costs, and a greater tax burden. And in contrast to more recent inflations, U.S. securities will be anything but the focal point of global reflation dynamics. I expect global markets to increasingly determine U.S. market yields, with resulting higher borrowing costs and less liquidity generally stymieing recovery in our asset markets.

The consensus view would scoff at my thesis of global markets disciplining our policymakers. Many assume that the Fed would respond to rising yields by increasing its purchases of MBS and Treasuries. But monetization would become greatly more problematic in the event of a market turn against our currency. And our foreign creditors have been signaling monetization angst. The really problematic scenario unfolds when market yields spike higher, the Fed monetizes, dollar selling intensifies, and the world questions our capacity to service our federal and mortgage debts.

An economy can only inflate Credit, devalue its currency, flood the world with its debt obligations – all working to disburse financial and economic power out to the world – until at some point power dynamics reach a tipping point. There is No Conundrum, Again…

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BTW Average man in the street - knows we aren't going anywhere that fast.............IMHO