Interest Rate Roundup

Friday, April 28, 2006

Some quick observations to mull over this weekend

All the easy money from the Fed, the European Central Bank, and other central bankers is now causing REAL inflation problems that just can't be ignored any longer. Gold surged above $650 to a new high today. Oil is holding in the $70+ range. Gas is at $3 in many parts of the country. Copper just hit an all-time high. Zinc hit an all-time high. Silver jumped the most in 11 years today, and is just shy of a multi-decade high. The yield spread between 10-year TIPS and 10-year traditional Treasuries is at its highest in a year and climbing.

Then, you’ve got airlines hiking airfares. Shippers are hiking shipping rates. Hotels are charging more for rooms. Utility bills are rising. The list goes on and on. Even the totally cooked CPI numbers are showing signs of stress, with the beloved core rate up the most in a year last month.

Add to that the fact the dollar is now plunging in the wake of “Gentle Ben’s” ridiculous talk about “well-contained” inflation, and I think you’re getting close to a breaking point. The bond vigilantes are FINALLY waking up and taking long rates up. So even if the Fed pauses, it may NOT help housing and not keep overall rates from rising. Something to ponder over the weekend, I suppose.


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