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Not an ea Easy Friday for bonds !

|Includes: SPY, iShares 20+ Year Treasury Bond ETF (TLT)
Not much to sink our teeth into today, while markets remain at the mercy of flows, as illustrated by the tension observed on short-term interest rate markets (Euribor dec10 futures –17 bps!), following the withdrawal of a huge hedge fund’s positions on this part of the yield curve, on options (enormous volume), on futures, and on the November BCE Eonia (€50bn in two days, from 0.44 to 0.48).
      This is fairly surprising since Mr Trichet just a few minutes ago confirmed that the return to slightly positive growth on the eurozone next year was already factored into the ECB’s scenario and that interest rates were at appropriate levels.
 
      So I thought I’d write a bit of a playful page, with a few humoristic quotations from a macroeconomic research site whose name will hardly come as news to our longstanding readers:
 
      Steve Keen’s Debtwatch, Analysing the global debt bubble.
            In the spirit of “we all need a laugh”, this list of jokes is doing the rounds in the USA:
            The economy is so bad that:
 
·         I got a pre-declined credit card in the mail.
·         I ordered a burger at McDonalds and the kid behind the counter asked, “Can you afford fries with that?”
·         CEO’s are now playing miniature golf.
·         If the bank returns your check marked “Insufficient Funds,” you call them and ask if they meant you or them.
·         Hot Wheels and Matchbox stocks are trading higher than GM.
·         McDonalds is selling the 1/4 ouncer.
·         Parents in Beverly Hills have fired their nannies and learnt their children’s names.
·         A truckload of Americans was caught sneaking into Mexico.
·         Dick Cheney took his stockbroker hunting.
·         The Mafia is laying off judges.
·         Exxon-Mobil laid off 25 Congressmen.
 
 
      Mr Keen is undoubtedly one of the world’s leading experts in Hyman Minsky’s The Financial Instability Hypothesis, whose links I am providing for the umpteenth time in the past two years.
      By the way, you can offer donations on this site, starting at $AUS5 to finance research work.
 
      Currencies will probably remain the recurring topic in the weeks ahead, as the US dollar continues to show weakness, with Asian and Russian central banks just forking out billions to try and slow its fall.
      We cannot emphasise enough that when the US currency declines against its major trading partners, so does that of China, given its peg to the greenback!
 
     Europe is one of the hardest hit zones by this situation, as exemplified by freshly published German foreign trade figures this morning. The country’s surplus contracted €8.1bn in August, following the €14.1bn gain in July, due to a 1.8% decline in exports and a 1.1% hike in imports.
     
      What is striking, and no one can accuse me of cherry-picking my data, is the definitive German inflation figures, also out this morning, for the month of September.
      At a reported -0.5% annually, they mark the price index’s steeper-than-expected decline, resulting from the persistent fall in energy costs, with, for example, heating fuel down 32.2% y-o-y.
 
     But what is more important for us is the now quasi-structural weakness of the price index excluding energy, as the energy price base effect is set to dissipate in the months ahead.
      It is now only rising 0.80% annually, which exposes precisely the failure of European monetary policy, because it is just as dangerous to fall short (deflation) of the ECB’s target inflation range of 1.80% to 2% as it is to exceed it (inflation).
 
      In this suffocating context, it should come as no surprise to hear a new chorus of voices complaining about the euro’s strength:
      Finland’s Prime Minister Matti Vanhanen said the euro’s strength is “one extra problem” that his country faces in the economic crisis
 
      Nor is it surprising to observe the insidious return of protectionist tendencies, with each new week providing us a fresh example.
      Today’s news item is shoes imported from Asia (mainly China and Vietnam). European Countries Split on Shoe-Tariff Extension, with an historical rundown of the decision made in 2006 with commentary at the time from the People’s Daily.
 
      Have a great weekend!
  
No change in our investment focus: positive bias toward government debt instruments, especially, on the eurozone 5-10 year segment, which benefits from the ECB's credibility.
  
With each market rebound, we can see the might of end buyers, who feel suffocated by 0% interest rates, and who will therefore continue to prop up stock indices for a while longer whenever they shows signs of weakness.
  
Disclosure : Long 20 years OAT 0% Coupons, EDF Corp 5 Years 4.5%.
Thaler's Corner.