The investment world hasn’t been too excited about “operation twist.” After its announcement the S&P fell more than 14% and worldwide stocks fell some 23%. Commodities were smashed, and silver fell 28% and gold 12%. During this process short dated yields on Treasuries fell close to zero and maintained, as long-term yields fell. That means granny and grandpa will have less to live on and pensions won’t attain 7.5% return to reach their retirement goals. The result is a Dow yielding 2.8% and S&P 2.2%, while the 10-year T-note yields 1.9%. It is not surprising that fund and money managers are reaching for high yield quality stocks. This they believe will provide yield and safety, while waiting for the next Fed innovation. A situation such as this has not existed for 53 years since I left counter-intelligence.
Due to problems in Europe we have seen funds move into the US dollar and Treasury securities as the euro falls and trembles. Germany and France as a protective procedure are printing up D-marks and francs, like there may not be a euro in the near future. The US federal government has just spent $900 billion unaware that austerity should be the name of the game. The enabling super-Congress is struggling to cut $1.4 trillion from the budget on a long-term basis and has to do so by late November. In the meantime the President wants to increase current spending by $447 billion to supposedly provide jobs. Still in the cards is Mr. Bernanke, who has told us several times that he may have to ease monetary policy further. Real inflation is 11.4%, but evidentially Mr. Bernanke doesn’t see inflation – or so he says. Yet he knows the inflation he has created since he took over from Alan Greenspan, has offset the deflation emanating from the real estate industry, which is still ongoing. .......
