Is the Bond Market Hampering the Fed?

Here’s a real conundrum for ya: Who do you fight, the Tape or the Fed?

That’s my takeaway from an interesting WSJ discussion earlier this week: "As the Federal Reserve prepares to raise short-term interest rates again next week, officials there increasingly believe the bond market, which sets long-term rates, is diluting their efforts to tighten credit and contain inflation.

The result: The longer the bond market keeps long-term rates unusually low, the further the Fed is likely to raise the short-term rates it controls in an effort to keep the economy from overheating. Conversely, sharply higher bond yields would encourage the Fed to stop raising short-term rates."

click for larger graphic
Fed_extra08022005210101

Graphic courtesy of WSJ

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I do not believe bonds to be overvalued, as the Chairman implied  in a recent speech. Low yields are consistent  with my expectations for modest economic growth next year –especially if the Fed keeps tightening.

Ultimately, I think the Bond market is more powerful than the Fed, at least over the long run. Thus, you watch the Fed (closely), but you don’t fight the tape.

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Source:
Fed Sees Bond Market Hampering Its Steps to Keep Inflation in Check
Greg Ip
The Wall Street Journal, August 3, 2005; Page A2
http://online.wsj.com/article/0,,SB112301943179703006,00.html

Category: Economy, Fixed Income/Interest Rates

207k New Jobs

Category: Economy

Its that Time Again: NFP

Category: Economy

Media Appearance: Power Lunch (8/04/05)

Category: Media

Are CD Prices Getting More Dynamic?

One of the more interesting items we’ve discussed has been the different pricing strategies that studios use with DVDs versus what the labels do with CDs.

The studios, to their credit, use a form of dynamic pricing — they intelligently recognize that a content item’s value is highest when first released, and then subsequently fades. That’s why DVD prices come down over time, to capture those marginal buyers. The consumers who will not pay $49.99 for Seinfeld Season 1 & 2, might pay $29.99.

The labels have mostly avoided this strategy — but perhaps that’s changing. I had just finished reading a post about Amazon’s conference call, and on it Amazon’s management discussed their Long Tail strategy. I went over to the site, and thru some random clicking and scrolling, noticed this little tidbit:   a long list of interesting CDs for sale on Amazon for between $6 and $10:

Blowout Music Bargains

As Low as $9.99


As Low as $8.99


As Low as $7.99


As Low as $5.99

I ran thru the entire $9.99 list, and was surprised to see quite a few names worth buying (I have yet to go thru the other lists). I am waiting to hear back from Amazon as to whether this is a new pricing policy, a discount from labels, a loss leader, or a mere inventory clear out.

Here’s my short list of favorite moderate priced CDs off of the Amazon sale:

  • : On And On

    On And On This is a fabulous album; Recall I first mentioned Jack Johnson in December

  • : Stripped

    Stripped — an under appreciated stone album

  • : Tattoo You

    Tattoo You the same — kicked  off the modern Stones, and it rocks

Read More

Category: Finance, Music

Your world with Neil Cavuto: (8/03/05)

Category: Media

The Return of the 30 Year Bond

Category: Economy, Fixed Income/Interest Rates, Politics

GDP Revised Downwards

Category: Economy

Juiced Data

We have been watching, with no small degree of skepticism, a stream of improving Macro-economic data. Color us unconvinced. Many of the key releases have been fraught with misleading headlines obscuring much weaker data beneath, and last month was no different. From Inflation to Federal Deficit to Unemployment Rates to Industrial Output to recent GDP…Read More

Category: Economy, Investing, Politics, Psychology

Chart of the Week: Fibonacci Retracement Graph

Category: Economy, Technical Analysis