Bond Outlook [by bridport & cie, January 30th 2008]
| During the dot.com bubble, from mid-98 to mid-99, the Fed was raising interest rates regularly. At each rise, the stock market fell back for a day or two, and then continued upwards. Much the same phenomenon was present during the period mid-2003 to mid-2005, when regular increases in the Fed rate scarcely slowed the rise in stock prices. The current series of rate cuts looks remarkably like the mirror image of these developments. In January stock markets seemed to be reflecting more frequently the outlook of the economy and showing a reduced dichotomy with bond markets, but the old habits of rebounding on Fed rate cuts die hard. |
| This is what a fly on the wall heard at a meeting of US policy makers: |
| Bush: Mornin’, guys. I’ve just about got on top of “sub-prime”, but now you’re hitting me with “CDOs”, “CDS” and “monolines”, and I’m lost. But I know folk are complaining, and I don’t want that in an election year. Besides I’ve got my legacy to worry about. |