28 February 2008 - 13:07Market Commentary 2/28/08

Bernake looked like a deer in the headlights at times today, and was stuttering when tough questions were asked. A lot of what I have written about in recent months was discussed today during the hearings in the senate. Namely that oil could soon be priced in other currencies and that there is an obvious correlation between the weak dollar and high commodity prices. Also that inflation will not be tamed by the fed raising rates again after the fact in a knee jerk reaction. The interrogators ( as I like to think of them since the Federal Reserve in my mind is a criminal enterprise) also asked about the sovereign wealth funds bailing out the big banks and their influence. He did admit that banks will fail because of this latest fed inspired fiasco. What I also saw pointed out was that foreign investors were starting to shy away from U.S. assets as I have discussed in my prior posts regarding the TICS data. Bernake claimed that investors still had a healthy appetite for U.S. treasuries but he must not be looking at the same data I and the senators are. What the data shows me is that the lower yields on treasuries coupled with the depreciating dollar make the treasuries less and less appealing every day. Meanwhile with more and more people realizing many corporate binds are simply junk with AA ratings slapped on them and that major bond insurers are near collapse corporate paper is not the answer either. Real estate is hardly the solution and the stock market is contracting, so I ask you where exactly are these foreigners supposed to invest in America? Seems like the net inflows will soon be drying up aside from those from foreign exchange reserve managers who are already leery to buy more dollars.  If all the private investors  pull out they will probably just throw in the towel and switch to buying euros. God forbid they get angry or scared and try to dump these dollars as the greenback performs it’s tailspin. If that happened the dollar could be trading at parity with the Mexican Peso overnight. Like I said yesterday wait for Bernake to speak and then sell the dollar, since he wants to devalue it anyways and knows what to say to make it happen it works like a charm. German employment data coming out strong while U.S. employment info coming out weak helped also. Not to mention that there was no upward revision to U.S. GDP.