When I wrote for RealMoney, one of my continuing themes was that the Federal Reserve was less relevant because neomercantilistic nations like China (and perhaps OPEC nations) had reasons for promoting exports to the US that were less than economic. As such they would buy US fixed income in order to facilitate their exports. What could be sweeter? You send goods; we send promises, denominated in our own currency.
With that, I want to point to a short post from Marginal Revolution. Like me, he takes the “modified Austrian” view that the bubble was caused not only by the Fed, but also by the neomercantilists, both of which I fingered in my “Blame Game” series. Buying longer dollar-denominated debt stimulated mortgage rates more than the Fed could, because under normal conditions the Fed can only affect the short end of the yield curve.
PS — What a long day, to NYC and back. I appeared on Fox Business News show “Happy Hour.” They said I did very well. If I get video I will post it here. As I have said before, time on live television goes fast. The four minutes seemed like the blink of an eye. At the end, Liz asked me for a third stock, and I blanked out, so I said Assurant, a company that I love, but don’t currently own. I will own it in the future. I meant to say Pepsico, but it just didn’t come to mind.
I also had dinner with my friend Cody Willard after the show. Though our rhetoric is different, we basically agree that the actions of the government in the bailout offer much possibility/potential for favoritism. Also, that it is easy to start a bailout, and hard to end one.
Let the government chew on this: Pepsico issued $3.3 billion of corporate debt yesterday. For a company with recession-proof products and a Aa2/A+/AA- balance sheet, for them to pay 4%+ over Treasuries is astounding. Liquidity? What liquidity? If financing needs are outside the A-1/P-1/F1 CP box, there is no help. Not that there should be help, but the corporate bond market is a truer indicator of our stress than the money markets, which still aren’t in great shape.
Full disclosure: long NUE PRE PEP