10s today, 30s tomorrow, and we're at major support

This is the week that helps predict the future for long-term interest rates.

The auction by the US Treasury of 10-year notes today, and 30-year bonds tomorrow provides the first data point in the new Fed-less bond market regime.

At the close of business yesterday, April 6, their respective yields were 3.98 and 4.84.

We will certainly revisit this data often in the months and years to come. Make a note.

The bond futures contract closed yesterday at 114.11. Make another note.

As the US Treasury sells more and more debt to refinance existing debt, and create new obligations to fund the expansion of government programs, rates are certain to rise.

Combined with the Treasury's added supply, the US Federal Reserve will be selling both mortgage-backed securities and treasuries to reduce the amount of inflationary fuel in the banking system before the banks can use it to make loans to credit-worthy borrowers.

As banks make loans, and the economic expansion takes hold, inflation grows. Further pressure on bond holders will come from the deteriorating value of the currency. Inflation kills bonds.

The combined pressure from these three sources will be too great for bond yields to hold, and they will certainly continue the rise that began more than a year ago, when 30-year bond yields bottomed at 2.58 in late December of 2008.

Our trader is shorting bonds at every resistance level, and will soon be aggressively selling when support breaks - like today and tomorrow.

Paterson's analysis suggests that the bond contract has a long way to fall, and will probably break par, with yields above 6%.

Get short and get rich.

* * * * * J B K * * * * *

San Francisco

James B. Klein
Paterson Financial Services

WEBSITE: paterson.com
WEBLOG: paterson-financial-services.blogspot.com
NEWS WEBLOG: paterson-financial-services-news.blogspot.com

Fed says extended period may last a long time | Reuters

Bank lending is too weak to allow the Fed to push up the funds rate.

Until bank lending increases, the Fed seems happy to leave things as they are, and to focus on the long end of the curve.

Instead of bank lending, we see banks securitizing their loans and keeping their balance sheets flush with cash.

* * * * * J B K * * * * *

San Francisco

The Federal Reserve could keep interest rates ultra-low for even longer than investors expect if the economic outlook worsens or inflation drops, minutes from the central bank's last meeting suggested.

The minutes of the Fed's March 16 gathering, released on Tuesday showed lingering concern about the economy's prospects, with policymakers indicating they were in no hurry to raise interest rates.

"The duration of the extended period prior to policy firming might last for quite some time and could even increase if the economic outlook worsened appreciably or if trend inflation appeared to be declining further," the minutes said.

"Such forward guidance would not limit the committee's ability to commence monetary policy tightening promptly," they said.

http://www.reuters.com/article/idUSTRE6354CM20100406

Welfare recipients now eligible to receive cell phones | The Foundry: Conservative Policy News.

Another welfare program.

* * * * * J B K * * * * *

San Francisco

Welfare recipients in approximately 20 states–with more to follow– are currently eligible to receive a free cell phone with a limited number of monthly minutes. All individuals that qualify for state or federal welfare–food stamps, Medicaid, etc.–and have an income at or below 135% of the poverty level, are eligible. According to a Fox News report, the cell phone service is currently the fastest growing welfare program in the country.

In 2008, the fund that foots the bill for this program contributed $819 million to subsidize low-income telephone services. The fund is projected to grow to over $1 billion this year. That's $1 billion of over $800 billion the United States will spend on welfare in 2010.

http://blog.heritage.org/2010/01/18/government-welfare-cell-phones-for-the-poor/

L.A. financial crisis causes Wall Street firm to reassess utility's bond rating | L.A. NOW | Los Angeles Times

One aspect of a financial collapse that's ignored by most economists is the damage done to tax revenues.

In this case, the collapse in economic activity caused a collapse in revenue to an LA utility.

Notice that publicly traded utilities are doing just fine.

* * * * * J B K * * * * *

San Francisco

One of the nation's top bond rating agencies Monday announced it would reassess its bond rating of the Los Angeles Department of Water and Power, a move that Mayor Antonio Villaraigosa blamed on the City Council's failure to approve electricity rate hikes last week.

Fitch Ratings withdrew a "AA-" rating it had given on two DWP bonds worth $720 million. That action can lead to a rating downgrade which, if that occurs, could make it more expensive for the DWP to borrow money.

"Today we are facing the consequences of the city's failure to enact the necessary rate increases with Fitch Ratings, a major credit rating agency, withdrawing the DWP's AA- bond rating, thereby costing the ratepayers more in the long run,'' Villaraigosa said in a statement released Monday evening.

http://latimesblogs.latimes.com/lanow/2010/04/la-financial-crisis-causes-wall-street-firm-to-reasses-utilitys-bond-rating.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+lanowblog+%28L.A.+Now%29

Archaeologists Uncover Land Before Wheel; Site Untouched for 6,000 Years - US National Science Foundation (NSF)

"Social inequality" is the term used to hide the fact that some people are more productive than others.

It is a fact of life that most social scientists - economists included - refuse to recognize.

* * * * * J B K * * * * *

San Francisco

Thus far, archaeologists have unearthed evidence of this society's trade in obsidian and production and development of copper processing, as well as the existence of a social elite that used stone seals to mark ownership of goods and culturally significant items.

"The project addresses questions not only of how such societies emerged but how they were sustained and flourished," said John Yellen, program director for archaeology in the National Science Foundation's (NSF) Social, Behavioral & Economic Sciences directorate. NSF supports the University of Chicago's research.

Covering about 31 acres, Tell Zeidan was situated where the Balikh River joins the Euphrates River in modern-day Syria. The location was at the crossroads of major, ancient trade routes in Mesopotamia that followed the course of the Euphrates River valley. The Ubaid period lasted from about 5300 to 4000 B.C.

"This enigmatic period saw the first development of widespread irrigation, agriculture, centralized temples, powerful political leaders and the first emergence of social inequality as communities became divided into wealthy elites and poorer commoners," said Gil Stein, director of the Oriental Institute and a leader of the expedition.

http://www.nsf.gov/news/news_summ.jsp?cntn_id=116636&org=NSF&from=news

How Texas Escaped the Housing Crisis - ABC News

I'll be damned.

It's written in the state constitution: no cash-out refis.

I'd prefer to change Fannie and Freddie's underwriting guidelines.

* * * * * J B K * * * * *

San Francisco

But there is a broader secret to Texas's success, and Washington reformers ought to be paying very close attention. If there's one single thing that Congress can do now to help protect borrowers from the worst lending excesses that fueled the mortgage and financial crises, it's to follow the Lone Star State's lead and put the brakes on "cash-out" refinancing and home-equity lending.

http://abcnews.go.com/Business/TheBigMoney/texas-escaped-housing-crisis/story?id=10243782

Construction Spending in the U.S. Decreases to Seven-Year Low - Bloomberg.com

It will be a long time before commercial real estate recovers.

The world has changed, and the use of commercial space is changing.

Stay away.

Residential will do just fine.

Everybody needs a home, whether they rent or buy.

Maybe it's time to buy an S&L - again.

* * * * * J B K * * * * *

San Francisco

April 1 (Bloomberg) -- Construction spending in the U.S. fell in February to the lowest level in more than seven years, signaling this part of the economy remains in a recession.

The 1.3 percent decrease to $846.2 billion, the lowest since November 2002, followed a revised 1.4 percent drop in January that was more than twice as large as previously estimated, Commerce Department figures showed today in Washington.

Housing will be slow to rebound as foreclosures climb and Americans are uncertain about job prospects. At the same time, commercial and government building are also slumping, restrained by a lack of credit and swelling budget deficits.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aK4orcqqi590