Bernanke Meddles as Bondholders Exit the Market

By Bill Bonner


12/10/10 Baltimore, Maryland – As were the days of Noah, so will be the coming of the Great Correction (38) For as in those days before the flood they were eating and drinking, marrying and giving in marriage, until the day when Noah entered the ark, (39) and they did not know until the flood came and swept them all away, so will be the coming of the Great Correction…

– Apologies to Matthew 37, (Sent to us by a Dear Reader)

Gold +$9.

Dow -2.

What more do you need to know?

Well, what you OUGHT to know is that the bond market may finally be cracking up.

“People are getting out…shell-shocked at the speed of the rise in yield,” says a “strategist” quoted by The Financial Times.

Bond buyers are leaving the scene of Bernanke’s crime. They are packing up and moving out.

The yield on the 10-year note hit 3.33% on Wednesday…a full percentage point over its October low.

Whoa. The bond market is the biggest, most important market in the world. What would cause a 25% move in so little time?

Bernanke pledged to lower bond yields (raise bond prices) back in August. He said he would buy $600 billion worth of US government bonds with money he was going to print especially for that purpose. And another $250 billion more with money he got from selling those mortgage backed monsters he acquired in the Panic of ’08-’09.

You’d think that a guy with $850 billion in his pocket could pretty much name his own price. But central planners always seem to run into a ditch. Even with their eyes wide open and GPS on the dashboard.

Here we are almost at the end of the year and what have bonds done? They’ve gone down!

They defied Ben Bernanke and all his ilk. They thumbed their noses. They turned their backs and dropped their pants!

We’re beginning to feel a little sorry for Ben. He’s like a rich kid in school with a flashy car who still can’t get a date.

Oh, the humiliation! Oh, the shame of it!

Wait a minute. We’re not going to waste a minute of sympathy on the little creep. He got himself into this mess – against our advice. He should be grateful they don’t castrate him. Or run him out of town on a rail.

Lucky for him they don’t do that any more.

The Great Correction, mentioned above, is still on-going. Unemployment numbers actually got worse in the latest reading. So did home pricing. As for retail, holiday-inspired spending, the figures are mixed.

As near as we can tell, de-leveraging has a ways to go. A long ways. Say, 7 years?

Maybe longer. That’s how long it OUGHT to take to squeeze the debt out of the system.

But Mr. Bernanke, the aforementioned little creep, is making it a lot harder. As the private sector squeezes debt out, Mr. Bernanke pumps it in. That’s why we’re seeing such crazy anomalies. It’s a correction – yet commodities, emerging market stocks, collectibles, oil, gold…all are flying off the shelves and out of the wells.

Did you see what happened to Audubon’s bird pictures? A book of them sold for $14 million at Christies. Okay… He could draw some cool fowl. But $14 million worth? Our guess is that the price tells us more about Mr. Bernanke’s cuckoo money machine than it does about the bird man.

And the strangest anomaly has got to be the rise in interest rates. Whatever good Mr. Bernanke thinks he is doing is surely undone by rising rates. Now, he can print all he wants. He may make an even bigger mess of the economy, but he won’t be able to get interest rates down that way. He prints…the feds spend…and rates rise, squeezing the real economy even harder.

Rates rise like Noah’s floodwaters. Make sure you’ve got an ark.

Bill Bonner
for The Daily Reckoning

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