Pentonomics – China is Ahead of the Curve

February 8, 2011 at 11:20 PM

The only thing melting up faster than the U.S. equity market these days is U.S. Treasury yields. The Ten year note is trading at 3.66% this morning—I wonder if Bernanke views that as a successful outcome of QEII? Meanwhile, Freddie Mac says the average rate on a 30 year fixed rate mortgage hit 4.81% this week, up from 4.17% in November of 2010. I guess rising rates are just one of those unintended consequences that Bernanke just didn’t count on. But those rising rates are helping the housing market to rollover. CoreLogic says that YOY home prices declined by 5.4%.

So the Fed will take falling home prices as a reason to continue counterfeiting 2.0 indefinitely. But China is dealing with their inflation by raising rates yet again. They upped their benchmark 1 year deposit rate by ¼ point to 3%. That’s the third time in four months that they have raised interest rates. The Chinese stock market is down for 2011 while the U.S. exchanges are up. But we are living on borrowed time once again. While the rest of the world is cutting spending and strengthening their currencies, we have dramatically stepped up our borrowing and printing practices. Bernanke and Co. maybe blind to inflation but I can assure the bond market has taken off the rose colored glasses.

Consumer credit rose for the third consecutive month led by the first increase in credit card charges in over two years. Credit increased by $6.1 billion to $2.41 trillion! I guess the frugal U.S. consumer lasted as long as one of “The Situation’s” girlfriends on “Jersey Shore.” Congratulations Mr. Bernanke!

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.