Bernanke Capital Management

With the FOMC’s main function of adjusting the fed funds rate pretty much at full throttle with no more to do, the Bernanke Capital hedge fund (with Geithner his new partner as Paulson cashed out) that it is now will tell us what other assets they may or may not buy and/or lend to.

The TALF begins tomorrow with the pricing of a $1.3b Nissan auto loan deal and we’ll get their thoughts on buying Treasuries, the possibility of which is an elephant in the room.

The Fed’s plan to buy mortgages has helped to lower mortgage rates as the MBA said the average 30 yr rate this week matched the lowest level since at least 1990 at 4.89% but it has done virtually nothing to spur purchases as it remains just 9% off its lowest level since 2000. Lower house prices have brought out the buyers. Refi’s did rise 29.6% and has been the only beneficiary of lower rates. ABC confidence rose 1 pt to the highest since the 1st week of Oct.

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Feb CPI rose .4% headline, .1% more than expected and rose .2% core, also .1% more than estimated. The y/o/y gain is .2% up from flat in Jan, the lowest since 1955, led by energy. The core rate is up 1.8% y/o/y. With oil prices bottoming out as are food prices, which I believe is for good in this cycle, inflation #’s are starting to reverse to the upside. The degree of course will determine the Fed’s next conundrum.

Owners equivalent rent rose .1% and continues to remain subdued due to job losses and competition from unsold homes that are put up for rent. Boosting the core rate was a 1.3% increase in apparel prices and a .5% rise in vehicle prices.

Bottom line, with the rapid decline in commodity prices since July, inflation worries quickly receded and gave the market a respite from that perspective (as we then shifted our worries to the economy) but the disinflation seen may be running out of steam and will most likely not lead to deflation.

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