Wednesday, May 04, 2005

The Peridot Capitalist

The Peridot Capitalist

I must disagree with The Peridot Capitalist. Chad writes that the Fed is considering issuing the 30 year bond again because the budget deficit is so large. The reality is that insurance companies need long paper to balance assets and liabilities. The companies have been pushing the fed to issue long bonds for a year or more.

The federal deficit is actually starting to decline. Corporate profits are at record levels, federal spending is being held in check and tax revenues will leap in the next several months.

The fed picked the timing for the announcement. One can only speculate why it came now but the action in the market today was money coming out of bonds and jumping on stocks. The rally appears to be more than a two day wonder. Hold on to your hats because there could be more to follow. The employment numbers tomorrow and Friday may be big news.