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This article is for subscribers. To read, please pass through the membership gateway on the Join Tab, at the top of this page.

Another conceptual problem that I see, in this narrative of our now burst housing and credit bubble, is the number of observers who continue to expect a post-war type of recovery to a “recession” that in no way takes part in the typical model of US post-war recessions. There are so many examples to illustrate the mistake of comparing this recession-depression to previous, post-war recessions but let me just use one example: California unemployment. First, let’s remember that employment started to peak in the US in the Summer of 2007. That is almost three years ago now, and one of my views is that Car and Truck Sales and also employment began to peak out that Summer as a number of regions began to produce the effects of the peak and turn down in Housing (which itself peaked over 6 quarters starting in late Q4 of 2005 in some regions, and rolled into and out of peaks.) As the country then moved towards its financial and economic collapse in Q3 of 2008, employment began its downward path–roughly in line with the dating of the start of the recession in Q3 2007. So first, employment travelled downward for a full year into the spider-hole of the economic collapse. Then, understandably, employment went even lower into the first part of 2009. Were this a typical post-war recession, however, that Springtime low in the economy and employment would have been close to the bottom.

The United States should now be in the early stages of a powerful, V-shaped recovery led by housing and automobiles. Workers should be going back to find employment not only in existing industries, but in new industries as many were “freed up” from dying industries that were no longer viable. Low interest rates should be pushing savings off the sidelines into small businesses. And capital intensive business which are interest rate sensitive should be locking in low, long term rates. While there is indeed some of this activity occurring at the margin–largely owing to recovery …(this article continues for subscribers through the membership gateway, on the right side of this page)

The “Bond” has lost nearly four points in just the past 3 days of trading. Our position in TBF, the Proshares Short 20+ Year Treasury ETF, which has been weak of late, was of course quite strong. But perhaps the most important relationship to note is that the long end of the US Treasury curve is experiencing renewed weakness right into the face of new weakness in the housing market. Or perhaps I should say: the newly reported weakness in the housing market. Subscribers here know…(this article continues for subscribers through the membership gateway, on the right side of this page)

My time in Boston gave me a chance to update my economic tour, taken last Summer in the shopping districts of Harvard Square and Newbury Street. I was also able to get a sense of car and train traffic, activity at malls, and even some nightlife. In addition, the Clean Energy workshop I attended in Cambridge, and the conversations I had at the Energy Showcase gave me a sense of mood, surrounded as I was by students, investors, venture capitalists, and company representatives. First, me start off by reporting…(this article continues for subscribers through the membership gateway, on the right side of this page)

Of greater note has been the volatility in UK Gilts. In a brief exchange with one of my contacts, we both expressed surprise that observers don’t pay more attention to the British Pound and UK Gilts…(this article continues for subscribers through the membership gateway, on the right side of this page)

I did not have to wonder for long. The surprise hike in the FED’s Discount Rate now looks nothing more than the brief flare of a technical operation. The meat of the matter, the major thrust of the FED’s intentions, were revealed this week when Janet Yellen hinted that QE of MBS could be put back on at any time. And, when Bernanke testified in his Humphrey-Hawkins appearance that the FED would need to keep rates very low, for a long time. It should also not be forgotten, in addition,  that even on the day of the FED’s surprise discount rate hike at least one FED governor made remarks that evening to broadcast the FED’s intention to keep rates low.

Because further clarity on FED policy has come at the same time as news releases on the economy, I think it bears mentioning again that housing…(this article continues for subscribers through the membership gateway, on the right side of this page)