So Much for the Exit Strategy
For the week, the S&P500 dropped 3.8% (down 3.2% y-t-d), and the Dow fell 3.3% (down 1.2%). The Banks sank 5.1% (up 7.6%), and the Broker/Dealers fell 5.7% (down 9.9%). The Morgan Stanley Cyclicals were hit for 5.6% (down 0.4%), and the Transports dropped 5.7% (up 2.5%). The Morgan Stanley Consumer index declined 2.5% (down 0.1%), and the Utilities dipped 1.1% (down 1.7%). The S&P 400 Mid-Caps dropped 4.8% (up 1.1%), and the small cap Russell 2000 sank 6.3% (down 2.5%). The Nasdaq100 fell 4.4% (down 2.3%), and the Morgan Stanley High Tech index sank 5.9% (down 8.4%). The Semiconductors were pounded for 8.2% (down 10.3%). The InteractiveWeek Internet index fell 3.9% (up 3.7%). The Biotechs declined 3.4%, reducing 2010 gains to 14.5%. Although bullion gained $10, the HUI gold index declined 1.3% (up 5.6%).
One-month Treasury bill rates ended the week at 13 bps and three-month bills closed at 15 bps. Two-year government yields were little changed at 0.51%. Five-year T-note yields declined 4 bps to 1.39%. Ten-year yields dropped 14 bps to 2.68%. Long bond yields sank 14 bps to 3.86%. Benchmark Fannie MBS yields fell 13 bps to 3.43%. The spread between 10-year Treasury yields and benchmark MBS yields widened one basis point to 75 bps. Agency 10-yr debt spreads were 3 wider at 21 bps. The implied yield on December 2010 eurodollar futures increased 2.5 bps to 0.47%. The 10-year dollar swap spread declined 3 to negative 2.25. The 30-year swap spread declined 13.5 to negative 43. Corporate bond spreads widened. An index of investment grade spreads rose 5 to 108 bps. An index of junk bond spreads jumped 29 to 573 bps.
It was another strong week of debt issuance. Investment grade issuers included Direct TV $3.0bn, International Lease Finance $4.0bn, Anadarko Petroleum $2.0bn, Toyota Motor Credit $1.0bn, Simon Properties $900 million, Keycorp $750 million, Wellpoint $1.0bn, Nustar Logistics $450 million, Cott Beverages $375 million, Great Plains Energy $250 million, and Orange & Rockland $160 million.
A record week of junk issuers included Ally Financial $1.75bn, Goodyear Tire $900 million, SPX Corp $600 million, Chesapeake Energy $2.0bn, American Tower $700 million, Peabody Energy $650 million, Rite Aid $650 million, QEP Resources $625 million, First Data $510 million, International Lease Finance $500 million, Building Materials Corp $450 million, Diamond Resorts $425 million, Pinnacle Food $400 million, Gentiva Health Services $325 million, Developers Diversified $300 million, Regal Entertainment $275 million, and Targa Resources $250 million.
I saw no converts issued.
International dollar debt sales included Statoil $2.0bn, Banco Bradesco $1.1bn, Opti Canada $825 million, Tembec Industries $255 million, KWG Property $250 million, Elan $200 million and Barclays Bank $100 million.
U.K. 10-year gilt yields sank 10 bps to 3.12%, and German bund yields dropped 13 bps to 2.39%. Greek 10-year bond yields jumped 33 bps to 10.48%, and 10-year Portuguese yields rose 22 bps to 5.21%. The German DAX equities index declined 2.4% (up 2.6% y-t-d). Japanese 10-year "JGB" yields fell 7 bps to 0.98%. The Nikkei 225 was hit for 4.0% (down 12.3%). Emerging equity markets were under some pressure. For the week, Brazil's Bovespa equities index dropped 2.7% (down 3.4%), and Mexico's Bolsa fell 2.5% (down 0.1%). Russia's RTS equities index sank 5.1% (down 0.1%). India's Sensex equities index was little changed (up 4.0%). China's Shanghai Exchange declined 1.9% (down 20.5%). Brazil's benchmark dollar bond yields fell 10 bps to 4.00%, and Mexico's benchmark bond yields dropped 12 bps to 3.88%.
Freddie Mac 30-year fixed mortgage rates declined another 5 bps last week to 4.44% (down 85bps y-o-y). Fifteen-year fixed rates fell 3 bps to 3.92% (down 77bps y-o-y). One-year ARMs dipped 2 bps to 3.53% (down 119bps y-o-y). Bankrate's survey of jumbo mortgage borrowing costs had 30-yr fixed jumbo rates down 8 bps to 5.37% (down 105bps y-o-y).
Federal Reserve Credit declined $142 million last week to $2.309 TN. Fed Credit was up $89bn y-t-d (6.5% annualized) and $320bn, or 16.1%, from a year ago. Elsewhere, Fed Foreign Holdings of Treasury, Agency Debt this past week (ended 8/11) jumped another $10.6bn (8-wk gain of $84.6bn) to a record $3.164 TN. "Custody holdings" have increased $209bn y-t-d (11.5% annualized), with a one-year rise of $349bn, or 12.4%.
M2 (narrow) "money" supply rose $16.9bn to $8.636 TN (week of 8/2). Narrow "money" has increased $123bn y-t-d, or 2.4% annualized. Over the past year, M2 grew 2.5%. For the week, Currency added $1.4bn, and Demand & Checkable Deposits increased $9.0bn. Savings Deposits rose $11.4bn, while Small Denominated Deposits declined $4.3bn. Retail Money Fund assets were little changed.
Total Money Market Fund assets (from Invest Co Inst) added $3.5bn to $2.822 TN. In the first 32 weeks of the year, money fund assets dropped $475bn, with a one-year decline of $771bn, or 21.5%.
Total Commercial Paper outstanding jumped $8.6bn to $1.105 TN. CP has declined $65bn, or 9.0% annualized, year-to-date, while it was up $31bn from a year ago.
International reserve assets (excluding gold) - as tallied by Bloomberg's Alex Tanzi - were up $1.457 TN y-o-y, or 20.6%, to a record $8.543 TN.
Global Credit Market Watch:
August 12 - Bloomberg (Tim Catts and Sapna Maheshwari): "Junk bonds are losing momentum as the busiest week on record for sales of the debt and a warning from the Federal Reserve about the outlook for the economy drives up relative borrowing costs. The extra yield investors demand to own high-yield debt climbed the most in two months... at least $12.9 billion of bonds [were] sold or marketed this week..."
August 9 - Bloomberg (Zeke Faux and Jody Shenn): "Wall Street banks are creating the 'next investment bubble' by selling opaque and unregulated structured notes to investors hunting for yield, according to Christopher Whalen, managing director of Institutional Risk Analytics. Using the same 'loophole' that allowed over-the-counter sales of collateralized debt obligations and auction-rate securities, firms are pitching illiquid structured notes whose value is partly derived from bets on interest rates... 'The only trouble is that the firms originating these ersatz securities, as with the case of auction-rate municipal securities, have no obligation to make markets in these OTC structured assets or even show clients a low-ball bid,' Whalen wrote."
August 12 - Bloomberg (Emma Ross-Thomas and Esteban Duarte): "Prime Minister Jose Luis Rodriguez Zapatero may face a second front in his battle to contain Spain's fiscal crisis as borrowing costs for the country's regional governments climb. Catalonia, which accounts for a fifth of Spanish gross domestic product, has been shut out of public bond markets since March and the extra yield it pays over national government debt has almost tripled this year. Galicia, in the northwest, has asked to freeze payments of debt it owes the central government and the Madrid region postponed a bond sale last month."
August 9 - Bloomberg (Christine Harper): "Goldman Sachs..., the bank that makes the most revenue trading stocks and bonds, lost money in that business on 10 days in the second quarter, ending a three-month streak of loss-free days at the start of the year. Losses on Goldman Sachs's trading desks exceeded $100 million on three days during the period that ended on June 30... Today's filing also shows that the firm's traders generated more than $100 million on 17 days during the quarter. Of the 65 days in the quarter, Goldman Sachs traders made money on 55 days, or 85% of the time."
August 13 - Bloomberg (Zachary R. Mider): "More than half of the 100 biggest takeovers made during the last mergers-and-acquisitions boom have something in common: By one measure, they never should have happened. The stocks of 53 companies that made the biggest purchases from 2005 to 2008 lagged behind industry peers two years later, according to... Bloomberg's ranking group."
August 10 - Bloomberg (Gabrielle Coppola and Veronica Navarro Espinosa): "Banco Bradesco SA's $1 billion bond sale is making this month the busiest August since 2000 in the Brazilian market as a rally sends corporate borrowing costs to near the lowest on record."
Global Government Finance Bubble Watch:
August 11 - Financial Times (Sam Jones): "Hedge fund trading of US government bonds has surged in 2010, according to a comprehensive new survey of fixed income investors. Hedge fund managers now account for a fifth of all trading volume in the $10,000bn US Treasury bond market, up from just 3% in 2009, according to Greenwich Associates."
August 13 - Bloomberg (David Yong and Lilian Karunungan): "Global investors are pumping record amounts of money into developing nations' domestic bonds this year... Funds investing in emerging-market local-currency debt have attracted $16.9 billion of net inflows so far, more than triple the record annual intake of $5 billion recorded in 2007, according to... EPFR Global."
August 11 - Bloomberg (Renee Bonorchis): "Nassim Nicholas Taleb, who warned that unforeseen events can roil markets in 'The Black Swan,' said he is 'betting on the collapse of government bonds' and that investors should avoid stocks. 'I'm very pessimistic,' he said... 'By staying in cash or hedging against inflation, you won't regret it in two years.' ...The financial system is riskier than it was than before the 2008 crisis that led the U.S. economy to the worst contraction since the Great Depression, Taleb said."
August 10 - Bloomberg (Kathleen M. Howley): "Harvey Collier, a mortgage broker in Fort Lauderdale, Florida, says he gets as many as 10 calls a month from people planning to default on their loans. The twist: They first want financing to buy another home. Real estate professionals call it 'buy and bail,' acquiring a new house before the buyer's credit rating is ruined by walking away from the old one because it's 'underwater,' or worth less than the mortgage. It's an attempt to escape payments on a home whose value may never recover while securing a new property, often at a lower price with a more affordable loan. The practice, which constitutes fraud if borrowers lie on loan applications, is continuing even after Fannie Mae and Freddie Mac, the biggest U.S. mortgage-finance companies, beefed up standards to prevent it..."
August 9 - Bloomberg (Masaki Kondo and Keiko Ujikane): "China bought more Japanese bonds than it sold for a sixth straight month in June, heading for the biggest annual increase on record... China purchased a net 456.4 billion yen ($5.3bn) of Japanese debt in June, following net buying of 735.2 billion yen in May that was the most in records dating from 2005... China should pare its holdings of dollars to counter the risk of a 'sharp depreciation,' former adviser to the central bank Yu Yongding wrote in the China Securities Journal last month."
August 11 - Bloomberg (Jungmin Hong and Saeromi Shin): "Korea Teachers Pension, the nation's second-largest public pension fund, favors bonds and stocks of Brazil, China, Indonesia and Malaysia over developed countries because their economies are expanding faster. 'We may invest more there,' Chief Investment Officer Lee Yun Kyu, who oversees 8.3 trillion won ($7.1 billion), said... 'Emerging nations, relatively free from the sovereign debt crisis, will be in good shape.'
The dollar index rallied 3.1% to 82.92 (up 6.5% y-t-d). For the week on the downside, the Swedish krona declined 4.9%, the Norwegian krone 4.2%, the euro 4.0%, the Danish krone 3.9%, the New Zealand dollar 3.8%, the Australian dollar 2.8%, the British pound 2.2%, the South Korean won 1.8%, the Canadian dollar 1.4%, the Singapore dollar 1.2%, the Swiss franc 1.2%, the Japanese yen 0.8%, and the Brazilian real 0.6%.
August 12 - Bloomberg (Jeff Wilson): "World wheat stockpiles before next year's Northern Hemisphere harvests will be 6.6% smaller than forecast a month ago after adverse weather decimated crops in Russia, Kazakhstan and Ukraine, according to the Department of Agriculture."
August 12 - Bloomberg (Jeff Wilson and Whitney McFerron): "The world's appetite for meat, flour and ethanol is expanding faster than the supply of the crops needed to produce them, eroding inventories and increasing the chance of accelerating food prices. Wheat stockpiles may slip to a two-year low... according to 17 analysts in a Bloomberg survey. Inventories of corn, used to feed livestock and make fuel, probably will drop to the lowest level since 2008, even as output tops a record..."
The CRB index fell 2.2% (down 5.1% y-t-d). The Goldman Sachs Commodities Index (GSCI) sank 4.1% (down 2.3% y-t-d). Spot Gold added 0.8% to $1,216 (up 10.8% y-t-d). Silver fell 2.0% to $18.165 (up 7.8% y-t-d). September Crude sank $5.31 to $75.39 (down 5% y-t-d). September Gasoline was hit for 8.2% (down 5.5% y-t-d), and September Natural Gas declined 3.1% (down 22% y-t-d). September Copper declined 2.6% (down 2% y-t-d). September Wheat retreated 3.2% (up 30% y-t-d), while September Corn rose 1.7% (down 1% y-t-d).
August 10 - Bloomberg (Jungmin Hong and Saeromi Shin): "China's trade surplus reached an 18-month high as exports rose to a record and import gains slowed... The gap surged 170% from a year earlier to $28.7 billion... Exports increased 38.1% to $145.5 billion and imports advanced 22.7% to $116.8 billion..."
August 9 - Bloomberg: "China's industrial output growth may have weakened in July as the government shuttered energy-intensive factories, highlighting how environmental goals risk damping growth just as export orders soften. Industrial production climbed 13.4% from a year earlier... China is lagging behind a target for reducing the amount of energy used relative to gross domestic product, with only months to run in Premier Wen Jiabao's five-year plan."
August 10 - Bloomberg (Jungmin Hong and Saeromi Shin): "China's banking regulator ordered banks to transfer off-balance-sheet loans onto their books and make provisions for those that may default... The assets linked to wealth management products provided by trust companies must be shifted onto banks' balance sheets by the end of 2011, the people said... The move may increase pressure for capital-raising at Chinese banks, which Fitch Ratings last month said had more than 2.3 trillion yuan ($339 billion) of off-balance sheet assets."
August 10 - Bloomberg: "China's property prices rose at the slowest pace in six months in July as the government cracked down on speculation to prevent asset bubbles. Prices in 70 major cities climbed 10.3% from a year earlier... The value of sales fell 19.3 percent from a year earlier..."
August 12 - Bloomberg: "Shanghai's new mortgage loans plunged 98% in July from a year earlier as a government crackdown on property speculation deterred investors from buying homes in China's richest city."
August 10 - Bloomberg (Jungmin Hong and Saeromi Shin): "China's auto sales may rise to 16 million this year, an auto makers' group said, boosting its forecast from a previous estimate of 15 million. Vehicle sales will be higher than previously expected judging by deliveries in the first half of the year..."
August 12 - Bloomberg: "China's households hide as much as 9.3 trillion yuan ($1.4 trillion) of income that is not reported in official figures, with 80% accrued by the wealthiest people, a study showed. The money, much of it likely 'illegal or quasi-illegal,' equates to about 30% of China's gross domestic product, the study, conducted for Credit Suisse... found. The average urban disposable household income in China is 32,154 yuan, or 90% more than official figures, according to the report."
August 13 - Bloomberg (Sophie Leung): "Hong Kong's economy expanded a more- than-estimated 6.5% in the second quarter and the government announced measures to limit the risk of bubbles in the property market... Hong Kong's economy will grow between 5% and 6% for the full year, the government said..."
August 12 - Bloomberg (Kartik Goyal and Unni Krishnan): "India's industrial production rose at the slowest pace in 13 months in June... Output at factories, utilities and mines rose 7.1% after a 11.3% gain in May from a year earlier..."
Asia Bubble Watch:
August 10 - Bloomberg (Sarah McDonald): "Corporate bond sales in Asian currencies reached a record last month as companies seek capital to fund power plants, tower blocks and railways in the world's fastest-growing economic region."
August 10 - Bloomberg (Karl Lester M. Yap and Cecilia Yap): "Philippine exports gained for an eighth month in June as demand for electronics rose... Shipments abroad increased 33.4% from a year earlier..."
Latin America Watch:
August 10 - Bloomberg (Drew Benson and Boris Korby): "Argentine securities linked to gross domestic product are outperforming the country's bonds by the most in five months... South America's second-biggest economy is 'scorching' and may grow 9.7% this year, the most since 1992..."
Unbalanced Global Economy Watch:
August 13 - Bloomberg (Christian Vits): "Germany's economy grew in the second quarter at the fastest pace since the country's reunification two decades ago, driving faster-than-forecast expansion in the 16-nation euro area. German gross domestic product surged 2.2% from the first quarter, fueling euro-area growth of 1%, the fastest in four years."
August 12 - Bloomberg (Johan Carlstrom): "Swedish inflation accelerated in July after consumer confidence rose to its highest level in nearly a decade... Headline consumer prices increased an annual 1.1%..."
August 12 - Bloomberg (Maria Petrakis): "Greece's economy contracted for a seventh quarter and unemployment rose as the wage-cuts and tax increases that aim to trim the European Union's second-biggest budget deficit deepened a recession. Gross domestic product shrank 1.5% in the second quarter from the previous three months..."
August 11 - Bloomberg (Maria Levitov): "Russia's economic expansion accelerated in the second quarter as commodities prices rose and a recovery in domestic demand gathered speed. Gross domestic product grew 5.2% from a year earlier..."
August 10 - Bloomberg (Lucian Kim and Maria Levitov): "Russia's record heat wave may already have taken 15,000 lives and cost the economy $15 billion, or 1% of gross domestic product..."
August 10 - Bloomberg (Maria Levitov): "Russia's federal budget deficit widened in July... The seven-month shortfall swelled to 538.84 billion rubles ($17.96bn), or 2.2% of gross domestic product... Russia posted a budget deficit of 5.9% of GDP last year, its first shortfall since 1999..."
U.S. Bubble Economy Watch:
August 11 - Bloomberg (Bob Willis): "The trade deficit in the U.S. unexpectedly widened in June to the highest level since October 2008 as consumer goods imports rose to a record and exports declined. The gap expanded $7.9 billion, the most since record-keeping began in 1992, to $49.9 billion in June... Exports from the U.S. decreased to $150.5 billion from $152.4 billion, reflecting fewer shipments abroad of semiconductors, computers and steelmaking materials. Imports increased in June to $200.3 billion from $194.4 billion..."
August 9 - Bloomberg (Courtney Schlisserman and Shobhana Chandra): "The U.S. economy will improve slowly and another round of fiscal stimulus probably wouldn't be effective, former Treasury secretaries Paul O'Neill and Robert Rubin said."
Central Bank Watch:
August 11 - Bloomberg (Jennifer Ryan): "Bank of England Governor Mervyn King said inflation will probably slow below the bank's target in 2012 and growth will be weaker than previously forecast, signaling the U.K. economy may need more emergency stimulus."
August 9 - Bloomberg (Lorraine Woellert): "Freddie Mac, the mortgage company operating under federal conservatorship, is seeking $1.8 billion in aid from the U.S. Treasury Department after a fourth straight quarterly loss. The... company lost $4.7 billion in the second quarter... 'High unemployment and other factors still pose very real challenges from the housing market and with that in mind we continue to focus on the quality of the new businesses we are adding to our book to be responsible stewards of taxpayer funds,' Chief Executive Officer Charles E. Haldeman Jr. said..."
August 12 - Bloomberg (Michael B. Marois): "Washington state... may need to cut spending by as much as 7% if declining revenue widens a $3 billion budget deficit, according to Governor Christine Gregoire. Gregoire... said she'll order all state agencies to prepare spending cuts of 4% to 7% starting Oct. 1 if September tax collections miss a state forecast."
August 10 - Bloomberg (Martin Z. Braun): "Bell, the Los Angeles suburb that paid its city manager almost $800,000 a year, had its credit cut five steps to junk by Standard & Poor's on concerns about the city's ability to refinance or pay debt due Nov. 1."
August 10 - Bloomberg (Michael B. Marois): "California's tax revenue in July came in $91 million below Governor Arnold Schwarzenegger's latest estimate, according to state Controller John Chiang. Revenue of $4.67 billion trailed projections produced in May by 1.9%... Personal income tax collections were $210.3 million, or 6.6% below the May forecast... Spending surpassed the May forecast by $963.3 million, or almost 13%... Outlays exceeded receipts by $1.23 billion for the month... California, the biggest issuer of debt among U.S. states, has been operating without a spending plan since July 1 as Schwarzenegger and the Legislature remain at odds over how to fill a $19.1 billion budget deficit. Chiang has said he may need to issue IOUs to pay bills for the second straight year if the impasse extends into next month."
August 10 - Bloomberg (Tomoko Yamazaki and Warren Giles): "Hedge funds posted their biggest gain in four months in July as a rally in equity, commodity and bond markets contributed to positive performances across all regions, according to Eurekahedge Pte. Ltd. The Eurekahedge Hedge Fund Index, which measures the performance of more than 2,000 funds worldwide, rose 1.42% in the month... The index climbed 1.17% in the first seven months of the year."
So Much for the Exit Strategy
I had limited time to write today, but I'm hoping a few paragraphs will be better than nothing. The environment beckons for more thorough analysis.
Ten-year Treasury yields dropped another 14 bps this week to 2.68%. Benchmark Fannie MBS yields sank 13 bps to a record low 3.43%. Tuesday's announcement from the Federal Open Market Committee (FOMC) further emboldened a highly-speculative fixed-income marketplace.
Some analysts argue that the Fed's move to reinvest cash receipts from its MBS portfolio into Treasurys is no big deal; the decision will not involve sums of Treasury purchases sufficient to move market and economic needles. A former Federal Reserve Governor - and noted "Fed watcher" - commented on CNBC that this amounts to "neutral" monetary policy. It is his view that it would be a case of "tight" policy if the Fed's balance sheet were allowed to shrink with a drawdown in its MBS portfolio. Conversely, Federal Reserve holdings would need to expand for monetary policy to remain loose. The size of the Fed's balance sheet is now viewed as a key policy tool.
I see things differently - and view this week's decision by the Bernanke Federal Reserve as yet another dangerous leap into experimental monetary management. Market perceptions remain the key facet of Bubble analysis - and not week-to-week changes in Fed holdings.
Not many weeks ago the focus was on the Fed's "exit strategy." Apparently, policymakers now recognize that there is no way out. It was suppose to have been a case of the Federal Reserve having used its balance sheet as an extraordinary policy tool in response to the 2008 Credit seizure, with the Fed dedicated to unwinding this unprecedented stimulus as the system stabilized. Today, not only is the Fed unwilling to normalize its securities holdings, it has signaled to the markets that it is able and willing to expand its balance sheet on an as needed basis. At least that's the way the markets will see things: the Fed is there ready to act quickly and forcefully as a reliable system backstop. No more worries about "exit" issues; and as the debt markets turn increasingly overheated, it's sure comforting to know the Fed is there to ensure marketplace liquidity. This is a very big deal.
There were a lot of crosscurrents in the market this week. The dollar rallied sharply, immediately reinstituting pressure on various global risk markets. Euro weakness quickly translated into widening risk premiums in periphery European debt markets - that then tend to feed further euro vulnerability. The dollar pop also slammed crude prices and pressured some of the other commodities. And reminiscent of the Greek debt crisis period, dollar strength pressured global equities markets more generally. The global "reflation trade" seems these days to hinge on a day-to-day basis on the direction of the dollar - especially versus the euro.
Market pundits pointed to the Federal Reserve's downbeat economic assessment as the main reason behind the equity sell-off, although the currency markets continue to be the driving force behind wildly volatile global markets. Perhaps the Fed's downbeat assessment and announcement of Treasury purchases was somehow behind the dollar's rally; or perhaps it was instead that traders had become sufficiently bearish on the dollar to ensure that Mr. Market did an about face - with a "rip their faces off!" rally.
Stocks were weak and the dollar was generally strong. But the real show was provided - once again - in fixed income. Prices continued their melt up - yield meltdown - with Bubble Dynamics becoming only more conspicuous each passing week. And I know that most dismiss the Bubble thesis and view prices as reflecting poor economic prospects and the deflationary backdrop. I would respond that the backdrop remains extraordinarily conducive to Bubble expansion.
Barron's Jonathan R. Laing captured the current mood with his article, "Time to Print, Print, Print." With inflation risks so low and the scourge of deflation so potentially devastating, many believe it would be a dereliction of the Federal Reserve's duty not to aggressively expand its securities holdings ("print money"). Similar reasoning was used to justify the ultra-loose monetary policies earlier this decade that inflated the mortgage/Wall Street finance Bubble.
Today, extreme activist fiscal and monetary policies inflate the Global Government Finance Bubble. After the 2008 fiasco, I have a difficult time comprehending how analysts can remain dismissive of Bubble risks. And with an increasingly conspicuous Bubble at the heart of our monetary system, our central bank should not be encouraging the market perception that the Fed is there to backstop the markets and economic recovery with open-ended Treasury purchases. Instead of a well-functioning marketplace (and central bank) working to discipline a profligate Washington, dysfunctional monetary and market environments continue to accommodate perilous Credit excess.