From DOUG NOLAND and my comments

The Treasury market was volatile but finished yesterday with a strong rally. For the week, two-year Treasury yields declined 4 basis points to 4.43%. Five-year government yields fell 7 basis points to 4.49%. Bellwether 10-year yields dropped 10 basis points for the week to 4.57%. Long-bond yields declined 8 basis points to 4.74%. The spread between 2 and 10-year government yields declined about 6 to 14bps.

Junk bond fund outflows rose slightly to $138 million (from AMG).

Japanese 10-year JGB yields declined 4 basis points this week to 1.565%.

Broad money supply (M3) dipped $1.4 billion (week of October 31) to $10.075 Trillion. Over the past 24 weeks, M3 has surged $450.1 billion, or 10.1% annualized.

AS you guys already know!! November 10 – Bloomberg (Vincent Del Giudice): “The Federal Reserve announced today it will discontinue reporting data on the broadest measure of the money supply, M3, effective March 23, 2006.”

INSANITY REINS!!!

Total Commercial Paper surged $19.3 billion last week to a record $1.661 Trillion. Total CP has expanded $247.5 billion y-t-d, a rate of 20.2% (up 21.4% over the past 52 weeks). Financial CP jumped $14.6 billion last week to $1.496 Trillion, with a y-t-d gain of $211.7 billion, or 19.0% annualized (up 21.3% from a year earlier). Non-financial CP increased $4.7 billion to $165.3 billion (up 31.9% ann. y-t-d and 22.5% over 52 wks). WOW!!!!!

Copper traded to another record high.

FRICKEN SAD!!!!! China Watch:

November 10 – Market News International: “China’s exports for October alone rose 9.7% year-on-year to $68.09 bln and imports were up 23.4% at $56.08 bln… Exports for the first 10 months of this year rose 31.1% to $614.49 bln and imports were up 16.7% at $534.12 bln for the 10-month period.”
November 7 – Bloomberg (Ben Sills and John Fraher): “European Central Bank council member Nicholas Garganas said money supply growth is a ‘serious risk’ to inflation and may tip the bank toward its first increase in interest rates in five years. ‘There is no question that the recent acceleration of M3 growth poses some serious risks to long-term inflation,’ said Garganas… Should the ECB see ‘any indication that the risks to inflation are likely to materialize, we will act.”’

**Broker Dealer stocks set NEW HIGHS!! November 9 – Bloomberg (Gregory Cresci): “After paying more than $12 billion in fines and settlements over four years, Wall Street firms including Goldman Sachs Group Inc. and Lehman Brothers Holdings Inc. are headed for their biggest profits since 2000.

DANGER WILL ROBINSON: Speculator Watch:

November 8 – Bloomberg (John Dooley): “The growing use of credit derivatives by hedge funds is adding risks to global credit markets at a time when bankruptcies at companies such as Delphi Corp. have raised concerns about declines in credit quality, according to Fitch Ratings. ‘Hedge funds are punching above their weight,’ said Roger Merritt, senior credit officer at the ratings company… The use of leverage and active trading strategies has increased their ability to influence markets and may change the behavior of credit markets during the next downturn.’”

**And this “leverage” is what is being used to goose stock markets?

POOLE FOOL : Moreover, the U.S. case is unique in a number of respects. The central role of U.S. financial markets—and of the dollar—in the world economy suggests that capital account surpluses, and therefore current account deficits, are being driven primarily by foreign demand for U.S. assets rather than by any structural imbalance in the U.S. economy itself.”

"We can all benefit from our good fortune in having access to increasingly safe, liquid and transparent financial markets. The United States has created for itself a comparative advantage in capital markets, and we should not be surprised that investors all over the world come to buy the product.”

DOUG DOESN’T AGREE!!! It is my view that the U.S. Current Account Deficit is today the most problematic imbalance in a world of gross imbalances and that it is poised to be the most pressing and intractable economic issue over the coming months and years. It is also my view that Dr. Poole has surpassed even Professor Bernanke as the framer of the most specious and dangerous analysis to originate from our Federal Reserve System.

IN CONCLUSION DOUG WRITES


A lot of things are uncertain these days, but as long as the world accommodates $800 billion U.S. Current Account Deficits – and the Fed is more than ok with it - it’s a safe bet that there will be heightened global inflationary pressures, increasingly unwieldy financial flows, and only greater Monetary Disorder. And, I might add, the word “debtor” (nation) is not the least bit misleading.

http://www.prudentbear.com/archive_comm_article.asp?category=Credit+Bubble+Bulletin&content_idx=48581