Weekly Info 12/14/2012

The Fed has embarked on QE4, or open-ended, or without end. Whatever. Next year the Fed will buy $1 trillion in Treasurys and MBS, and continue to buy until enough people are back at work, and stop short only if inflation becomes a problem. The buying is designed to keep long-term rates of all kinds low, and thereby revive the economy. Naturally, rates rose since the announcement. Not a lot, the 10-year T-note above 1.70% from lows near 1.58%, and mortgages pushing 3.50%. There is a logic to the rise. Several logics. First the crowd who from the onset of Fed efforts to save us in 2007 have been certain -- certain -- that inflation would follow, and been totally mistaken. Then the mob which believes QE opens the free-money door to "risk assets" -- stocks, gold, and commodities. This time stocks fell, but more because of Cliff crumbling than loss of QE faith. Last a sensible group: if the Fed is trying this hard to revive the economy, it may work. All roads from that thought lead to the same place: for the moment, sell bonds, sell more than the Fed is buying. Thus rates rose.