In the last two weeks gold prices are up 4%, oil prices are up 13.5%, the
U.S. dollar index has fallen 3%, and a plethora of negative economic new
was released. Yet despite all this thirty year government bond prices soared
over
5%, credit spreads narrowed, and the S & P rose 1.5%

Alan Greenspan appears to have succeeded in pulling off what amounts to one
of the best propaganda campaigns of all time, convincing Wall Street, the financial
media, and most amazingly the bond market, that inflation is not high enough,
and that Fed action to create even more inflation is not only necessary but
desirable. As a result, global speculators bought treasuries in anticipation
of further Fed easing and “unconventional monetary policy” under
which the Fed aggressively buys long term treasuries. Falling interest rates
helped boost the stock market.

However, this bond market bubble is the grand daddy of them all. Analysts
and commentators who are trying to make economic sense of the bond rally are
missing the point. The rally has nothing to do with economic fundamentals and
every to do with momentum and foolhardy speculation. The same dynamics that
propelled the internet bubble. Make no mistake about it, bond prices will ultimately
collapse, and interest rates will soar, I just do not know when. What I do
know is that the U.S. dollar will continue to fall, gold, oil, and other commodity
prices will continue to rise, and eventually the fundamentals of inflation
and recession will catch up with the bond and stock markets.