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Sand In the Gearbox
There have been numerous voting and non-voting members of the Federal Open Market Committee giving speeches about the intentions of the group to keep interest rates unchanged. The promise that interest rates will remain low for quite some time is based upon a belief that any recovery would be slowed, if not halted should Mr. Greenspan hint at moving the short term rates north of their current resting place at 1%.

There is something else inside of these words though that concerns me and that probably should be good for the bond market. The Fed would need to go to some sort of increased rate if the economy progressed at too fast a rate and then softening somewhat immediately following to fight the chance that disinflation might take hold. By suggesting that they have no intention so early in the recovery might signal a belief that the recovery will not be all that its trumped up to be. If Treasury prices rise on small news like this, imagine those same prices after the Fed realizes that the recovery will move so slowly, closer to 3% than the optimistic estimates of 4.5%, that they will be forced to admit they have shown all of their cards.

Did you know that had you invested in Treasury Bills in 1995 instead of equities, you would now be sitting much prettier as a result. In light of the recent scandals racking the mutual fund industry, the safe haven of T-bills would have lacked the euphoric uphill and downhill ride that equity investing would have provided. These steady as she goes investments seemed to beat not only equity investors but also bond fund investors as well. The reason according to Randall W. Forsyth, the willingness of investors to rush in at the top.