Bill Cara: February budget balance is worst ever, Fri., Mar. 10, 2006, 3:47 PM

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March 10, 2006

February budget balance is worst ever, Fri., Mar. 10, 2006, 3:47 PM

CNBC can make excuses that in February the tax receipts are minimal, and the government is still paying out for Katrina, but facts are facts: The $119.2 billion deficit is the worst ever.

And so interest rates have to be raised to attract foreign buyers of U.S. Treasury paper.

The 10-year Treasury yield at the open this morning was put at 4.763, and quickly went to 4.787. The bond market didn't do this. But bond holders are screaming. They feel like they are getting Krispy Kremed by the Fed.

What I didn't care for was CNBC Chief Economist Steve introducing the 2:00pm ET Treasury Budget Report as a good news " bad news thing.

He said the bad news was that the $119.2 B was a record high, but the good news, he said, was that it was less than expected. NOT.

This nonsense is why CNBC is not a credible source of media. Either start telling the truth or get rid of Steve. Because we're on to him.

Here is the truth. It comes from Econoday, as usual. (Except that I think their chart is wrong, which is not usual: The FY06 Feb balance was not +120 B; it was -120 B)

Posted by Posted by Bill Cara on March 10, 2006 03:47:49 PM | Category: Bonds , Economics

Discourse

I'm not convinced that a rising deficit necessarily pushes interest rates higher -- look at Japan, after all. But suppose it matters, doesn't it then matter that, as a percent of GDP, the deficit has been shrinking since the Fed signaled it would begin tightening?

Posted by: Cpfeiffer at March 10, 2006 5:52 PM [link]

cpfeiffer-

If the deficits are used to invest in outlets that produce real economic returns, I tend to agree. When they are used unproductively by the government for low payoff programs or wars then I think they are highly inflationary at the margin.

Posted by: MarkM at March 10, 2006 6:01 PM [link]

Deficits...i don't know if it will raise rates....but a tax and spend policy that is somewhat "eat like an elephant and crap like a pigeon" has got to be trouble as some point....the more you borrow....the higher risk you become...the money you borrow may be at a higher rate.....possibly

Posted by: Bullring at March 10, 2006 6:34 PM [link]

Fed Futures is pricing in:

100% odds that the funds rate will be raised to 4.75% at the March 27-28 FOMC meeting, and a 95% odds that it will be raised to 5.0% at the May 10 meeting. For the June 29 FOMC meeting, the market is priced for a 24% odds of a hike to 5.25%, up from 10% Thursday and 0% a week ago.

Source: Tony Crescenzi

Tipping point for equities is 5% IMHO. So maybe enough time for a low quality rally here off ST oversold conditions but after March Fed action and no relief in sight I'd be extremely cautious with portfolios.

Posted by: MarkM at March 11, 2006 7:41 AM [link]

Rates are rising, period. The 10 year treas is in a clear uptrend, stocks may ignore this short term, talking heads may go on to talk about this or that, you and I can argue the cause... but as we are headed higher (rates) that is a clear and present danger to capital in the stock market.

The change in character for the bond market is now sinking in to bond traders. Sentiment took are sharp turn down this week (see DP, RYdex). They have now begun to shift in size, past history suggest that the move to the bear camp takes a few months to play out. Counter trend moves are possible of course and that could provide some selling oportunity but for now I think it wise to pay attention to sell discipline- limiting losses to stock portfolios sb primary concern. JMHO

Posted by: stockman at March 11, 2006 8:32 AM [link]

stockman-

I would be interested in hearing your results vis a vis this market for Jan-Feb-Mar. I have no problem saying mine are completely flat (so trailing) and positive results came from unexpected area (PG). Portfolio is built for outperformance should S&P decline below say 1250. If want to have my private email address please ask Bill or g034 for it. Thanks.

Posted by: MarkM at March 11, 2006 8:46 AM [link]

Why wouldn't Ben Bernanke come out swinging in March with a 1/2% increase to show he really is the new guy in town?

Posted by: C.Note at March 11, 2006 9:12 AM [link]

MarkM / Bill

To give you a full response email would probably be better. I do not have contact info on g034.

Bill, please share my email with both MarkM and g034. I beilieve I had asked this before but you were on a beach someplace at the time;-) Thanks!

Posted by: stockman at March 12, 2006 8:51 AM [link]