“In the old days … the Fed controlled the federal funds rate with open market operations,” Antulio Bomfim, a former Fed economist now with Macroeconomic Advisors LLC in Washington told Reuters. “Now, at least in this period when reserves are over-abundant, the way the Fed hopes to raise the federal funds rate will be primarily by raising the interest rate it pays on reserves.”

Is this the beginning of a new bull market or just a last-gasp bear market rally? We just don’t know. We’ve got a hunch is all. According to value investing guru David Dremen, it doesn’t matter much, either.

Hey… how ‘bout this rally!

Waterford, Ireland

Our faith is weakening. That is, our faith that the government will be able to cause inflation, sooner or later. Let’s review our own narrative: deflation now, inflation later.

Gold stocks are taking a drubbing, as are most of the other classic inflation hedges. Why? Because inflation fears have abated. The deflationist view of the world is the one that now prevails. That’s why 10-year Treasury yields have dropped all the way down to 3.35% from a high of 3.95% one month ago.

Stocks fall again… Rob Parenteau on what it will take to move markets higher… Are U.S. equities turning Japanese? Two charts that might have you thinking so… The ultimate indicator? One d-list data point that’s marked the end of recessions since 1970… President, mainstream media wake up to debt dilemma… our executive sounds off… Plus, a sector still “growing explosively,” despite the recession…

We lay awake last night wondering if we’d made a terrible mistake warning notes readers of the coming “Great Inflation.” We know that the government is spending unprecedented sums of borrowed and printed cash to ‘fix’ the economy… the money supply as measured by M2 is shooting up (at an annualized rate of 14% over the past six months)… but the threat of deflation remains.

The Markets await the Obama economic stimulus and bank rescue plans…  AngloPlat reports higher earnings but flags up cost fears… Johnson Matthey (JMAT) sees 2009 platinum demand declining 5 pct…

Worries over the economy and corporate earnings weigh… Focus on inauguration of President-elect Barack Obama… S&P 500 futures off 1.5 pct, Dow futures off 1.1 pct, Nasdaq futures off 1.2 pct

The Congressional Budget Office’s announcement Wednesday that 2009’s budget deficit was going to be $1.19 trillion – before a nickel of President-elect Barack Obama’s stimulus plan has been included – raises a crucial question for the U.S. economy: Is there too much stimulus, and what effect would too much stimulus have?