The New York press tells us that Steve & Barry’s, a clothing retailer with 200 stores, has filed for Chapter 11. And Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE) got walloped again.

The two Mississippi Companies [a reference to the government-chartered company in 18th century France that dominated a huge bubble, went broke and practically bankrupted the nation] desperately need to raise money. But even though the two are backed by the U.S. government and clearly “too big to fail,” investors are being a lot more grudging with their money these days. Fannie had to pay 74 basis points over the Treasury rate to get cash, much more than in the past. Freddie’s stock dropped to $10. Fannie’s hit $15. Both traded as high as $60, if we recall correctly.

IndyMac (NYSE:IMB) is in the news too. The big mortgage lender specialized in Alt-A loans – a step up from subprime, but apparently not a very big step. The shares traded at $50 in 2006. Yesterday, they were marked down to 44 cents.

Bloomberg tells us that Wall Street debt is being “downgraded by derivative traders.” They know the stuff better than anyone, of course.

What is surprising – to us, anyway – is that they aren’t downgrading government debt. We believe the credit cycle has turned. After a quarter century of falling yields, it looks to us as though yields have formed a major, triple-bottom. Which is to say, bond prices, (remember, they go up as yields go down) have hit three successive peaks, more or less at the same altitude, in 2003, 2005 and again in 2007.

But if we’re on the downward slope, so far it’s a gentle one. We looked yesterday and found the 10-year T-note yielding all of 3.88%.

We have to pause a minute and draw breath. What are bond buyers thinking? Of safety, surely. They see this latest assault of deflation – with falling stock prices all over the world…with Wall Street collapsing…the Fed nervously holding the key rate at 2%…oil slipping, possibly topping out – and they look for a hole to jump in. What better hole than U.S. Treasuries…dug deep by the full faith and credit of the U.S. government and denominated in the almighty dollar?

Well, ahem…that there is the problem. The hole may be deeper than they think.

Conventional wisdom holds that inflation will not be a lasting threat. The experience of the last quarter century is that short bursts of rising prices are soon replaced by another longish period of stable ones. But this was the period when the Chinese and Wal-Mart (NYSE:WMT) were lowering prices on manufactured goods…when labor rates were held down by the influx of millions of people into the modern economy…and before the cycle of commodity prices turned up. This was also the period in which interest rates were falling…and almost infinite amounts of money were available to increase consumer spending and production. That period is over.

Nevertheless, millions of investors expect it to continue. They believe that a cooling world economy will bring the forces of inflation back to their barracks and that they can go on collecting 3.88% coupons without feeling like chumps.

Who knows? Maybe they’re right. Still, we think they are morons. Even if they turn out to be right, the margin of safety on U.S. Treasuries is so razor thin they’re bound to cut a vein.

The real issue for us here at The Daily Reckoning is how the world ends. The world as we know it…Boomland…the world of constantly expanding credit and rising asset prices…is finished, we think. Does it end with a bang or a whimper? Does it end with the bang of inflation? Or the whimper of dying prices?

“Both” is still our best guess.

Source: The End of the Boomland Economy

If you’re wondering what I’m talking about, today is Tax Freedom Day — the day when the average worker in Britain has earned enough to pay their tax bill.Apparently it’s fallen one day earlier than in 2007. However, it’s a full seven days later than it was when New Labour first came to power. We now spend, on average, one week more than we did simply working for the Government.

That’s why I admire Robin Tracey. Because for Robin, EVERY day is Tax Freedom Day!

I’ll explain what I mean by that below. First, though, let’s dive into today’s Big News…

Bradford and Bingley shares suspended

Bradford and Bingley (B&B) had its shares suspended by the FSA this morning, following a 30% fall. The mortgage lender, which is heavily exposed to the Buy-To-Let market, is expected to miss forecast profits by £100 million. Chief executive Steven Crawshaw has stepped down. B&B is expected to do a rights issue.

But amidst all the hullabaloo, Texas Pacific Group is buying what, to our eyes, looks like an eye-wateringly expensive 20% stake.

Do they know something the rest of us don’t? Theo Casey takes a closer look, and also makes the case for looking beyond simple value investing…

Has the tide turned for interest rates?

“Nobody can convince me that we’re able to boost economic growth with a lax monetary policy.”

The words of Klaus Liebscher there, one of the European Central Bank’s (ECB) monetary policy gurus.

Hear hear!

Liebscher went on to say that eurozone inflation is “very high” and that the ECB’s price stability mandate is “more than urgent” (what “more than urgent” means I’m not sure — perhaps this is a mistranslation…)

The bond market has the scent of a rate rise in its nostrils. Not that long ago, the market was pricing in a rate cut by the end of the year. Now the opposite position holds sway. Bond fans expect rates will rise.

Does this mean policy makers are finally taking inflation seriously? Well, the ECB has been hawkish for some time now. But what about closer to home? What’s happening on Threadneedle Street? Let’s take a look…

My oh my! We have a bit of a tussle on our hands, folks! A bone of contention has arisen between the Bank of England and the Treasury. Mervyn King, the Bank’s Governor, wants to promote Professor Charles Bean to the post of Deputy Governor when Rachel Lomax steps down.

But the Treasury is unhappy with the proposal. The other Deputy Governor is Sir John Gieve, whom the Treasury has criticised for not being ‘City-savvy’ enough.It fears promoting an academic to be the other Deputy will unbalance the Monetary Policy Committee. Cynics have suggested that the Treasury wants a City-friendly face simply because that’s more likely to lead to a policy the Government finds agreeable.

Though no-one’s said so (yet), I suspect they’re also uncomfortable with the idea of someone called Mr Bean wielding so much power over economic affairs…

Tension between a central bank and a government is a good thing. We neither want nor need monetary policy makers who kow-tow to politicians. King seems so far to be putting up a fight — perhaps he’s stung that I said he’s not as hard as ECB boss Jean-Claude Trichet…

It’s too early to say whether we’re now on a hawkish path. There’s a strong case to be made that rates should indeed go up — but whether that case has been heeded is another matter.

China on the cheap

Manraaj Singh had a quiet one last week. He was here, but spent most of his time holed up in his emerging markets den.

Today, we’re beginning to see the fruits of Manraaj’s labour. Two stocks which he believes typify why right now is a great time to be getting into China.

These aren’t formal recommendations, just interesting case-studies. But they make very interesting reading.

Find out why one of these stocks looks even better value than one of Warren Buffett’s new favourites!

Make every day Tax Freedom Day

OK, now I’ll satisfy your curiosity. Robin Tracey has a hobby which makes him hundreds of thousands of pounds a year. And he doesn’t pay a penny of tax on that money.

How? Because Robin makes his money from spread betting. And spread betting is tax free!

Spread betting is, of course, also risky. But Robin takes it all in his stride — because he’s been using his strategy for over a decade now, and knows that it works.

Recently he’s begun sharing his strategy with others, and the results have been phenomenal. One member of the public who’s copied Robin’s moves calls it a “near guaranteed income strategy”.

So if you’ve a bit of money to play with, and fancy putting it to work without the Government taking a bite out of the profits, why not check out Robin’s strategy?

Find out how, with only a few minutes a month, you could generate a tax-free second income from the comfort of your own home

Until tomorrow

Ben Traynor

Source: What If You Could Make EVERY Day Tax Freedom Day?