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The push and shove match between the US Federal Reserve on one hand, and the global bond holders on the other hand, has reached a new level of combat contact lately.  The latest public comment’s from B-52 Ben Bernecke when he was on 60 minutes that he was “100% sure“, has woken up the long slumbering bond vigilantes.

Pelley: Is keeping inflation in check less of a priority for the Federal Reserve now?

Bernanke: No, absolutely not. What we’re trying to do is achieve a balance. We’ve been very, very clear that we will not allow inflation to rise above two percent or less.

Pelley: Can you act quickly enough to prevent inflation from getting out of control?

Bernanke: We could raise interest rates in 15 minutes if we have to. So, there really is no problem with raising rates, tightening monetary policy, slowing the economy, reducing inflation, at the appropriate time. Now, that time is not now.

Pelley: You have what degree of confidence in your ability to control this?

Bernanke: One hundred percent.

The market is smart enough to know that B-52 Ben is not 100% confident which means he is publicly lying to us or he is a fool.  There is not a lot of wiggle room in the reality of his comments.  There is no way he can control inflation with the snap of his fingers.  Only a madman like Hugo from Venezuela, would make a comment like that and have an ego to expect to believed.

The Vigilante’s were shocked into action, and have started to punish everyone.

This includes Germany, which has had a failed bond issue again.  as long term investors start to run for the exits on bond debts. The selling of the Bund has lived its yield to above 3% and has start to pick up pace. It becoming obvious to anyone looking at the numbers that even Germany’s vaulted savings cant be the primary role in the future bail outs. So, if not Germany, than Who?

The vigilante’s hammered US Bonds for the second straight day.  The increase in rates are driving the cost of home mortgages up quickly.  The increase in cost of ownership will flow through to a lower rate of home ownership carry capacity, which is exactly what this market does not need.  The higher mortgages is exactly the last thing the FED was wanting at this point in the curve.  The yields have returned to where they were in June, before talk of QE lite, QE 2.0 or now QE 3.0 were discussed.

The FED is slowly loosing its ability to hold down the all points on the curve.  It has been purchasing newly issued bonds from the market lately, as it monetizes the US national debt needs away.  Its a good thing the FED doesnt need to mark to market is US Treasury holdings, otherwise it would be down Billions on these.

The old saying ” Don’t Fight The FED ” is about to be introduced to the new reality of ” Don’t Stand In Front Of The Will Of the Masses “.  If the retirement funds of the worlds investors are moving into a real sell mode.  Even the FED will be overwhelmed in its asset purchases.

Ben is going to need to quickly decide what he is 100% sure of, because the portfolio managers of the bond funds of the world are calling his bluff, RIGHT HERE, RIGHT NOW.