Storm clouds gather over a US economy heading for icebergs

"Unless the Fed begins cutting rates by this summer, which it won't, then the US economy could be in for a nasty recession. The stock market has not yet woken up to the full gravity of this," he said.

If past is prologue, we have three or four months to find shelter before the full lightning storm begins. Buy government bonds, horde cash and shun risk
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[link to www.telegraph.co.uk]

Monday view: Storm clouds gather over a US economy heading for icebergs
By Ambrose Evans-Pritchard (Filed: 12/06/2006)



Like a thunder clap too close for comfort, the US bond market last week issued its time-honoured warning of recession. This time for real. The yield on 10-year Treasuries slid below the short-term rates, an emphatic signal that investors are more worried about a US housing bust than surging inflation.



Fear is creeping into the markets that a hyperactive Federal Reserve run by a chatterbox novice, risks sinking the global economy by tightening too hard - supposedly to curb prices, in reality to combat his fatal reputation as an easy-money ideologue.

Yes, bonds issued the 'inverted yield curve' warning in February. But those were halcyon days when the world was still awash with liquidity. The central banks of Asia, Europe and America have since succumbed to a belated and fierce bout of orthodoxy, raising rates in unison for the first time since the early 1980s.

Bernard Connolly, global strategist for Banque AIG, says the Fed, now chaired by Ben Bernanke, has already gone too far by raising rates sixteen times from 1pc to 5pc since June 2004, too much for an overspent economy running on fumes.

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