The next best thing to a perpetual issue. Got to love perpetual preferreds, right? Borrow money at low rate and never have to repay principal. Maybe the government should create a similar structure?

Actually, long UST yields crept higher after QE1 and QE2. The first two iterations of the Fed's QE bond buying focused on buying securities with maturities two years and in. This was similar to lowering the Fed Funds Rate. Accordingly, the yield curve steepened with short yields falling and long yields rising (anticipating inflation from increased bank lending from the bull steepening yield curve). Markets did not anticipate the effects of financial regs which curtail bank lending and demographics which reduces the need for credit.

After lending did not increase from a steep curve (banks were not going to be able to extend home mortgage credit to anyone without pristine credit profile), the Fed started twisting in the summer of 2011. The goal was to drive down mortgage benchmarks, thereby lowering mortgage rates in the hope of luring well-qualified borrowers off the sidelines. This worked, to some degree, as mortgages for home purchases and refinancing are up among upper-tier borrowers.

The problem is that many people believe that it is only a matter of time before the old normal returns. In reality, each economic era is different. We never "go back." Notice I said "era" and not cycle. We are in a new economic era not simply a new economic cycle.

Helicopter money, like any monetary stimulus without fiscal policy follow-through, is temporary. It is only a matter of time before more monetary stimulus is needed. Hence the multiple decades of falling policy rates just to try and generate 3.0% GDP. Even this has not succeeded since the tech bubble.

As I wrote in a report today, Japan my have provided a glimpse into the future of developed economies, perhaps the global economy, for the past two decades.

The world is flattening. A rising foreign middle class does not merely mean increased demand for goods, but also increased supply of and competition for labor. Globalization (any form of competition) is inherently disinflationary. This is true of labor costs as well as the prices of goods and services.

I too am resistant to more monetary stimulus, unless there is fiscal and regulatory reforms. However, if the people do not wish such changes (based on their choices at the polls) I do not think helicopter money should be considered. Cant get a washing machine to fly, no matter how much fuel you pump into it. That is the EU, Japanese and, to a lesser extent, the U.S. economies.

This is not difficult. Online sales were a major factor in juicing the data. It was gift card sales. Many consumers spend the gift cards they get in for Christmas in January. This has been a trend in recent years. February will come back to earth.

Recovery in Japan starts when there is structural reform. However, Japanese consumers/electorate, have adapted to low growth, low rates and low inflation. They are happy with the status quo. One will not fix something they do not believe to be broken. They same is true of Europe.

Although the bond market does indeed see weak growth, it is mostly concerned with low inflation. Because inflation and growth USUALLY go hand in hand, there is a common misconception that the bond market prices to growth. In reality it prices for inflation. This is how we saw soaring long-term rates in the late 70s, when the U.S. economy was moribund. This is also why we saw fairly low rates during the past two expansions. When inflation and growth diverge, the long end of the curve has priced to inflation.

This is logical because the very reason investors usually demand higher yields for longer dated bonds is due to the erosion of purchasing power caused by inflation. If we saw 3.0% GDP and 1.0% inflation, long rates would remain fairly low. If we saw 0.0% GDP and 3.5% inflation, long rates would soar. History supports this as well.

If you are a true income investors and want to position for a flatter yield curve, barbell your portfolio. A barbell is also advantageous because the bulk of the Fed's QE holdings are on the "belly" of the curve.

It is not whether or not they should. It is whether they can. Central banks have cyclical tools. I.E they can encourage more aggressive lending, borrowing and/or investing. The cost of capital is not the problem. Structural demand for credit is. The Fed has a very string hammer, but it is of little use when the problem is a screw.

The Fed is not only out of tools, it does not should not have the right tools. Headwinds to growth are mainly structural in nature. Fiscal policy mist be changed to increase per capita consumption without encouraging or requiring large sums of household debt.