The first we heard of MF Global’s problem in the wheat market was in a press release from CME Group Thursday morning assuring everyone that MF Global had met its obligations.

Once we heard the problem involved trading in the wheat market we didn’t think it was anything more ominous than a trader not keeping up with market volatility. After all Chicago wheat had set its all time high and Minneapolis wheat the day before had hit $25, multiples above the all time high just above $7 set in the fourth quarter. The only surprise was that the firm was MF Global instead of one of the niche grain brokers who specialize in clearing wheat traders. Several of those firms were tested in October of 2006 when a bull wheat market trapped locals bear spreading wheat in front of the commodity fund rolls to the tune of $100 million.

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The U.S. economy was hit with a doubled barreled shot of bad news on Tuesday, which promptly caused the Dow Jones Industrial Average to rally. Perhaps it was the announcement that IBM would buy back $15 billion in stock that caused the rally but it is hard to understand how that trumped an inflationary Produced Price Index (PPI) report and a downright depressing Consumer Confidence report.

The PPI for January was up 1%, slightly better than expected with the core index (excluding food and energy) up 0.4%, which was higher than expected. The Conference Board reported that Consumer Confidence for February dropped more than 12 points to 75 from January’s 87.3 reading. The number is at its lowest level since the start of the Iraqi War in 2003. If you exclude that downward spike you have to go back to 1993 to see it this low.

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If you notice people eating hamburgers or for that matter lobster sandwiches without the bun, it is not a resurgence of the Atkins diet but perhaps a financial reality.

Hard red spring wheat traded at the Minneapolis Grain Exchange (MGEX) hit the unprecedented level of $25 per bushel Monday as the bull market in grains hit hyper drive. MGEX recently received approval from the Commodity Futures Trading Commission (CFTC) to remove price limits on the spot wheat futures contract month commencing the first business day after expiration of non-serial options on the spot month. Monday was the first day the March contract had no limits. March MGEX wheat rallied from its Friday close of $19.25 to $25 on Monday before settling at $24.

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According to a survey by Freddie Mac, U.S. fixed rate mortgages rose this week. The National average for a 30-year fixed mortgage was 6.04% on Feb. 21, up from 5.72% on Feb. 14. The Freddie Mac survey showed a rate of 5.69% on Jan. 17, the report that preceded the Federal Reserve Bank’s emergency 75 basis point easing on Jan. 22. The Fed has eased its Fed Funds rate (the rate banks charge each other) by 125 basis points (1.25%) in an eight day period in January.

If you were wondering how banks would make up the $400 billion (according to some estimates) in write downs related to the subprime debacle, increasing the rate you charge for loans while the rate you are charged drops precipitously is a good start.

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The Federal Reserve Bank released the minutes of its January Federal Open Markets Committee (FOMC) meeting and it turns out that the Fed has not completely forgotten about the risk of inflation. The minutes state, “Members were also mindful of the need for policy to promote price stability, and some noted that, when prospects for growth had improved, a reversal of a portion of the recent easing actions, possibly even a rapid reversal, might be appropriate.”

The “rapid reversal” line is particularly onerous: translated, “we really mean it this time. Really.”

This isn’t much of an acknowledgement given that the core inflation numbers — numbers many analysts will tell you are badly skewed to dampen what already could be 1970s style inflation —are currently well above the Fed’s target 2% rate. But the problem of such cautionary rhetoric from the Fed is that over the past year it has rapidly fallen by the wayside as soon as equity markets sell off.

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