Mike, short term (to the end of June or even a little earlier) I agree with your scenario (terrible, but not disastrous). beyond that I think that we are going to discover the power of liquidity. As I have mentioned on this thread, I see the release of even a small fraction of the Japanese savings onto the international markets as a major driving force. We also must add to that a "liquidity squeeze" that will be generated from shortage of US bonds and treasuries. This will bring, IMHO very strong down pressure on our interest rates and thus additional fuel to the bubble in equities.
When was the last time that treasury did not compete with other investments for investible dollars? Right now, not only the treasuries are not competing, but on an annual basis, the treasury is going to inject $350 billions into the markets ($300 Billions roughly in interest payments and $50 Billion in budget surplus, thus less need to roll over debt). We thought that $20 to $25 billions injection of new funds into the market was "awesome", I say we have not seen anything yet. Our budget surplus plus a very minute leak of Japanese savings to world markets are going to be explosive.
Short term, the "warning season" may take hold, but come early July, the funds are going to be bulging with funds to invest and nowhere to put these but into equities. There is also an additional
Zeev |
