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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Keith Feral who wrote (90727)	1/27/2008 1:32:33 PM
From: Rarebird	Read Replies (2) of 110194

<<They need to keep interest rates around 2.5% to 3.0% so that people can get used to a stable housing environment for the next 3 to 5 years.>> Back in August 2007, you raised a very good question: "Credit problems are set when people stop lending the money. The only question is why the banks stopped lending the money." Message 23833223 I responded by saying: "Many Multi-national corporations are becoming affected by this "massive event, suffering from late payments from their customers and having difficulties making payments themselves as a consequence. They are forced to seek short-term finance in order to make such payments. The situation is quite serious." siliconinvestor.com The Fed will not be able to save the day by lowering rates here because the issue is not the cost of credit but it's availabiity. Yes, I know the refi. gig is back in play. However, the people who desperately need to borrow will not be able to borrow, while others who don't need to borrow and have no interest in doing so, will possibly be able to borrow all they like. The windfall here will be minimal at best. My position has not changed since August 2007: "The real problem is that entire edifice of US economic growth has been built on the quicksand of bank lending unrestricted by any notion of risk or of any limit to the ability of the lender to service or repay the debt. The time will eventually come when the borrowers are afraid to borrow and the lenders are afraid to lend." Message 23832256 This is very somber: Economist Scott Anderson of Wells Fargo recently said: "Large money-center banks have virtually frozen their balance sheets, reluctant to lend even to good credit." If you give me some of that "Kool-Aid" you are drinking, I might tell you in a giddy moment that the S@P 500 may be able to get away with only a 30% bear market decline here. But don't bank on it. The risk is for a much steeper decline with every perceived safe haven getting mauled before this bear market is over.

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