George, that's the thing...this bubble is MASSIVE and it is supported by the greatest binge of credit creation in the history of mankind. in fact we will soon run out of superlatives to describe what's happening. this is imo extremely dangerous for the economy...the Fed, in light of 17% money supply growth during November, has now lowered the capital adequacy rates for banks, all in the name of Y2K.
what worries me most about all this is that no-body is questioning what's happening here. the Fed's actions are simply accepted as the holy grail that's beyond criticism.
today 11 billion dollars were injected via repo's and coupon passes. when will it end? the answer is, it can not end. if they stop, the market will act like a junkie who's been deprived of his heroin all of a sudden. and in view of the massive systemic leverage, and the high level of outstanding margin, that could lead to a snowball effect, burying real economic activity along with the financial markets.
had the Fed acted to pop the bubble sooner, the effects on the economy would have been negligible, a la '87.
by allowing it to grow until it collapses of it's own weight, an economic disaster down the road is virtually assured.
regards,
hb |
