Guess i'll put you in the sharp-pencil category. :)
I've read a little bit about money velocity, from a few quant type articles, but i don't get it. Could it be simply stated as, the more money moves about the economy, the more economic activity there is?
>> Greenspan spoke of deflation in 1998/1999 too. Of course, rates were considerable higher then, so nobody took it all that seriously. <<
After the LTCM and Russian Bond fiasco, and the fed had done it's third rate cut, CNBC paraded out a bunch of economist in nov-dec 1998 saying we were going to recession. They were all wrong... of course :).
Just about everything i read says that bonds are a huge bubble. I'm also reading their is lot foreign money that is in dollars, money they don't want to convert to their own currency, out of fear it will generate too much dollar selling, and push their foreign currencies up. Their foreign money is ending up in every american asset class, especially bonds. This has been going on for years and reflected in the current account deficit. (This is a view i probably picked from reading Steve Roach and Bill Gross.)
You may agree or disagree with this outlook, i don't know. But, it seems to me, as long as foreign money wants to stay in dollars, and the current account deficit has not started to reverse, then bonds will stay high (yields low).
How the fear factor (american fear) would fit into this outlook, i'm not sure.
The other thing i don't understand is how the declining dollar fits into this mess. If the dollar goes down 5%, then the foreign bond holders just lost a year's worth of interest payments. So do they get nervous and sell? |
