LOL, thanks...Master's in Econ History don't hurt none...
Velocity, basically, is an indication of activity. In days gone by, when we WEREN'T a fiat currency, velocity was what caused inflation (during periods when new gold wasn't flooding markets). Velocity is how quickly a dollar passes from hand to hand. If there were 1 single dollar bill in a $3 trillion dollar economy, you could easily calculate the velocity (faster than the speed of light!).
However, fiat currencies frequently create problems with calculating velocity because if that $1 were suddenly $2, velocity would be cut in half. But not immediately. It would take time for that information to process into the system, and inflation would, briefly, be 100%, until the "market" became orderly again.
The issue of foreign money leaving is really one that goes like this - where else can they put it and feel like it will earn a return that they are comfortable with? Answer: nowhere. Better to abide the potential slide of the dollar knowing you'll get the money you're owed. There is that point of no return, however. Where it is, exactly, is unknown to everyone but the individuals and what their pain factor is. IF they sell, they have to sell to someone. However, should they leave, they would push prices down provocatively...and while that would push rates up, it would allow alot of companies (and the gov't) to buy back bonds cheaply. Interesting conundrum.
Treasuries in a bubble could be a reality, but that is something I've never heard before. The only thing I "fear" is a liquidity trap (interest rates can only go to 0%, which I'd love because my mortgage would essentially be free...and I've got tons of equity in the houses so I can withstand a correction in RE). The liquidity trap is the inability for the Fed to do anything substantial to rates to alter a downslide. Japan had one (and may still be in it). However, Japan has many issues that the US does not. They lack transparency at many levels of bank and corporate governance, and still don't abide by the Basle banking accords.
I don't know where I stand right now. I think the market has "bottomed" in the sense that it has found a floor of some nature. However, I don't think it pays to be a bull over then next 3 months, let alone the next 18. But a stagnant market isn't a stagnant economy. There really is a considerable disconnect between the two. The market is usually a good lead on the economy AT TIMES, but not every time. Certainly it's been a lousy gauge the last year and a half. |
