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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Jim Willie CB who wrote (969)9/23/2003 12:01:31 AM
From: mishedlo  Read Replies (2) of 110194
 
GoofyInMD asked me:
The only real question is when do our creditors say enough is enough?

Earlier today on the FOOL I posted "enough was enough" and someone told me to put my money where my mouth was. I did just that (although the poster asked me to mortgage my house to do it). Perhaps if he feels like I am wrong, he should mortgage his house and buy calls.

I was hoping to get more debate or comments on the Minyanville post of Renolds but it did not come. Perhaps everone thought the implications were obvious or perhaps the implications were too subtle or perhaps people think that it is too late to short the US$ now or perhaps everone is just playing gold stocks and dont care about anything else.

At any rate, this is what I see:
1) Instead of every country trying to debase their currencies in a foolish attempt to get the US to spend more, the G7 has given in to the primary trend (a lower US$).
2) If they do what they say, then perhaps the US$ does a slow smooth drift lower from here OR now that the news is digested perhaps we get one last KodiakBear bounce first.
3) The Nikkei, Spoos, Dow, the US$ and bonds (10 yr) all had a bad hair day today. When was the last time that happened?
4) If the US$ is headed lower and everyone knows it, foreign money will leave the US markets? I think so.
5) Any jobs that come out of this (ha ha - will not be for quite some time if ever).
6) The comments from Bernake today suggest he is downright spooked.
7) Argentina is going to flat out default on $90B. Write it down 75% and creditors will be lucky to get 25% in the end. I have no idea who is going to take a hit for this but US banks are not forced to mark their stuff to market so it could easily get "hidden" for quite some time.
8) Foreign investors have been overly patient with US investments. But They can not afford to take a currency hit as well as a stock/bond hit if US assets fall. They could "support" the US as long as bond prices behaved but it is very debatable that bonds will remain behaved. I think it was room22 who suggested shorting bonds and I would agree. By that I mean the 10YR NOT fed fund futures. The odds of our economy heating up to the point where the Fed hikes interest rates are non-existant. (Plunger will likely win his bet on lower short term rates)
9) It is entirely possible that the US has lost control over the 10Yr note. The reason I suggest that is foreigners are going to demand a premium to keep financing our debt and buying our treasuries in the face of a US$ that everyone agrees is too freeking high. (So Mr. Snow - what about that strong $ policy of yours)
10) With a falling $, and the balance of trade where it is, the FED is out of all options except debasement of the US $. Will that work? I doubt it. Will it buy more time? Probably.
11) Gold and Silver are rising and are likely to continue to rise
12) Are the US markets going to continue to rise if foreign money starts leaving in mass? I doubt it. Will foreign money leave US equities in mass? That is debatable but very likely IMO.
13) It appears that efforts to reinflate based solely on sinking interest rates did not work and they know it, so they have moved on to their last option. Debasement of the US$.
14) Are there going to be some unintended consequences of a global decision to let the $ slowly sink? H*ll yes. What are they? I am not sure. One of the unintended consequences of this might be a selloff in the 10yr or refusal to buy more at these prices resulting in a rise of the 10 yr yield and quite bad things for housing. (I actually think this will happen). One unintended consequence might be a huge decline in the US stock market, but perhaps Greenspan has that pumped up so much that he feels the risk is spread around enough that they can afford to pull the plug on it. It is possible they want a "controlled" move lower in the stock markets and perhaps they do see a bubble (but I doubt it). Perhaps one unintended consequence is the housing bubble some of us see is about to be pricked. Some of what they have done is so stupid that it is hard to figure out what they really know or do not know and/or what is intended or unintended.
15) We have our catalyst for a market top. It is right there staring everone in the nose. Agreement to let the US$ sink resulting in foreigners exiting our markets, higher 10yr yield and all the consequences intended or unintended thereof.

M
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