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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: yard_man who wrote (6632)1/31/2004 8:11:26 PM
From: russwinter  Read Replies (2) of 110194
 
<debt deflation and falling prices for housing and capital goods will be THE PRIMARY driving force behind a severe contraction in economic activity.>

Yes, but the sequence is important. At one time I might have entertained the "falling upon it's own weight" theory, but no longer. It now has the smell and look of trainwreck, subsistence crisis, crack up boom all rolled into one.

<but the affair would be so short-lived -- who gives a rip?>

This is where I firmly depart company. The bond crash will be cathartic, and you will not wish to be long when it happens. It won't be a 150 bps correction and a great buying opportunity at all. Consider that the borrowing needs of the US govt will grow larger, not smaller, and who will lend us the money in a deteriorating economy. And the interest on all this will be headed abroad, not recycled homeside. After all who owns these bonds now, foreigners. There will be a defacto credit downgrade (although unlikely to be official, from sycophants like Moodys), perhaps substantial just to take on the risk of lending into a collapsing economy. And who will have the capital to buy bonds in a bear market, leveraged speculators?, insurance companies? I doubt it. They will be the chief casualties.
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