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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: yard_man who wrote (6813)	2/3/2004 10:22:33 AM
From: mishedlo	Read Replies (1) of 110194

More from Plunger Actually I don't think Fed Funds at 1% is too low, nor below equilibrium. We have wage inflation of 2% pa; Fed Funds 1% below wage inflation is just fine. And capital is cheap as muck. Returns on real investments are very low. Rentals on offices, houses are surprisingly awful but people still paycash for the capital investment with the awful yield. A higher real interest rate would choke off activity even more and you'd see void rates well above the 17% for example in Dallas offices right now. OK so maybe capital has a higher return in China. Much US capital is headed out there. But if China now has an incipient overcapacity problem as I believe, then globally, there is surplus capital. If Pimco stops buying US debt as they threaten, what will they buy instead? This is the big issue today .... is anything else better? Why are stocks so high ... what else is there to park one's savings in? Why buy an office block with 17% vacancies ... what else is a better idea? etc. We are in a low yield low activity world and we had better get used to it. The reasons are 1. Wealth imbalances so those with wealth hoard it and those without have nothing to spend 2. Longevity meaning we all (Mish, Plunger, Cordob, Steve 203, MrBear kind of aged folks anyway) feel the need to save more for our retirement and so spending less and bidding up assets more. OK and so can the USD sink and cause domestic rates to soar? Against what? The Oz, Euro Loonie can't accept any more appreciation as we now know. China and Japan can't accept any, let alone "any more". So what does the USD slide against? Oil? Silver? Would the Fed feel obliged to hike to stop the price of copper in China going up? Could they without creating a domestic economic implosion? Are they really going to deliberately do that? Get real. And if rates did go up and housing, stocks and GE's finance unit all collapsed ... what would the Fed do then? Hike more? Get real, rates are headed down as the SUPPLY gets cut off from J6P screaming U.N.C.L.E. and starting to pay down rather than load up for ever with more at a faster rate. Plunger.

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