Paul nails it again:
Higher energy prices have a negative impact on the aggregate supply of goods and services. If the Fed reacts to supply-side slowdown by printing more money, stagflation will result.
He then goes on to say that the Fed will make this mistake, and only raise once by year end. To me this is a tough call, especially given the real time evidence of egregious money printing, and actions speak louder than words.
Message 20674198
However, I admit being baffled right now by the huge one way trades being made by the specs and funds against the Dollar.
FX subtotal: long 237,779
precious metals: long 199,179
Eurodollar: long 152,863
Five year Treasury: long 138,302
64.82.65.31
Something is rotten in Denmark. Either the Fed raises rates twice, and attempts some kind of USD defense, or perhaps more likely, somebody takes the monetary policy cookie jar away from them, and does the job themselves. That's what I think is going to happen. The Asians are going to go on a US debt buyer's strike in some fashion or manner. Steve Roach already commented on their new proclivity,
Message 20660237
this will be a broad side against USD hegemony. They are going to disappear from the Nov. auctions, and in turn put those US dogs that are out running loose in the neighborhood, getting into trash cans, back in the kennel. That will force rates higher, maybe significantly, and when that happens the USD will actually firm up and even rally some. With the Asians gone, the Fed may try and start aggressively monetizing debt, but since the Old Maid Card collectors (the Asian CBs) are MIA, it will have the opposite effect, bonds will sell off even harder. |
