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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: John Vosilla who wrote (20969)10/29/2004 2:06:13 PM
From: mishedlo  Read Replies (2) of 110194
 
It has caused a tremendous misallocation by the public into speculation in housing and land in many bubble coastal markets. Land prices up 10 fold in some areas since the late 90's.

<Although it's hard to predict on a weekly, or even monthly basis, there is absolutely no way this kind of excess money creation doesn't leak into something>

Well here is a post we can ALL agree with (I sure hope we can).
Yes!
And leak it did.
Leak, or do I mean GUSH?
Gee I must be doing my Russ impression today.

It GUSHED primarily into the latest playground for the masses.
Housing and SUVs. It also fueled a huge rise in financial profits (based off loans for everything under the sun) and thus fueled a rise in the stock market as well.

Well all of that is in the past.
Or is it?
What happens if we cap the gusher?
A better question might be: Can we cap the gusher?
Damn I am really on a roll here but at this point I diverge with Russ.

First off let me state what I believe Russ's position is:
"It may already be too late but if it is not, then the only way to cap this gusher now is with immediate and huge interest rate hikes, not some measured BS dragging on for years".
Russ, is that a fair assessment of your position?

Here is mine.
The fundamental pressures supporting this gusher have all but dried up. This gusher will die sooner rather than later and 3/4 points or 1 point rate hike to 2% is about all it will take to do it. In light of reduced stimulus of expiring tax credits and in light of piss poor job growth, whatever the tipping point is, we are already close to capping the gusher. Look, on a measly 3/4 hike the US GDP fell from 9% annualized to 3.3% annualized (assuming of course you believe that hedonically adjusted number and I do not). Housing inventory went from 2 weeks in April to 4.4 months today. Consumer Saving fell to the lowest rate since the great depression at .4%. Those are the AVERAGES! How many are maintaining a standard of living solely off credit card debt or housing refis? GSEs are beginning to be reigned in. Finally, no matter who wins the election, there will not be mammoth stimulus applied to win it next year. Does anyone doubt much reckless stimulus was applied just to keep Bush in his job? Add it all up and what do you get? I see a wildcat gusher about to dry up.

Mish
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