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

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To: russwinter who wrote (24113)	1/6/2005 11:10:47 AM
From: mishedlo	Read Replies (1) of 110194

Also note this: (1) The Fed stays relatively low Our belief that the Fed stays relatively low ( ½% real short rates or less) is a long-standing one and based on several secular and cyclical observations. Since the primary global economic problem is a lack of what is known as aggregate demand, central banks everywhere will continue to remedy the affliction by keeping real short rates low. Low short yields help stimulate demand by creating gradually rising inflation, and nurturing capital gains in equity, real estate, (and yes) bond markets. In addition, the highly levered U.S. consumer and their main conduit – mortgage debt – require low short rates just to keep their heads above water. Thirdly, with the Fed now implicitly on board in support of adjusting our balance of payments deficit via a depreciating currency (and a reduced deficit), low real short rates are the monetary policy tool of necessity. Whether the Fed stops at 2½, 2¾, or 3½% is really more of a debate as to the future of U.S. inflation, not the fact that real short rates must stay down for a long, long time.

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