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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Crimson Ghost who wrote (22937)2/5/2005 1:12:20 PM
From: John Vosilla  Read Replies (1) of 116555
 
There remains a strong inflationary bias in the nation’s housing markets, and I believe there is an unappreciated expansionary bias throughout much of the economy.

A bias toward excess consumption via rising debt levels and building overpriced housing few can afford spurs a lot of robust economic activity in the short run.

Imbalances – most important being the Current Account – will not conform to Mr. Greenspan’s expectations. And a ballooning Current Account equates to further inflationary distortions, including the inflating pool of destabilizing global speculative finance. And, I will suggest, a surge in economic activity would these days catch the bond market especially unprepared. Bubble dynamics have forced the marketplace into a destabilizing squeeze and derivatives unwind that creates only greater vulnerability for a reversal and problematic spike later on. My fear of a 2005 dislocation in the interest-rate markets is being anything but allayed.

Perhaps the one scenario that pops the bubbles in a major way sooner rather than later is Greenspan tightens to flatten the yield curve and soon thereafter Noland's fears come true and the long rate moves up at least a couple of percentage points rapidly. Great story on this in the latest issue of 'The Economist'. Yes the whole world is temporarily flooded with excess liquidity thanks to the US.

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