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

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From: UncleBigs	12/2/2005 10:15:41 PM
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A quote by Doug Noland tonight: U.S. “exotic” mortgage Credit has become immaterial in the grand scope of Global Credit Bubble and Liquidity Excess fueled by a universal real estate lending boom, a “repo” boom, M&A boom, derivatives boom, hedge fund boom, energy boom, commodities boom, equities boom, emerging markets boom, and general global economic boom. I disagree. I don't feel that Doug truly understands that the United States real estate bubble is the core driver of the global boom in economic activity and credit growth. Exotic mortgages at the margin have added fuel to a speculative fire and is very material to all other peripheral booms. When U.S. real estate busts, the U.S. consumer goes bust and will drive the world into an economic recession/depression that will in turn shut down economic activity and resulting credit growth. Doug feels that the global economic boom will continue to surprise to the upside and will force the Fed to raise rates far longer than anyone thinks. I disagree. First real estate in the U.S. has slowed. Once price growth stops and begins the reversal, the appetite for speculative flipping and investment will not only cease but draw out supply hoping to cash out before the bust. Once the housing atm is shut down, U.S. consumption shuts down and unemployment will begin to rise. The resulting impacts on the rest of the world who produce for the U.S. will begin to reverberate. I don't think the Fed will go beyond 4.75% at the highest. Not only do I think it will not be necessary, I don't think the Fed has the will to go further. I don't think the Fed has price stability as their goal. Sustaining economic growth is their goal and that means perpetuating the asset bubbles. Anyway, I'm not sure where Doug's analytical framework has taken him. I think he's taken his focus off the core driver of credit and economic growth today. That core being U.S. residential real estate.

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