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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: orkrious who wrote (56561)3/22/2006 6:33:48 PM
From: mishedlo  Read Replies (2) of 110194
 
1. The Fed stops at 5% and the yield curve is flat.

IMHO that is one scenario in which the homies won't rally. If the Fed stops at 5% the dollar is going to get smoked as will long bond holders. As the long bond goes, so go the homies.

3. Home prices hold relatively firm on the low end.

Looking at Detroit as a model for what's going to happen nationally (and I think that's the most optimistic thing that could happen for the bulls), the low end will stay strong. But there's not enough there for most of the builders and the market will quickly discount the low end's demise anyway.

Ork your reply to 1 and 3 are sort of contradictory.
I think initially (as in now) homies are following 10 yr treasuries but just as gold disconneted with the US$, homies will disconnect from treasuries. In fact, I see a distinct liklihood that mortgage rates themselves disconnect from 10 year treasuries.

I have said that several time before and I still have not heard anyone else say it. It can easily happen if defaults soar and mortgage risk goes up and credit standards go up. Some time ago I predicted this would be the next Fed Conundrum.

I have mentioned this before on blogs but I think I might do a stand alone blog on this idea.

Mish
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