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

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To: bond_bubble who wrote (74123)	11/15/2006 4:56:45 PM
From: mishedlo	Read Replies (3) of 110194

I'm not sure, how you can be so sure that inflation is not going to go up. The credit engine is revving at accelerating pace. The mortage refinancing is higher than october 2005!! The rate of introduction to new derivatives is accelerating the money being provided to refinancings!! The gasoline supplies NOW are BELOW last year levels (last year there was Katrina that brought gasoline levels way down - remember shortages?!!). I dont see demand fall off AT ALL but SUPPLY is FALLING!! How can that be price deflationary? Also, the CPDOs and newer derivatives are being introduced at a much faster rate - And because everyone wants to get into it, the risk premiums are evaporating right at the introduction time itself!! (i.e the scope for price appreciation are so minimal and pigmen are piling on it like crazy - just because the leverage is way higher to make that thin profit margin worthwhile!!) Good question BB. It is taking more and more and more money just to tread water. GDP at 1.6% is treading water. Hell, given hedonics and imputations it is probably not even treading water. CDOs can expand until they can't. Then what? Can risk premiums go negative? ggg Seriously we have a "Crisis of Excess Liquidity". There is no denying that. But what real growth is is buying us? What happens when the ability of the market to absorb that liquidity dies and or the desirability of the market to take on that debt vanishes? I thought this would happen long ago. I can give you a lot of other names that thought that too. I also thought we would have a rounded top. I now think we are going to see a sudden plunge (I have no idea when) in the financial markets just as we did in housing. Overnight in Florida people went from camping out in the street to get a condo to a 10 year supply of them. Credit is going to plunge IMO. I can not tell you when. Nor do I know what the trigger will be either but I suspect something related to Japan or the YEN. Then again, just like housing it may be nothing more than simple exhaustion. Mish

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