We should see some weakness by the end of February, if the
current liquidity trend by the Fed continues (or, should
I say, lack of liquidity?). I have to warn
that the discontinued M3 is now growing at 12%, which means
the housing bubble may re-emerge, just like it did in Brittain
with 14% growth of M3. That bubble popping is a major concern
to the Fed. (Given that inflation is underreported, I doubt
it's even a nationwide bubble)
Now, we should have some weakness in late February/early
March, provided that no coupon passes re-emerge. I am confident
the coupon passes WILL re-emerge, though, as soon as we see a
little weakness in the markets. The interest rates still have
room to grow, and could probably get to May 2006 highs by
late February. If the dollar drops below 80, and the rates
break May,2006 high - then watch out! :-O We could be moving
into real mess, the currency crisis or crash. If that happens,
then we might see a derivative meltdown. It's all currency and
credit derivatives - so I watch these two markets only. The
spreads in the credit market are still extremely low, the risk
is very underpriced, although we are seeing frequent blow-ups
in the subprime mortgage business. These are quickly papered
over by the Fed at this moment. |
