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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: Jim Fleming who wrote (100510)12/27/2008 2:03:39 AM
From: Hawkmoon  Read Replies (2) of 110194
 
Early rally attempts fail, deflationary waves overwhelm the real economy.

All very possible unless we can get a handle on the unemployment (demand).

However, I have to take issue with the following:

Interest rates begin rise to accommodate flood of Treasury borrowing. Things get worse all year setting up an even worse 2010.

Right now there is TOO MUCH demand for government paper, hence the historically low 10 year bond yield. Interest rates are so low because there's a TON of cash looking for a safe haven, even if it only gives them a few percent per year. Thus, I can hardly see how bond yields will increase if even MORE scared capital can't find yields in equities.

The bottom line is that the world is approaching a liquidity trap (ala Japan) where the only solution will be massive "pump-priming" by multiple governments (especially China) that forces savers to fear induced inflation and seek higher yields in equities. This will collapse the current bond bubble we're facing and THAT'S the time to look at TIPS for yield and gold as an inflation hedge, and growth (probably infrastructure related) stocks for equity appreciation (and of course other commodities).

Obama has a severe challenge ahead of him and the major part of that is to equalize the demand and supply curve in the consumer economy. Right now there is just very little consumer demand and banks just don't have the capital to spare as they de-leverage and bring off-balance sheet paper back onto their books.

What we really need is for a bottom in asset backed securities and a restoration of global investor confidence in their integrity and value.

Hawk
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