At one point yesterday, the 30 years bond rate was below the Fed rate (overnight), something must give, either the Fed reduces its rate of the long term bond rate will decline. The Fed is actually in a box, since they feel that paper assets (stock) are overvalued and "bubbly", they do not want to stimulate the market by an easing move, they almost cannot. Once we shave another 1000 points from the Dow, the Fed will be able to move, and that will put some breaks, IMHO, to the current malaise on the street.
I do not think that will happen very soon (next two months or so). My reasoning is that the cure for Asia has to come from within Asia itself, namely Japan must do something very drastic to stimulate domestic demand which will soak Asian over capacity. Until Japan shows a plan to that end, the Yen will continue to weaken, IMHO, and this time, the Cavalry (Rubin) will not come to the rescue unless he gets concrete concessions. This is one reason I believe hat the yen could breach 150 yen/dollar before intervention will occur. I have 156 yen/dollar as a potential high for the near future, but what happen after that, I have no visibility. The damage inflicted on the Asian economies is severe and could lead to a depression there. In that case, we might, IMHO, get a recession, namely at least two quarters of negative growth.
Zeev |
