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To: The Duke of URL© who wrote (166844)	6/22/2002 1:04:59 PM
From: kapkan4u	Respond to of 186894

<IF, foreign money departs us bonds, the price will go down, but there will be a big difference from the '29 scenario. First, the fed will pump liquidity through the roof, just like in the y2k scare/fiasco, and TOTALLY unlike '29. Next, interest rates will shoot up. The will shoot up anyway, when the congress starts printing money to cover all there boongoggle pet projects they keep sneaking through, while camp fin reform remains like smoke in the opium den.> Foreigners are selling, congress is spending and Fed is pumping -- all these push the interest rates up and bond prices down. The long maturities remained relatively stable because the money flowing out of the stock market ended up in bonds and because the deflation headwind props up the bond prices. The deflation headwind thingy is hard to prove, but it does seem to happen after bubbles. US 1929 and Japan 1989 are the examples. <Ergo, those bonds that you just popped into with a fixed 5.1% will start crashing down around you ankles like Casey's drawers. So, unless you are talking about holding those bonds no longer than about 1 month, its bye bye miss American pie, to you. Don't you agree?> Holding long maturities would indeed be risky, since there is no guarantee that deflation wins over Fed and Congress. This is why I would go in slowly with high enough rates to minimize my risk on the downside. Kap