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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Jim Willie CB who wrote (3323)	12/12/2003 3:44:05 PM
From: ild	Read Replies (3) \| Respond to of 110194

Comstock Partners, Inc. Inflation or Deflation? December 09, 2003 comstockfunds.com ... To summarize and quantify this comment, we believe the risks of deflation are greater than inflation and we would put the probability at around 65% with the risk of inflation of 30% and the probability of “muddling through” until the economy is able to expand without the threat of deflation or inflation at 5%. It is very hard for us to believe that the debt problem of over $33 trillion will be resolved by inflating the system, since that would let the debtors "off the hook".

To: Jim Willie CB who wrote (3323)	12/12/2003 4:12:56 PM
From: mishedlo	Respond to of 110194

to assume Greeny remains in control of STrates is folly /jw 1) to assume he is not is folly 2) to assume that even IF he is not in control that interest rates are headed higher quickly is folly 3) to assume that we are going to have an interest rate hike every quarter from March 2004 thru Dec 2005 is totally nuts IMO and that is how the market has been priced You keep forgetting my play. Here are my assumptions for the record 1) There may or may not be rate hikes coming 2) It is possible that there is a rate cut coming but that is a small one 3) If there are hikes, they will come at a slower pace and/or at smaller hikes than implied Those are the 3 basic assumptions and given the statements from the FED they are going to hold on to low rates as long as possible, to assume anything other than what I am assuming seems silly to me. Answer these: 1)How quickly will this economy go to hell in a handbasket if rates are hiked? 2)If the answer to #1 is quickly, and I think it would be, isn't it logical to postpone the inevitable for as long as possible? Personally, If I was Greenspan right now, I probably would not hike rates either, even though I think rates are absurdly low and do not reflect credit risk. The problem is that credit risk skyrockets as soon as rates are hiked cause everyone is dependant on low rates. Rates can only be safely raised if the economy REALLY starts inmproving (more jobs and higher wages). Greenspan is HOPING that the economy turns around but we both know that is far fetched. Since it is far fetched, those rate hikes will come slower than expected. This is a very clear argument and a far better one IMO than nonsense like "The bond market will force higher rates, or gold will force higher rates, or the falling $ will force higher rates". Even though I think those arguments are silly, for the sake of argument I am willing to add assumption #4)The market may EVENTUALLY force Greenspans hand. But lets discuss #4 in more detail. If the bond market will tank on rising interest rates, and it 100% for sure will, how in H can the bond market force a hike. The bond market will force it's own destruction? As for the US$, look at the EURO post that someone made today. They are talking about defending the EURO. If they do, how long will that delay a fall in the US$? 3 months, 6 months, 1 year? Who knows, I sure do not, and as I said before I do not buy the assumption at all that the US really wants a higher $. As for gold, it is an annoyance at best and has actually more often than not been trading with as opposed to against treasuries as of late. Foreign markets can "force" higher yields on treasuries, by refusing to buy them, but that does not IMPLY a higher FED FUNDs rate. Higher treasuries do not GUARANTEE higher FED funds rates. In short, no matter how anyone twists and turns, the immediate hikes everyone has been calling for, as well as the magnitude of the hikes has just plain been WRONG. As for, me I do NOT assume there will not be hikes, only that they are delayed or smaller than everyone else assumes. Given all the facts presented, I believe it is an EXTREMELY safe bet. Oddly enough, I prefer it if no one else sees it this way, cause I would just assume people keep shorting Eurodollars and buying Eurodollar puts. I took some profits, wrote covered calls on everything I am in, and if we get a dip I will buy some of those calls back or plow into more futures or spreads. M