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

To: Wyätt Gwyön who wrote (5765)	1/22/2004 11:23:29 AM
From: russwinter	Respond to of 110194

<normative discussions are constructive--who cares what they SHOULD do.> In that vein, I'd say your setup description is fairly close to mine, except I don't see the inflation being unleashed as "disappearing overnight", even if an economic slowdown materializes. I certainly see little correlation at present between US job and wage growth (or lack thereof), and the type of input inflation I've spoken about. As far as CBs, I think they WILL turn their attention away from PCE deflators and job counts, and towards these runaway input issues, and begin sort of a half assed attempt (they will call it "stress test", see the Greenspan speech) to tackle it. So I'm definitely not in the after the election camp, and see rate hikes coming on fairly steadily. MY SWAG: 1.25 FF by April, 1.50 by June, 1.75, by Sept, 2.00 by Oct. And yes, the economy hits the wall driven mostly by big food and energy bills (the hangover from the hyper-stimulus, in aggregate I'm guessing maybe $150-$200 Billion diverted) Message 19713454 for consumers, and no more refi, tax rebate stimulus.

To: Wyätt Gwyön who wrote (5765)	1/22/2004 11:34:50 AM
From: mishedlo	Read Replies (2) \| Respond to of 110194

The Daily Reckoning on Bonds (Mish Note: the DR is grossly distoring the Facts - Pimco hardly calls Treasuries a short. At any rate here's another treasury bear that's likely to get slaughtered) - We would not argue with Mr. Gross. Au contraire, the Daily Reckoning's New York bureau considers the U.S. bond market to be the best short sale west of the Atlantic. Treasury bonds, in particular, are vulnerable to America's acute reliance upon foreign creditors. Consider the following observation from William Poole, President of the Federal Reserve Bank of St. Louis: "Foreign-owned U.S. assets increased by an average of $155 billion per year during the 1980s. Since 2000, foreign ownership of U.S. assets increased at an average rate of $833 billion per year - more than a fivefold increase in the rate of foreign buying. In 2000, over $1 trillion of U.S. assets were purchased by foreign entities. And, by the end of 2002, foreigners owned more than $9 trillion of U.S. assets; including more than $300 billion in cash, far more cash than is held by all U.S. citizens combined. - "To give you an idea of how important foreign-ownership of U.S. assets is to our economy, consider the recent sales of U.S. government debt. In the last six quarters, the U.S. government issued $345 billion in debt. Net foreign holdings of U.S. debt increased by $304 billion during the same period. Foreigners must buy all of our new debt because our economy produces almost no net saving. - "The willingness of foreigners to continue to invest in U.S. assets depends, mainly, on currency management... The dollar is the world's reserve currency because of its perceived soundness. Rising rates of inflation in the U.S. economy will jeopardize the dollar standard, make foreigners increasing reluctant to hold U.S. dollar assets and make it increasingly difficult to sell U.S. bonds at affordable rates of interest." - Responding to Poole's comments, Porter Stansberry writes, "I'm reminded of what Alan Greenspan himself said this month in Germany when asked about the growing U.S. foreign debts: 'In the end, the restraint on the size of tolerable U.S. imbalances in the global arena will likely be the reluctance of foreign country residents to accumulate additional debt and equity claims against U.S. residents.' - "Commenting on the rise of prices across the board in commodities," Stansberry continues, "Fed Governor Ben Bernanke maintains that commodity price rises are not a harbinger of future inflation, but instead a proof of 'strengthening economic activity.' He also mentioned that, while shopping for cheap dry land in Florida, he had a wonderful lunch with Santa Claus." (More from Mr. Stansberry, below... ). - To conclude: Bonds might rally more, but they don't deserve to.