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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: KyrosL who wrote (2167)	3/15/2004 11:16:30 PM
From: mishedlo	Read Replies (4) \| Respond to of 116555

I don't see a disaster in such a scenario. In fact there maybe more pluses than minuses -- for example much reduced debt carrying costs for mortgages. What happens is about 20 Trillion in derrivatives blows up overnight, housing falls off the cliff, everyone connected with the housing trade in the US is fired, and a worldwide depression starts. Other than that. No problems at all Mish

To: KyrosL who wrote (2167)	3/19/2004 4:01:03 PM
From: Jim Willie CB	Read Replies (1) \| Respond to of 116555

your formula sounds nice, and might smell nice but behind the scenes, it wreaks havoc first, let's assume that the flat yield curve would remain flat for months out such a flat yield curve would indicate LOUDLY a recession coming that would kill the USDollar quickly S&P stocks would give back all the gains in the last 13 months then you must deal with the bond yield carry trade as Benson pointed out, they care about the shortend for new money to speculate with with no differential, the carry trade disappears MishMan is only half right here imho the existing carry trade does not implode and see wreckage new carry trade disappears existing carry trade has already borrowed the cheap 1% money they are long the long-dated bonds, which remain stuck at 3.5% or so the USDollar would benefit somewhat from rate differentials, but it would suffer horribly if a recession came about that would take the long end into severe inversion the mortgage industry might not get all that hurt bond money comes from new money creation at 4% and from Asian surpluses invested here a recession would keep money flowing into USTBonds but the recession would cause an 8% jobless rate (even after distortion) I dont think you would see the bond destruction, like Mish says instead, you would take away a central engine for the USEconomy, the bond speculation and its carry trade big US banks would suffer notice the strong strong earnings reports by big boys Lehmann was most recent stellar report they are all beating, and why has to do with bond spec never will the Fed do such a thing they are incremental in their actions I CANNOT EMPHASIZE ENOUGH THE DAMAGE FROM REMOVING THE BOND YIELD CARRY TRADE IT IS A PRIMARY ENGINE TO THE ENTIRE US ECONOMY the answer aint as simple as Mish states but we agree very clearly on a recession outcome the corporate rate swap industry would kill much of corporate earnings also that whole sector is geared to lower shortterm rates / jim