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

To: russwinter who wrote (11253)	4/3/2004 10:45:54 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

Clearly income is diverted to pay for this, but recently the evidence is that it's just been borrowed, thus fueling more inflation yes, but if we now have a bond "accident" in process, then how much longer will cheap credit be available? it is worth noting here that the interest rate spike on Friday was the largest one-day increase since the LTCM crisis. the thing that ultimately spooked me out of my long bond position a couple weeks ago was the spectre of a market unleashed from Japanese currency management. obviously Japan was forced to add increasingly ludicrous amounts to its foreign reserves at a seemingly assymptotal rate, and we may have just seen the blowoff top of that. whatever the Fed does aside, it would seem that rates from two years on out are subject to increasing pressure and this must come home to borrowers. we already are matching the largest postwar spread ever between the funds rate and the 10yr, and it looks like that record could be broken. will the market do the Fed's work for it? just possibly, CI has called a premature demise to bond vigilantes in the event of an incipient bond breakdown. my thesis is that it is likely to be fueled by additional credit for as long as interest rates are at negative real rates and "stupid" lenders (*) make this money available...I can tell you I will be watching for a significant credit choke off i agree, so what is the first canary in the coal mine of a consumer credit crunch?

To: russwinter who wrote (11253)	4/3/2004 10:53:22 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

another thought i had, regarding your image of "twelve Philadelphias" a year being added to China, and the attendant strains on the global commodity supply chain--what these people in China and India are getting, at the margin (an extra 500 calories a day, some animal protein, a roof, maybe a moped?), seems a lot more important to them than the incremental gains to Westerners from cheap credit (granite countertops, a new H2, his and hers iPods...). so, while i would suspect that US-based demand for postmodern consumer trinkets could fall off quite suddenly in the face of a credit crunch, i would tend to think the Chinese and Indians will fight pretty hard to keep their extra 500 calories and other things which we in the West have taken for granted for the past century. such is to say that i would think the "twelve Philadelphias" phenomenon will continue, even if it is reduced to six or so by economic contractions. if this is correct, where is the letup in the global demand growth and when do commodities get a chance to catch their breath?