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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (69179)	4/12/2004 5:15:50 PM
From: Real Man	Read Replies (2) \| Respond to of 94695

Bob, I think the environment we are in right now is very new, so it's rather tough to make any predictions. The reason for long rates staying negative (below REAL, not BLS inflation) is the carry trade - the Fed fixes the short-term rates, says it's forever - banks and hedge funds pile up on it borrowing short and investing long. The size of interest rate speculation is huge, and so is the leverage. If the 10-year and 30-year rates start to rise, the leverage will work against the market players, a lot of them will go bankrupt. Which will produce even more rise in rates. Wise investors are out of bonds already. The biggest US banks, who are credit derivative market makers, and also virtually own the Fed, could go belly up. Of course, everything will be done by them to hault the panic in LT treasuries, including direct purchase by the Fed. But the market is more powerful than the Fed. The BK was halted by the Fed in the summer of 2003. With around 150 Trillion dollars in interest rates derivatives, the leverage in that market is huge, and the bomb is ticking. Tick-tock. A rise in LT rates will crash the housing bubble, and the credit bubble. J6P is buying this market by selling a part of his home, and spending on credit cards. Once rates rise, that money is gone to money heaven. Of course, the other option the Fed has is to accelerate that printing press to paper over all the bad debt and save the banks. That's what was done many times before in history, and was known as hyperinflation. The dollar will fall a billion times in half a year THEN.