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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 (12525)	4/23/2004 10:10:50 PM
From: gregor_us	Read Replies (2) \| Respond to of 110194

After Some Real Fireworks, We Will Become Japan. I'm sensing the US might spend the 2005/6 to 2010 period much like Japan, with a currency that persistently strengthens as the ravages of deflation contract the money supply. But there won't be any chronic, underwater, loans-on-the-books-for years shenanigans in these ole' United States. There will be no saving face. The debt will be liquidated, without sympathy, and the money supply will contract. Let's keep our eye on the ball here: The Fed wants to inflate our way out of the situation. I have said all along the Fed fails to achieve this goal--eventually. But between then and now, it does indeed look like a ripping inflation panic may be set loose upon our world. Behind the curtain of this inflation, however, lies the original problem: Deflation. The Fed Terror Levels this week were a very good example of how this will happen. After reflating already for 3 years--the Fed acknowledged in so many words such a policy would have to end--at some point. But this leads us back to the original problem. And immediately so. Higher interest rates and a stronger dollar tighten monetary conditions. When you see the USD strengthen: That is the Deflation Monster right there--asking for fresh meat. The more I write about the situation, the more it strikes me we are already Japan. But we are not Japanese culture. So structurally it's the same, but the way we handle it will be different. You could argue that the Fed Reflation Plan is a Japanese style Pain Protection program--but unlike Japan which is a Group Identity Culture--the pain avoided here in these United States is less the shame of individuals and more the profits of corporations. Primarily the banking system. The banks, which are the royalty of Western Capitalism. The other way in which we are like Japan is that the world is vested, in seeing us stay alive. Like Japan, we came rolling off a powerful decade of growth into a ditch, and the world needs us still, like we used to "need" Japan. I'm fumbling here with these generalities, but my point is that we would be so "lucky" to be Argentina, or Brazil, or Russia--countries the world feels less concerned about, when they go down the shitter. So like Japan we are too big too fail. But of course Japan did fail, and we will fail--but in an "extra-special way." And that special way, despite my call for fireworks, may be a decade or more of malaise. This would frustrate the hell out of those calling for Financial Armageddon--and would vex the other half of the culture which is persistently hopeful. So imagine that outcome, for the US. Crappy, chronic, victory-less years--year after year, with no Doomsday but no sustainable Recoveries either. It would drive Americans completely mad.

To: russwinter who wrote (12525)	4/24/2004 7:36:17 AM
From: Wyätt Gwyön	Read Replies (5) \| Respond to of 110194

what do you think of this guy (Raj Gupta's) theory of coming China bust and commodities blowout, resulting in gains for fixed income? Q: So what are the implications of a China fadeout? A: If China fades, then the industrial cycle globally -- the inventory cycle -- accelerates on the downside. It will have a very negative impact on Asian stock markets because there is a big China premium built into all the Asian stock markets. It will have a very negative impact on Hong Kong. The extremely inflated prices for commodities will go down very substantially. It will be quite helpful in removing some of the fears of inflation that are dominant right now in the fixed-income markets of the G-3 countries. Q: You aren't worried about inflation in this country? A: Now that the economy seems to be behaving in a fairly normal fashion, it is not unreasonable to expect the core CPI [consumer-price index] to also be at a normal level. That it was so far below normal levels earlier this year was probably unsustainable given the fact that the economy was returning to a more normal path. The core CPI was stuck around 2% to 2½% for quite a while in the late 'Nineties and the early part of 2000. It has risen from 1.1% to 1.6%, so it is on its path to normalcy. Central banks are extremely focused on the CPI, which barely budges. The place to focus on is asset prices, not consumer prices. online.wsj.com given that his main recommendation is 30yr USTs, i have to guess that his portfolio has been hurting big time the past month.