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

To: mishedlo who wrote (6561)	5/17/2004 11:30:12 PM
From: Earlie	Read Replies (1) \| Respond to of 116555

Mish: Given the current precarious state of the consumer, I think the Fed would rather eat snake droppings than up rates, hence I expect that "Green's pain" will push the envelope as far as possible before a rate increase is finally forced down his throat by the bond vigilantes (who are already making his life miserable as it is). Hence, for the near term, I expect no rate increase or a tiny "token" (25 BPs) (i.e., this year). But who cares? The Fed can fiddle at the short end, but mortgage money lives at the long end. Long bond traders have already bent the Fed over a log and are currently dropping the fed's trousers..... I wonder what those nasty lads have in mind? (g) . All of the above as it may, sooner or later the gigantic US triple deficit scene will likely overwhelm the all-important foreign investor. If (when) he takes a powder (and I think he does this in spades), then rates will take on a life of their own, irrespective of what the Fed thinks or says (just one more item, in a long list of things, that could create a "will-the-last-one-out-please-turn-out-the-lights" scenario for stocks). Personally, I don't think central banks are nearly as potent as most investors perceive them to be, especially as deflationary forces start to gang up on them. Yes, they would love to hold rates down, but in the end, the incessant tide of new bonds has to be flogged and increased rates will likely be required to entice increasingly reticent bond players to take on yet more toilet tissue. In the current environment, I perceive most paper currencies to be "high risk", especially when compared to gold. Why bother with paper currencies when you can merely convert any of them to gold (history's favorite "real money")? Decent gold stocks represent a solid proxy for actual physical gold for me, so "Gold Stocks R Us". By the way, historically, gold does well in deflationary times (contrary to popular belief). Best, Earlie