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

To: mishedlo who wrote (19121)	9/27/2004 1:57:55 PM
From: ild	Respond to of 110194

Date: Mon Sep 27 2004 12:10 trotsky (Winston@'parabolic increase in total credit market debt') ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the frightening thing is that the bulk of this debt has gone to unproductive uses, i.e. consumption ( by both consumers and government ) , and its growth rate far outpaces gains in 'real' GDP, which in turn are about 80% overstated via the hedonic indexing trick. the previous historic debt-to-GDP peak was at 270% in 1929, compared to about 360% now. now let me think....what happened after 1929? but not to worry, word from Wanninski central is that 'debt does not matter'. Date: Mon Sep 27 2004 11:00 trotsky (frsutrated@new&existing home sales) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved it has all the hallmarks of a bubble-blow-off phase coming to an end, i.e. the exhaustion stage. the sharp slowdown in price rises, the jump in inventories ( while the consensus remains that 'supply is tight' ) , the failure of the refi boom to reignite in spite of interest rates falling to 6 month lows, all combine to a big fat bell ringing. the housing and associated mortgage credit bubble are one of the main reasons why i don't think the rate hike cycle is going to go anywhere...the entire US banking system has never been as exposed to residential real estate as it is now...mortgage loans and related debt instruments constitute by far the largest slice of bank assets these days, just as home owner's equity has plunged to multi decade lows. in effect, ownership of the existing home base is slowly shifting from individuals to the banks. this is also why mortgage delinquencies and foreclosures keep hitting new highs...people have every incentive to walk away when they become unable to service the debt. the fundamentals of this market are bad enough - the house price inflation has not only brought the theoretical p/e ratio of the housing stock into record territory, it has also created massive debt based speculation in an illiquid asset. no doubt once the bubble well and truly pops, we'll hear a lot more about fraud as well, since the incidence of fraud rises along with a bubble's price structure, but is usually only revealed once the price rises go into reverse. but even if one knew nothing about the fundamental picture, simply looking at a chart of the GSE's balance sheet growth , or a chart of total residential mortgage debt outstanding is sobering enough. the rates of change remind one of the Nasdaq bubble, and we know how that got resolved. along with the current account deficit ( chart like an 'anti-bubble' ) this is the major achilles heel of the US economy...and it's almost an exact replica of Japan's situation at this stage of the post stock market bubble period, only removed by about 11 years.

To: mishedlo who wrote (19121)	9/27/2004 11:45:55 PM
From: Roads End	Read Replies (2) \| Respond to of 110194

Mish, WRT lumber all you need to know is the industry still has way, way too much capacity just as all of forest products has. Your idea that unused capacity is not used because it is obsolete isn't valid in this industry. There is a lot of rusty iron put back into production and extra shifts added to make hay while the sun shines.