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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 (24113)	1/6/2005 11:07:58 AM
From: mishedlo	Respond to of 110194

personally I think this viewpoint is far more accurate Brian Reynolds on Treasuries Mish: If there is a flight out of corporates for any reason, would that money likely head straight to treasuries (as opposed to sitting in cash or going to equities)? Does that in fact constitute the pent up domestic demand for treasuries that I believe we discussed earlier? I believe at one time you suggested that all this much ballyhooed “Japan propping up US treasuries” stuff you see floating around in many many places has really only amounted to about 15 bps lower yield. Is that correct? Thanks again. Brian Reynolds: Historically, flights to quality have been good for Tsys, bad for corps. I don’t think it would be pent-up demand, panic tends to create new demand. I’ve written that domestic demand has been so strong, foreign buying has only made a difference at the margin. Every time foreigners have pulled back, domestic demand has picked up the slack; I think that will be the key going forward.

To: russwinter who wrote (24113)	1/6/2005 11:10:47 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Also note this: (1) The Fed stays relatively low Our belief that the Fed stays relatively low ( ½% real short rates or less) is a long-standing one and based on several secular and cyclical observations. Since the primary global economic problem is a lack of what is known as aggregate demand, central banks everywhere will continue to remedy the affliction by keeping real short rates low. Low short yields help stimulate demand by creating gradually rising inflation, and nurturing capital gains in equity, real estate, (and yes) bond markets. In addition, the highly levered U.S. consumer and their main conduit – mortgage debt – require low short rates just to keep their heads above water. Thirdly, with the Fed now implicitly on board in support of adjusting our balance of payments deficit via a depreciating currency (and a reduced deficit), low real short rates are the monetary policy tool of necessity. Whether the Fed stops at 2½, 2¾, or 3½% is really more of a debate as to the future of U.S. inflation, not the fact that real short rates must stay down for a long, long time.

To: russwinter who wrote (24113)	1/6/2005 12:32:15 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 110194

Russ, here is my grassy knoll theory to what happened with the Fed's release this week. We all know that the Feds receive privy information prior to its public release. Could it be that the employment numbers this week are a lot weaker than expected? Now the Feds are trapped. If they continue on its present course of raising rates, could a recession be triggered immediately? So they deployed one of those famous non-conventional monetary strategies - jawbone. They "raised" rates without actually raising rates. Pretty desperate move. While I am on this grassy knoll train, I might as well stick my neck out on POG also. I opine that the POG will not be able to return to any sustainable rally until it is decoupled with US dollar weakness/strength. By that, I mean we need buyers to prefer gold over any currency. This week also brought us a couple of very interesting and totally conflicting stories. William Lyon reported miserable numbers, with huge cancellation rate approaching 30% from a low of 12% 3 qtrs ago. HOV, on the other hand, reported a fantastic December that I can't find any holes in. Next events on the housing calendar are housing starts on the 19th and DHI earnings on the 20th. Should the bet be on the come or don't come line? Finally, consumer credit this Friday could be very significant. federalreserve.gov We know that refi is playing a lesser role these days in supporting the consumption addicts. If the revolving debts do not shoot up, would that imply consumers still have some reserves that they used for the pretty good retail numbers in November? Is 2005 finally the year of the train wreck? Ramsey