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

To: gregor_us who wrote (28520)	3/13/2005 12:12:23 PM
From: russwinter	Read Replies (3) \| Respond to of 110194

Fekete's second point really hits at the core of my position, especially now that 9000 hedge funds and proprietary trading desks roam the planet, and with enormous borrowing power. The fact that these Pig Men now have their teeth into commodity speculation is extremely dangerous for the world economy. It also makes trading extremely tricky in here, plus you might see divergences. These guys can bring things down just by getting a hard on to ramp something like oil up to $60-$65 or maybe even $55 sustained will do it? Of course as you say there are underlying reasons for them to do so: 1. The Wizards have made the liquidity available to speculate on everything, and 2. The maladjustments have caused shortages and scarcity to develop in key input goods, everything from iron ore and coal, to copper and nickel. And since $800,000 for tiny condos, really makes little sense except to the worst of the silly season crowd, why not bid something else up like corn and soybeans? So you end up with mega-Bubbles all over the place. So yes, the 15% money channel of 2004 will be tough to turn around. I have pointed out all year the key was the Wizard's actions not their words (not credible). But I would argue that changes in liquidity at the margin, will work to starve Bubbles in general, and if it turns into real retreat or rout, it will be hard to pick winners on any long side. Given that the bond Bubble makes the least sense fundamentally, and that it is largely dependant on FCBs, it may be the first to go? Except I have to ask why the commercials now have record long positions in EDs and bonds? The answer is that bonds may be going to get another "weak economy" trade. I think it's bogus, you probably think it's bogus, but that's what it look like, although I can't really stomach a trade. Meanwhile commodities look to be set up for a similar bogus "weak economy" or "weak China" trade. In some respects it now smells and looks like Mish's long predicted (after a big inflation has already been underway first, I might add) K-wave set-up. It's not a theory I intellectually support, but there's evidence it's in play now, so I need to adapt until i see otherwise. Of course if the Wizard's respond to economic weakness by running printing presses, we will be right back into the supertanker mode, and it will happen in a flash. But something else looks in store first. So here are the footprints I see: 1. We can and should debate the degree and magnitude, but generally it's looks like speculative money is getting offside again in most commodities as well as everything else. They may not quite be done (seasonals in gasoline, etc)and shortage spikes could happen, but the risk in input goods plays is getting higher. Other commodities, specifically grains appear to have some juice left in them. 2. There are increasing signs of "surprise" economic weakness and a Train Wreck. I think this will unfold rapidly now, coming from China. That will change the landscape. 3. The Fed is restrained now, and really has been in fits and starts since 12/8. In the last four weeks they actually drained $384 million in securities out of the system. That's really unusual for this Land of Oz bunch so maybe they are hearing painful inflationary mutterings from Munchkinland? I'm sure they are hearing from the FCB vendor financiers. At minimum marks a possible sea change in approach. Given that, I think the supertanker argument might get problematic, certainly bears watching, and increases your risk being long flucht in die sachwerte. You mentioned global, China drained liquidity in a significant way last week too.