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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 (28545)	3/13/2005 8:33:48 PM
From: ild	Read Replies (1) \| Respond to of 110194

Getting Un-Specific: Point Forecasts versus Probability Distributions There's a general term for risking money in expectation of a profit in a specific instance – it's called gambling. By John P. Hussman, Ph.D. hussmanfunds.com

To: mishedlo who wrote (28545)	3/14/2005 7:20:30 AM
From: russwinter	Read Replies (1) \| Respond to of 110194

China's Bond Binge Distorting Yields JBGlobal Macro Compass March 10 – Is it possible that a faraway currency gambit is responsible for our housing bubble? Yes, if you consider that China must buy massive amounts of dollar-denominated assets, including treasury bonds, in order to maintain its much maligned peg of the yuan to the dollar. Even Maestro Greenspan has called the stubborn cap on long-term rates a "conundrum." The investment community has rounded up the usual suspects: deflation, recession, pension allocations, etc. None of these fully explains an artificial suppression of long-term rates that has persisted through 3.8% gross domestic product growth and a recent pickup in job creation. An artificial distortion like this occurs when a large and well-heeled buyer makes purchases without regard to any of the typical investment rationales (like price or risk) — in order to peg a currency, for example. China must buy our bonds to peg its currency, in order to possess enough dollar-denominated assets to serve as a backstop to the yuan. This gun to their head shanghais them into buying treasury bonds without regard to our deficits or low yields — the type of thing a normal investor would care about. The artificial buying of our bonds without regard to price causes our yields to be lower than they would be in a truly rational market. This yield distortion is fueling the easy money that has led Americans to binge on real estate. With brokers pushing adjustable rate mortgages (ARMs) at 3.85%, any six-figure Babbitt can afford a McMansion on Main Street — that is until rates climb. Long rates have indeed risen over the past year, from a low of 3.2% in July of 2003 — just not as fast as short-term rates. But in the past week, the 10-year bond has seen a large spike up to 4.49%. Could it be that traders are getting savvy to the irrationality of the bond market? Could they finally be forcing the hand of bond holders? If so, long rates will spike further and the yield curve will start to look normal again. That spells unpleasant news for real estate as ARM yields rise and recent buyers start to default. The end of easy money is always most difficult for those who can least afford it. -- James Berman -----------