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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 (36275)	7/18/2005 4:55:16 PM
From: Umunhum	Read Replies (1) \| Respond to of 110194

The TNX has put in a double bottom in the last two months and today closed at the highest point in 70 days. stockcharts.com[w,a]daclyyay[pb50!b200][vc60][iUb14!La12,26,9]&pref=G I'm short 20 of the Septembers and thinking that I might add to my position tomorrow.

To: mishedlo who wrote (36275)	7/18/2005 5:39:31 PM
From: MoneyPenny	Read Replies (1) \| Respond to of 110194

Long Zeros have returned better than the market. They have stellar returns this year. What I can't decide is whether to continue with the funds or to just go with the individual bonds and hold on for dear life. Zero bond funds are pretty volatile, the charts often look like chip group. I never thought I'd be thinking this. MP

To: mishedlo who wrote (36275)	7/18/2005 6:20:11 PM
From: Crimson Ghost	Respond to of 110194

Mish : Your bullishness on TNX is almost a religion. Made some sense when this was a contrary opinion, but now it is the conventional "wisdom". Obviously we stand miles apart on this issue. Time will tell who is right.

To: mishedlo who wrote (36275)	7/18/2005 7:07:06 PM
From: bond_bubble	Respond to of 110194

I believe Alan Greenspan is a great intellect and he understands money and politics - But remember, Alan Greenspan personally is against the Fed institution (in his book on history of money - he says fed confiscates wealth from poor). Just like Milton Friedman believes in Bernanke's helicopter money to stave off deflation - but Milton himself is deadly against Fed. i.e both these intellects, Milton and Al - believe Fed is bad personally - BUT, given that fed exists - because of the political powers - how do we do the best possible in this scenario? That is what they keep thinking and talking about!! They have sold their souls - but let's not get emotional. So, what would these great intellects do that is best? Al understands that there is going to be deflation at the end of credit bubble. It is going to happen. What is the best way to resolve this? From experience, rising interest rates will cure deflation fast. Suppose, you raise interest rates quick and high enough, and deflation goes away and all political parties are satisified then this is what Al is gunning for. How can this be done? First thing is that the CPI has been altered so that under monetary inflationary environment (ie when asset prices go high) CPI goes down. i.e during monetary inflation, house prices goes up but rental prices (part of cpi) goes down, new car/transportation prices tries to edge up, but the used car prices (part of cpi) goes down a lot. Togather, these constitutes about 50% of CPI (transportation and shelter service). Currently, they are edging lower/down. However, when the deflation strikes these two will go higher. Why? In the 1980s, when house price fell, rental prices were rising and when GM/Ford stop giving discounts (I'm not sure why this should happen - one possibility is that one of them goes out of business), the used car prices go up. Hence the CPI will be going up initially when the deflation starts!!! Secondly, oil prices are going up and its cost structure is being embedded in the economy. I believe energy cost structure will prevail even during deflation for some time. Hence, the CPI will be perking up (energy + shelter + transport) initially during deflation. Al would want to make sure CPI inflation (artificially created during monetary deflation) and monetary deflation duel in the market place. Al will use the CPI as an excuse and raise rates - thus he would have saved the dollar - deflated debts - and the political masters will agree that rates has to go up because of oil!! Also, in the 1929 gold standard was providing some advantage to US (it might be dollar protection - but why would they need it if everyone was trying to devalue their currency in the depression?). In the current deflation, that advantage will be provided by interest rate!! Hence, I believe in higher interest rates!!!