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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: valueminded who wrote (37244)9/15/2005 11:23:01 AM
From: SouthFloridaGuy  Read Replies (2) | Respond to of 116555
 
The Fed can create stagflation for quite some time. They could theoretically drop the interest rate to 0% tomorrow and create lots of inflation. Stocks would skyrocket and bonds would plummet.

But the problem with the scenario is that in a society financed by debt, continued credit creation is of the utmost importance.

I would rather the Fed invert the curve rather than try to push the long bond up through inflation.

Inflation will simply lower real rates and catalyze another round of speculation.

All this bodes well for oil. The Fed ought to be tightening, get us into a consumer recession NOW while corporate balance sheets are still healthy because this corporations will not layoff people if their businesses are well financed and intact.



To: valueminded who wrote (37244)9/15/2005 11:38:40 AM
From: John Vosilla  Respond to of 116555
 
Yes. Just look at the bond yields today versus say 2000 or 1995 when real inflation was much lower. How the eventual 300 or 400 basis point back up in long term yield mixes in with the record amount of debt acculated by both the consumer and federal government, extended home prices along the coasts and 5% cap rates for commercial RE prices almost nationwide now remains to be seen. A move in the 10 year to over 7% makes a 30-40% drop in many assets a certainty.


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