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

To: UncleBigs who wrote (54190)	2/18/2006 5:27:15 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

It's no more deflationary than rising home prices, rising rents, rising food prices, rising education costs, or anything that is an essential to everyday living. Let's say we have a sudden oil shock, an overthrow in Saudi Arabia or Saudi or Mexico wells suddenly run dry overnight. In response oil prices rise to say $6.00 a gallon. OK What would that do to SUV sales? What would that do to eating out? What would happen to marginal restuarants? What would that do to the demand for larger homes? What would that do to discresionary spending? What would that do to jobs and hiring? What would that do to economic activity in general? Compare that to prices of homes that rose because of demand or cheap credit (speculation or whatever). Now ask yourself these 2 questions: What would or should the FED do to counteract rising speculation in homes and/or a market strong enough to allow cost pass thrus? What would or should the FED do to counteract a sudden spike in gasoline to $6? Is not there a vast difference in the response expected? The reason why should be obvious. On one hand the FED would be trying to curtail speculation, cheap credit, complacency, or whatever but on the other hand the FEC would likely try and prevent a totally economic collapse, massive and sudden bankruptcies, people unable to pay heating bills, and demand for all kinds of goods and services dropping. There is a vast difference to prices rising because of speculation and cheap credit and prices rising because of a supply shock in an economically sensitive and relatively inelastic commodity like oil. A supply shock in oil would be hugely deflationary and probably force marginal people into bankruptcy immediately. That is a lot different that the price of cars or homes rising is it not? Mish

To: UncleBigs who wrote (54190)	2/20/2006 1:45:33 AM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

"It's no more deflationary than rising home prices, rising rents, rising food prices, rising education costs, or anything that is an essential to everyday living." The stuff you need every day for basis survival has been on a relentless upward trend since 1933 and show no end in sight. If anything the trend probably accelerates this next cycle How adjustments in overvalued bubble assets especially bonds and real estate as well as declining standards of living play into all this is the question in my mind. Think back to the environment we were in about 10 years ago. A world without bubbles or major wars, fiscal restraint, modest trade deficits, tougher lending standards, mortgage rates over 8% and a very balanced economy.