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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 (66551)	7/21/2006 1:27:16 AM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

I agree that CPI is an irrelevant metric. But, it appears that the bond market is watching CPI. I'm looking at CPI only from that perspective i.e will the treasury also get routed if CPI goes up? I think, this might be the case and I think CPI might be going up (even though it is a lagging indicator of credit inflation, the lag could be too long like few years). Argentina had about 15% credit, GDP deflation in 2002 and yet they had 40% CPI inflation. Japan had mild credit deflation and mild CPI deflation. Actually, CPI was positive until 1996 in Japan and turned negative only after 1997. May be, Japanese did not inflate credit sufficiently in early 90s, to reinvigorate housing and stock market. May be they did not do it because PPI was higher than CPI and hence people got laid off. But whatever be the case, Japan did not reach 1% interest rate until late 1990s. But US might attempt it and reinvigorate housing and stock market if treasuries fall. Neither you nor I can prove/disprove that housing/stock would have reinvigorated in Japan if BoJ had lowered interest rate to 0.1% in 1992. Definitely, after a prolonged credit deflation, Japan was not able to reflate. Both of us agree with this fact i.e as BoJ lowered interest rate to less than 1% in mid 1990s, it did not have any effect in asset markets. My belief is that, if Japan had lowered interest rate to 0.1% in 1992, CPI, PPI would have been so high in Japan (and hence more layoffs) and Japanese treasuries would have been routed and Japan would have had 2002 Argentina experience. That would have been so painful and so Japan chose the path that they are on now. Your position is that, even if Japan had lowered interest rate to 0.1% in 1992, asset markets would not have reflated. I disagree with the timeline. I keep stressing CPI only to illustrate the fact that cost of production (say PPI) is higher than cost of selling (say CPI) and this causes more layoffs and hence Fed will chose to maintain higher rates.

To: mishedlo who wrote (66551)	7/21/2006 2:08:44 AM
From: bond_bubble	Read Replies (3) \| Respond to of 110194

Just one more thing that might prove my case. In 1929, after the stock market crash, Fed lowered the interest rate and the stocks recouped 75% of the losses by 1930. That tells you assets reflate if the rate is lowered in time doesnt it? Also, in 1931, inspite of credit deflation by bank failures, Fed increased the interest rate to defend the dollar!! And actually, the depression started only in 1931. Did it not? Does that not tell you, inspite of credit deflation, interest rate (Fed rate) can go high. Which is what I'm expecting. I never understood why all the fed research pointed to 1928 interest rate hike as cause of failure. The stock market regained in 1930. So, the real culprit of the depression was interest rate hike in 1931 (to defend the dollar)!! I believe we are in 1931 scenario. Hence rate will go high to defend the dollar from commodity inflation. The systemic risk happened only in 1931 and not in 1929. The stock market crash was not at all a significant event. It was the credit market crash which caused the depression!! And it was caused by rise in interest rates in US (in 1931) and in Japan (in 1991). Ofcourse, interest rates fall in both countries after some years. But it was late by then... I do agree that if all past credits are liquidated, Fed rate can fall to 0%. But, such a credit deflation means SS, Medicare defaults as well...

To: mishedlo who wrote (66551)	7/21/2006 4:12:11 AM
From: shades	Read Replies (1) \| Respond to of 110194

What pray tell is the next bubble? If it does not produce rising jobs and wages it is all over. I suggest it will produce neither jobs nor wages. Lets see bond bubble said hoover dam last time - energy buildout eh? My utility costs hit me hard this summer Mish - I sure would support a national program to make everywhere nukular so my 12 21inch crt monitors can burn that energy at warp speed! Heck I might even be motivated to get up and go work doing that myself. 3000 nuclear plants in the next 10 years. Then we can hire lots of homeland security people to boot illegals to the curb so that supply of workers go down eh? Some mayors in some cities are proposing this now eh? Private spaceflight is supposed to be taking off - think of the people we could put to work supporting spaceports in hundreds of cities. We could build mass levitating magnetic trains going all over the north american super continent too that move at 300MPH. Vancouver Canada to Gaudalajara Mexico in just a few hours! We could start some mass government projects for building underground megatropolises (with better construction than big dig stuff heh) - cloud cities supported by giant monstrous blimps - and underwater cities like atlantis eh or floating cities like the freedom ship. All we need is some vision at the top and less corruption. Look at the money we would save on heating and cooling if we all lived in the ground.