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Strategies & Market Trends : Portfolio Construction -- Ignore unavailable to you. Want to Upgrade?

To: Paul Chiu who wrote (585)	8/24/2007 8:09:44 AM
From: Keith Feral	Read Replies (1) \| Respond to of 1964

I'll let Cramer do all the ball busting. This subprime mess is going to force foreign investors in China and other places to really think about investments in the US. Why would anyone want to invest in our debt when our own Central banks are colluding against mortgage buyers to put them into foreclosure. The BIGGEST problem with the inverted yield curve is that it put all the mortgage loans into worthless pieces of paper. When we all bought interest only loans, short term rates were LOWER than long term rates. We didn't even need all of Greenspan's unnecessary rate cuts below 3% to make good on those interest only loans with a 2 point premium to LIBOR. 5% was better than 7% for fixed loans any day. It worked for 3 or 4 years, until the FED decided to whipsaw the whole mortgage market. My interest only loan was costing me 7.5% before I refi'd back to 6.5% for a 30 year fixed loan. I wasn't willing to hold on to those loans under the assumption the FED would eventually do the right thing and bring interest rates lower. I think the whole market has lost sight of the fact that high interest rates are a direct tax on American household budgets. They create higher mortgage rates, car payments, insurance payments, and other monthly installment payments. That doesn't help people when it comes to the fact that fuel costs have risen, which have driven up utility payments as well. The only person benefitting from the regime of higher interest rates are the bondholders. It's not dampening inflation in a global economy unless demand push has gotten to the point where we can no longer supply global consumers. Really, the kind of inflation that is a problem when you have centrally managed economies like China or Zimbabwe where governments can no longer afford subsidies. How does a Chinese family live on $400 a month with 1/3 of their income going to food costs? My wife goes to the store every week and pays $300. They must be subsidizing their food prices in China, although I can't quantify the amount. Think about Iran for a minute. They are paying 10 cents a gallon for state subsidized gasoline. Now that domestic refineries can't pump out enough oil in Iran, they have to import gasoline for their domestic demand. The government is removing their price subsidies, creating super inflation. I fail to see how US consumers paying full price at the gas pump are going to revolt against market prices at $3.00 per gallon they have been paying for years. The problem that I see with global inflation is a global wealth effect in these emerging high growth markets where price subsidies can no longer be afforded by governments with no money. I don't believe in the inflation story for free market economies that are not subsidized by the governments. I certainly don't think that Lacker or Poole are that smart or special, although someone has to get paid to act like cutting interest rates by 50 basis points requires 12 people to carry on this silly debate.