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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: Qualified Opinion who wrote (77174)	10/28/2007 11:46:50 PM
From: Real Man	Respond to of 94695

I'm painting a scenario of a plain vanilla USD currency crisis like Argentina, Asia, Turkey, or Russia. Rates for corporate and mortgage debt are now rising despite the Fed because of extremely poor credit quality. Treasuries are the highest quality debt, so they benefit from risk aversion for now. T-bonds are rallying on all this. LT rates will have to rise dramatically eventually and T-bonds will fall as foreigners flee the USD (sell T-bonds) en masse, since 5% rates no longer compensate for the currency risk (the dollar fell 5% just in the past 2 months, which means that every foreign entity holding treasuries is under water on these positions). This has not happened yet. The likely outcome of the crisis: 1) a strong fall of USD 2) a sharp rise of LT interest rates (the ST end is controlled by the Fed) 3) a sharp drop of all assets that become overvalued relative to risk-free rates all of a sudden. 4) much lower standard of living in the US, widespread debt defaults. The dollar meltdown does have a cost.