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

To: Robin Plunder who wrote (91188)	2/3/2008 1:16:25 PM
From: Keith Feral	Read Replies (1) \| Respond to of 110194

Rapid money growth? Comerical paper has contracted by almost $500 billion since July. There is a lot less leverage than there was 6 months ago now that they stopped making all these subprime loans. To me, that's more important than the growth of the money supply. Gold has moved beyond it's conventional position as a hedge against inflation. People that are buying it as a hedge against inflation seem to be inventing reasons to hold onto the positions. I don't see the logic in holding gold during a deflationary period. I would take profits and move on to energy or some other commodity with real value. I hear people talk about negative real interest rates, but I disagree with the numbers. FED funds rates were 5.25% 5 months ago with 2% inflation. How is that a negative interest rate? If you think that the restoration of a neutral monetary policy is a bad thing, be my guest. However, I see nothing but good things that can happen. Lower interest payments on our debt Lower dollar makes exports cheaper Lower dollar reduces foreign imports Lower interest rates make mortgage payments more affordable People keep blaming low rates or high rates for the problems in the fixed income markets. The problem was that there was too many people competing for mortgage products that had no capital to stay in the game. GMAC was selling Alt A loans. They have absolutely no reason to be in the mortgage business along with all the other mortgage reit's that had no capital to absorb their loans. I'm glad that the banking system backed away from all these reckless lenders and shut off capital support for the billions worth of loans they were generating. I could even imagine it's a good thing that the FED dragged it's feet long enough to let all the subprime lenders to fall apart before correcting the yield curve. It's too late to save Countrywide, but it's not too late to save Bank of America and the rest of the large money center banks. Anyways, I have to go with the playbook that says buy financial assets and sell gold when the FED cuts interest rates by 225 bp in 5 months. The bond market doesn't see any threat of inflation and there has been a huge contraction of money supply.