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

To: Hawkmoon who wrote (99994)	11/28/2008 12:31:02 PM
From: studdog	Read Replies (2) \| Respond to of 110194

Hawkmoon, Enjoyed your post. I was essentially simultaneously posting this on Mish's thread: <<Everywhere one looks economic pundits are calling for inflation/ hyperinflation to soon follow this bout of deflation because of the massive amount of money pumped into the system. Because it seems everyone is calling for this, I am suspicious it will turn out that way. If you look at the amount of wealth (money) destruction that has occurred over the past year, the amount of unsterilized money creation is not that big. In the US there has been over $7 trillion in stock market capitalization loss, and in residential real estate, approximately $5 trillion. I look at my stock portfolio balance as MONEY, and to a lesser extent, view the value of my house in the same way. Add this $12 trillion to the money lost through credit destruction and this is a lot of dough gone pouff. Adding the impact of the reduction in velocity of money I would conclude that deflation is still the threat for some time to come. Gold seems to be signaling the same thing. Gold will be OK but won't perform as well as cash if deflation continues.>> We seem to be on the same page

To: Hawkmoon who wrote (99994)	11/28/2008 1:07:40 PM
From: studdog	Read Replies (4) \| Respond to of 110194

Fleckenstein reportedly stated that deleveraging will be over in mid December. (can anyone confirm this?) Fleck was right about our current mess, just 5 or 6 years early. I suspect he is early on this call too.

To: Hawkmoon who wrote (99994)	11/29/2008 12:18:24 PM
From: Jim Fleming	Read Replies (1) \| Respond to of 110194

hawkmoon re mortgage bonds I generally agree with your assessment of deflation winning short term. I disagree that the underlying cash flows of mortgage bonds is not in serious trouble and becoming a bigger problem as housing prices return to the norm. Some real due diligence is long overdue to evaluate the extent of the catastrophe. Jim

To: Hawkmoon who wrote (99994)	11/30/2008 10:35:28 PM
From: TimbaBear	Read Replies (1) \| Respond to of 110194

Debt is money, right? When debt is created, money supply increases. When debt is defaulted upon, money supply is destroyed. Most of these CDOs and MBS's were based upon mortgage bonds, right? And many of these mortgage bonds are still performing loans, despite the probability that the underlying real property has diminished in market value, right (regardless of the market's future expectation of default down the line)? Well, if all we were looking at was a linearity of debt your conclusions would be more valid. However, your argument does not take into account the leveraging of the mortgage debt that was involved. The sometimes in excess of 40 times leverage. Now, 20 to 1 is still close to the prevalent figure. At 20 to 1 that means a mortgage default rate of 5% wipes you out. Therein lies the problem. The problem is not now and never has been so much the actual default rates on the mortgages but, rather, the impact of those defaults on highly leveraged (through derivatives) obligations based on those mortgages. Now you have the destruction of the debt that was created out of the fertile imagination of Wall Street and the money to replace that destruction is (supposedly) real money created by the Fed. The Net Net take-away of that has to be high inflation, IMO. When it will show up I don't know, but I'd look to gold prices for the first sign and then to long term interest rates for the second sign. The Fed's buying of long-dated bonds (monetizing) may keep the long rates down a while longer but that practice may be near to ending. Whether it ends with Obama's inauguration or just turns about to be about that time I don't know but the gold charts are suggesting the rising dollar is about done for this phase and, with that unfolding, I can't help but believe the falling rates being done can't be far behind. It certainly is interesting to watch and try to make money on though!