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October 6, 2005
Reader Mailbag, Thur., Oct. 6, 2005, 7:18 AM
Traders are starting to send me more mail, which is a reflection of their level of angst.
Bill: Oh, there is more to inflation than they thought.....
"It, (the ISM survey), suggests that the Federal Reserve is faced with an economy which is weaker and inflation which is stronger."
This article should be read. /S"
Hi Bill, Knowing how you see the housing bubble as a major concern that could cause a domino effect on the economy (and markets) when it bursts " read this item that came out tonight. /T "
Bill: Re those new rules in Venezuela you talked about, this is looking dicey...
Venezuela Orders Shutdown of IBM, Others /S"
Bill Cara, here are the posts I wrote in response to Luskin:
Tuesday, October 4, 2005
Twenty Year Bond Looks Weak!
by movermike
Checking out Bill Cara's site this morning, I see he has posted a chart of the Lehman Bond Fund of 20+ year maturity. It shows a major breakdown. Not only have 20 year interest rates been rising, but this breakdown looks serious. Here's a comment from Cara:
"The U.S. bond market is failing, not because the economy is in trouble, but because of the monies being spent by the government, and the inflation pressures that is causing.
The U.S. bond market can recover, but there needs to be economic wealth created faster than inflation, with more savings created and invested in fixed-income securities (where the total returns exceed alternatives like real estate for example), and budgetary discipline exhibited by all levels of government. "
I don't see much hope of that happening anytime soon!
While on the subject of bonds, the deficit for fiscal 2005 announced yesterday shows a deficit north of $500 Billion and another $180 Billion borrowed from Social Security. That puts us over $700 Billion! Who do we expect to buy this debt? Higher interest rates attract buyers, but a country that has no fiscal control seems a poor currency risk. Poor currency risk invites substitution and one substitute many are finding safer than the USD is gold.
UPDATE: From The Daily Reckoning today: In 2003, the amount of U.S. Treasury bonds in foreign hands rose by $175 billion. In 2004, the increase came to $295 billion. But during the first seven months of 2005, only $2 billion more has been added. (Emphasis added)"
I happen to think Alan Greenspan is a happy camper today.
As he and John Snow are headed in mid-month to important meetings in Beijing, he can now say with a straight face now that the world is starting to recognize the face of risk. Falling equity markets tend to sharpen the focus!
And one of the biggest risks facing the world today is the cross-border carry trade game being played by China for a couple years now, financing their economic growth by playing the U.S. Treasury market.
Greenspan will tell Mr Joe " hoping Mr. Joe will in turn tell his bosses on the top committee of the Party hierarchy " that the global capital market has reached the tipping point if the U.S. Fed is no longer able to control its own monetary policy. And the only solution for that is for the People's Bank of China to be more aggressive in de-linking the Yuan from the USD.
The Chinese authorities have heard that message before, and Greenspan/Snow have heard their usual response, which is that the U.S. must get control over its own spending and debt problems.
At some point, both sides will start to move toward the center. But, until that happens, traders around the world will stay nervous, and will continue to build risk premiums into the debt and equity markets.
Posted by Posted by Bill Cara on October 6, 2005 07:18:58 AM | Category: Cara Today in the Market