Sunday, August 19, 2012


"Risk on” has seen 10-year Treasury yields jump 40 bps off July 24 lows to 1.81%. The way things are unfolding, the placid Treasury market might turn into rather treacherous waters. I expect Draghi’s Plan to be yet another European disappointment. “Risk off” waits patiently. But it’s also apparent that over-liquefied U.S. securities markets have turned highly speculative. An enduring “risk on” backdrop could easily see things get out of hand. Amazingly, as the signs of excess become increasingly apparent, the Fed apparently remains ready with additional monetary stimulus. It’s going to be an interesting fall."

Each time in the last decade when the US economy gets into trouble at the end of speculative bubbles, first tech, then real estate/mortgage finance.....the FED comes to rescue and Gov't with an even larger scoop of stimulus, but what it has done each time is create even larger, unwieldy bubbles that have to be dealt with.

Each time we get into trouble with debt, we get an even larger dose of credit growth. 0% FED rate for 4 years has worked some magic on the housing market, but it hasn't produced strong job growth and it's not likely to all of a sudden.

Money is flowing into bans and mortgage lenders in so far as majority is refi's. This should help economy and with lower mortgages put some pop into consumer what's to worry about?

ALL BUBBLES POP. Yields are historically LOW at 1.8% on the 10 year, but they did vault higher from lows this week.

Higher interest rates, should that be what we are headed to would be a huge nail in our speculative coffin. A bursting of a historic debt/gov't and FED induced junk bubble...F ME!

Read Doug's piece, junk is now being treated like its safe, as the yields are so low elsewhere, people are being forced into stocks and risky investments to get will that end?

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