My view

The '90s stock market bubble led to the housing bubble which led to the mortgage bubble, then it also led to the leveraged credit bubble or a bond market bubble. One bubble after another and Fed can't help but grow further... Now, what asset class is going to be the bubble? Well, I can't see another one, so I can only speculate that the next bubble will be the Fed's portfolio. The bill of the gov't sponsored easy money is coming back and the gov't doesn't know what to do about it, but to make it bigger... The bubbles are inefficient, they don't create real growth, they only create more money and the USD has been telling about this since its 2000 top. Now all of the asset classes will bounce in the expense of a Fed bubble over the next few to perhaps several months since the system is getting a sense of relief. I honestly do not see how the commodities will make a significant top, I also do not see how the USD will make a lasting bottom in the mean time, there can be a technical correction here that everyone is already seeing. In the end, I highly doubt the Fed will be able to unload its debt bubble back during this run up, so the Fed bubble will become a bigger bubble, even if the borrowing comes back somewhat, the real estate prices will not without a bigger RE bubble which won't happen, so the debt remains in the Fed's books as the inflation and the long term Treasuries will soon crash, probably within 12 months. I am talking about 12-15% rates, if not more. It happened before and it will happen again. I believe this is when the USD will turn and the commodities will deflate with the rest of the assets. Think about it, even a recession is not the solution since it doesn't fix the credit problem. The previous recessions cleaned the business excesses, but there is no cure to the RE asset deflation since it just eats away from the banking cash deposits due to the leverage used in the bond markets and the RE deflation creates an even bigger cash deficiency, daily. It is not a joke, Fed is placing increasingly more repos and it is now at $150B, how can this be absorbed from here while the non-borrowed deposits of the banks are in the negative column?!? Show me the next asset class that will consume the same insane amount of credit that RE did over the past 6 years and I will stop babbling...

arbman, where does one put their dough in here?

Edited by selecto, 13 March 2008 - 05:14 PM.

I would scale into the stocks until the end of the month and see where you will end up in early April. If the commodities start a correction, the rally will have legs in April. The odds for higher 3 wk average prices for the first week of April is around 78% with 3-4% gain on SPX basis vs 1-2% loss. So next week could be down, but it increases the chances for the following 2 weeks. So, if you are going to allocate assets, you'd better allocate a little everyweek from here over the next 2 wks. You should be mostly long at the last week of March, if the prices continue to deteriorate. I got about 20 matching historical cases from 57, 66, 73, 80, 82, 84, 97, 03 that one or two of the early weeks in March showed the similar characteristics as this year's so far and nearly 50% of the cases bottomed at the middle of the month and only 26% bottomed in the last week of March, the rest bottomed within the first 5 trading days of March. So any low next week is most likely a good buy for a 2-3 wk swing low at least...

I would scale into the stocks until the end of the month and see where you will end up in early April. If the commodities start a correction, the rally will have legs in April. The odds for higher 3 wk average prices for the first week of April is around 78% with 3-4% gain on SPX basis vs 1-2% loss. So next week could be down, but it increases the chances for the following 2 weeks. So, if you are going to allocate assets, you'd better allocate a little everyweek from here over the next 2 wks. You should be mostly long at the last week of March, if the prices continue to deteriorate. I got about 20 matching historical cases from 57, 66, 73, 80, 82, 84, 97, 03 that one or two of the early weeks in March showed the similar characteristics as this year's so far and nearly 50% of the cases bottomed at the middle of the month and only 26% bottomed in the last week of March, the rest bottomed within the first 5 trading days of March. So any low next week is most likely a good buy for a 2-3 wk swing low at least...

------------------------------------------
Shockingly good post! No chart needed to argue over the author's rightness or wrongness.
A plan, entry suggestion, a timing objective, with historical reference and probability to boot! Post of the day?

The '90s stock market bubble led to the housing bubble which led to the mortgage bubble, then it also led to the leveraged credit bubble or a bond market bubble. One bubble after another and Fed can't help but grow further...

Now, what asset class is going to be the bubble? Well, I can't see another one, so I can only speculate that the next bubble will be the Fed's portfolio. The bill of the gov't sponsored easy money is coming back and the gov't doesn't know what to do about it, but to make it bigger...

The bubbles are inefficient, they don't create real growth, they only create more money and the USD has been telling about this since its 2000 top. Now all of the asset classes will bounce in the expense of a Fed bubble over the next few to perhaps several months since the system is getting a sense of relief. I honestly do not see how the commodities will make a significant top, I also do not see how the USD will make a lasting bottom in the mean time, there can be a technical correction here that everyone is already seeing.

In the end, I highly doubt the Fed will be able to unload its debt bubble back during this run up, so the Fed bubble will become a bigger bubble, even if the borrowing comes back somewhat, the real estate prices will not without a bigger RE bubble which won't happen, so the debt remains in the Fed's books as the inflation and the long term Treasuries will soon crash, probably within 12 months.

I am talking about 12-15% rates, if not more. It happened before and it will happen again. I believe this is when the USD will turn and the commodities will deflate with the rest of the assets. Think about it, even a recession is not the solution since it doesn't fix the credit problem. The previous recessions cleaned the business excesses, but there is no cure to the RE asset deflation since it just eats away from the banking cash deposits due to the leverage used in the bond markets and the RE deflation creates an even bigger cash deficiency, daily.

It is not a joke, Fed is placing increasingly more repos and it is now at $150B, how can this be absorbed from here while the non-borrowed deposits of the banks are in the negative column?!? Show me the next asset class that will consume the same insane amount of credit that RE did over the past 6 years and I will stop babbling...

I'm not sure what Fed bubble you're seeing, but I see commodities bubble in the making.

To stabilize real estate thee only thing that is needed are jobs. And it will return to its historical rate of appreciation of 5-6%, keeping up with growth in households and overal population. While there is growth in population and jobs, real estate will be growing. Yes it ran ahead of the wages due to some creative financing, but its reverting to the mean now.

There is no inflation while wages are stagnant and falling due to globalization. And while credit and housing markets are deflating. Oil at 110 isn't inflation, its speculation in oil.

Fed is barely keeping up with DEFLATION here.

But I do agree, treasury yields here don't make any sense. There are much better investments. Like .. gasp.. stocks.

"Oil at 110 isn't inflation, its speculation in oil. " Come on, walks like a duck, looks like a duck, quacks like a duck" it is a freekn duck. I have a mini cooper, that gets crazy mileage and it costs me $40.00 to fill the gas tank. It use to cost half that two / three years ago. Guess what, thats less $ I will be spending else where. Multiply that by every Tom Dick and Harry across the US and you got some serious money getting taken out of the economy. Plus the greenback is worth less everyday. Which means it purchasing power is shrinking so much that supermodels only get out of bed for euros. Thats right, everyone was making fun of that supermodel when she said that but apparently she was right on the money no pun intended

"There is no inflation while wages are stagnant and falling due to globalization" Wow, so you don't shop for food, buy gasoline, don't heat with natural gas, don't know what grains and fertilizer are selling for-pretty convienent take.

Come on, walks like a duck, looks like a duck, quacks like a duck"

i have some ducks in the lake out back... they don't quack though... ...i dunno... off topic... sorry...

Thank you Norton.

Fed is barely keeping up with DEFLATION here.

What I am and you are describing is a timing issue, I think the distortions are too big to revert to the mean quickly...

The Fed is trying to ABSORB the deflation right now and their portfolio is becoming the next asset bubble. The debt that the Fed is now temporarily taking into its inventory will not clear for months, if not years. I believe the big investors see that the Fed has no choice but to take the bad debt into their inventory and this is an inflationary relief rally simply because the bad debt is being swapped with the pristine Treasuries, but this will make the Treasuries much less worthy eventually too. IMHO, you will be amazed how the Fed will (have to) allow the debt to sit in their portfolio until the Treasuries crack big time because the RE will not revert to the mean for years or unless it crashes some 20-25% while the defaults will just continue to come in the mean time...

The commodities are reflecting only the enormous amount of devaluation in the USD since 2001, nothing else and that's the inefficient growth in the money supply. Everybody knows the demand did not jump to confirm the 16% surge in the CRB index this year. The inflation surged while the US job growth was slow and the wage growth was anemic and it was because the real Fed rates were actually negative until the pop of the credit bubble in 2007. The very reality about this job environment is the reason why the real estate bubble popped, the affordability indices were simply not there for YEARS, this is not an issue of 2 quarters, imho...

The way I see it, we have a $700B annual trade deficit which we import more than we export, those goods will cost 5% more in 2008 since our greenback is worth about 5% less this year. Unless you bought puts on the dollar to hedge your currency risk