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Tuesday, October 30, 2007


merrill forecasts recession

"it would take a miracle to avoid" recession now, via housing wire and nouriel roubini:

With domestic demand growth struggling to stay above a 1% run-rate, if we manage to avoid a recession with another huge down-leg in homebuilding activity and home prices, we think it will be a miracle.

merrill's forecast in the event is for rate cuts down to negative real interest rates -- again. the question, of course, is whether more of the same tonic will produce more of the same results. last time, alan greenspan ran rates to 1% nominal and negative real and we got a consumer credit explosion that fomented this housing disaster.

but with banks in a mortgage-backed securities crisis and homeowning consumers heading in unprecedented droves toward foreclosure and bankruptcy, perhaps the most important effect of aggressive rate reductions will be instead to force foreign holders of dollar-denominated securities to finally capitulate, accelerating an american credit contraction into something more egregious.

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gm -- up is down, man, first is last. I'm just, it's getting like that scene at the beginning of Rosencrantz & Guildenstern are dead, when they can't toss tails. or heads, I forget. look, just tell me something. if you were to send Jason Marquis out there against, say Bob Gibson or Tom Seaver, Marquis oughta lose, right? it's, well, for lack of a better word, nature.

so now oil is through the roof, gold is through the roof, the dollar can't buy a damn guinea shilling, the worst housing bust we've ever seen is getting worse, with no bottom anybody can see, erasing billions and billions of dollars in lost wealth and (bad) instruments -- and the market WON'T TANK. would somebody just tell me what the _fuck_ is going on? I'm just too lousy tired of having my ass handed to me. perrone

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perrone, i think the guys at minyanville are dead right in their assessment -- catchphrase: "asset class inflation vs. dollar devaluation".

the s&p is going up -- in dollar terms. but if you're a euro investor, you are at a net loss since 2002. this graph says everything, imo -- it's the dow industrials priced in ounces of gold.

the american stock market IS losing value -- just not as fast as dollars have been.

their suspicion is this: when the dollar finally catches a (deflationary?) bid, the effect on asset classes -- commodities and stocks -- will be quick and devastating.

that time might be coming very quickly. market leadership is very narrow now -- just a few bubble stocks like google, amazon, apple and rimm are driving most of the nasdaq gains, while large numbers of smaller shares are falling away from their highs. also, the financials have not done well -- and they almost inevitably lead the market.

i'm nervous about tomorrow's (presumed) rate cut. i was short the last 50 bip surprise and i'm short now. not sure if i'll lighten up into tomorrow afternoon. but it's possible that another surprise will hurl the dollar (and potentially bonds) lower and give equities more room to run.

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it's the dow industrials priced in ounces of gold.

and of course it could as well be barrels of oil or bushels of wheat or corn or tons of copper. inflation is a function of broader credit creation, and its running well beyond the control of the fed.

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