Who doy ou believe?

[rapier]

Another bearish macro economic article. Restating the general case about our distorted credit market, and therefore economy.

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=31463

Don't read this as gospel. This is opinion. However it, or ones like it, are now becomming almost mainstream opinion. Not mainstream in the sense of the media/political messengers but in the sense of the serious students of our times.

For the most part such analysis is politically neutral since while the GOP has become ideologically commited to the fianancial status quo leading Democrats are at most only slightly skeptical of that status quo and most importantly have no alternative save little tweaks to the tax code, etc. etc.

[papau]

1. much here that I agree with - but "How Not to Be Like LTCM " forgets that

LTCM unwound without much problem.

and folks are controlling their exposure in the derivatives market.

but I agree interest rate rise on 10 and 20 year is but a year away - I've been saying a 5% 10 year by 3/31/05 for about a year now - and I still expect it.

[rapier]

2. Oops, misspeled again

LTCM was used in this regard as emlblematic of a certain kind of problem related to risk.There is no analogy in as much as compared to the positions of the GSE's or JPM and all their invisible counter parties LTCM was tiny.

Nobody is "controlling" their derivatives market exposure to the extent that the market is still growing at least 20% a year, compounded of course. There is nothing controlled about it.

5% treasuries might be a disaster. An overshoot more likely would be. Maybe not, but always maybe, something might seize up. One thing is certain. At 5% mortgage refinancing would end. It has slowed a lot alreay but at 5% it's dead. Also at 5% mortgage growth might stop. That depends upon the general economy and inflation expectations too of course. The thing is that the mortgage machine is the lynchpin of the liquidty wave which has propped the financial markets and the real economy. Any slowing presents grave dangers.

It's all well and good to assume things will proceed in an orderly fashion in the financial markets and a move to 5% and even a long term trend change to higher rates will occur without major trouble. As a natural bear I know better than to expect the sky to fall at any particular time or over any one or two particular markets moves. I just try to be a resaonable Cassandra.

Let's say your outlook is the one standard deviation outlook. Certainly a good percentage bet. I'm sure your aware it can't be counted on to stay in that range. My position is that with the leverage in ths system chances of a 2 sigma or greater move in the markets is growing more likely.

[rapier]

3. more unconventional conventional wisdom

http://www.prudentbear.com/internationalperspective.asp

OK, so the spelling joke didn't cut it. Sorry