Zeev's Turnips Patch-No Politics (ZEEV)

[SantaCruz]

the reason is engineering a soft landing from the bubble days, so far, they have done a superb job as far as that is concerned.


I think it's too early to declare a winner. I think it's just as likely they've only delayed the "hard" landing. In fact, they may have made it worse. Instead of a deflationary depression, we'll get an inflationary depression as Belkin now believes we will. We'll only know in time.

Something of interest I found on the net:

6/27/03)

Greenspan, The Croupier
Took a phone call a couple of weeks back from Bill Steedman, a veteran of the Sollie trading desk now doing strictly personal trades from the Sunshine State. W@W’s recent [5/16]interview with The Belkin Report’s Michael Belkin.
“That Mike Belkin is one smart cookie. And I can tell you exactly what his work is seeing. Last year, you wrote up something that I had noticed, which proved that Greenspan wasn’t worried. Reserve balances at the Fed, as reflected on its H.4.1 reports, were $604 billion in January 2002 and $607 billion on May 23 of last year—so they were basically unchanged. But then, between the end of May 2002 and the end of May this year, they went up by $40 billion.

“The casino is back open because Greenspan has poured that $40 billion back into the banking system. It’s right there for anyone to read on the Fed’s H.4.1 its flow of funds filing [www.federalreserve.gov/releases/h41/]. That is what got the speculative juices flowing again. That’s what made the difference between last year, when the Nasdaq was down 20% in the first 5 months of the year, with the Dow up 200-300 points, and this year, with the Nasdaq climbing 20% in a few months. It’s all because of all this money being pumped in.

“Here’s the key. Last year, in May, the 30-year yielded 5.76%. Right now, it yields 4.25%. That’s 151 basis points. A one-percentage point move on a 30-year Treasury is worth 5.76 basis points. Stated differently, we have had a 27-point rally in one year in the 30-year Treasury. You can buy those things on 5% margin—anybody can—so that means that if you put up $50,000, you made $270,000 by buying the 30 year Treasury--per million. And guys are buying them in the billions. So we have totally reliquified the banks, if they just bought long Treasuries.

“But that sort of drop in yield in one year is unsustainable. The 30-year peaked out in January 2000 at 6.75%. Then it took it from January 2000 to May 2002 to drop 100 basis points. Yet it went down another 151 basis points in a year. The irony is that right at the time that Greenspan started talking about deflation, the market stopped fearing deflation. The stock market now goes up if interest rates go down and goes down, if interest rates go up. We’re back to fearing inflation again, after a five-year hiatus. Which is wonderful, because this is a phony rally. Although, if it gets through 1710 on the Nasdaq, it could go to 2000, like Belkin said, because that would be a 0.618 retracement.

“We are going to have a hell of depression. I just don’t know if it’s going to be a deflationary depression or a bout of tremendous inflation. But I would guess we’re going to go to 6.5% or 7% within a year or a year and a half on the 30-year Treasuries. We’ve had a 23-year bull market in bonds. But all good things must end.

“Between October 1998 and January 2000, Greenspan screwed all the bears because he didn’t let the 17-year bull market die a quiet death. Then, between January 2000 and April of this year, they killed all the bulls. Now the next group that those diabolical you-know-whats are going after will be the bond holders, So they’re leading them into buying all of that junk and about a third of it is not going to pay. I’m saying that you have to cool it. We all should have been as smart as Warren Buffett and bought junk bonds last year. But not now. This is a nice, interesting, fun bear market rally and nothing else. We’ve got a mess coming.”