Wednesday, July 12, 2006

The Contraction of Liquidity

If you'll notice, most major world markets are on a downward trek, the trend is not up.

Couple that with house prices, they are starting to trend down. Not fast, but the direction has changed from up to down. The amount of inventory has raise quite a few eyebrows. Nobody is launching the lifeboats so everything must be OK.

Long term interest rates have been rising very slowly with no appreciable effect on installment purchases. A rather peculiar side effect considering everything else. A $5,000 liquid plasma TV is only a signature away, no payments for one year.

Want a BMW? "Well, do we have a deal for you!" It makes you wonder where the money is coming from to pay for all of this. The fact is, the money is not there to loan unless the lending standards are lowered.

When you visualize a bankruptcy or a foreclosure, the time it took to get that point doesn't enter into the equation. It takes about a year.

So where are we now? I believe that this is the beginning of "That Year." Layoffs will follow from here. The stock market seems to be in the doldrums. The bond market is stuck between a rock and a hard place. With all of the bad paper out there, it can't go any lower, and if you have a 30 year bond at 5%, you're going to loose big time.

The smart money is going to T-bills. I wonder, if you purchase a T-bill over 100,000, would it show up on the M3 money supply total that has been discontinued? That might be why they discontinued reporting the value. Big money might be bailing out of regular bank deposits. The government very rarely fires bean counters, and to discontinue the M3 money supply report, suggests that the reasoning could have been very well thought out.

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