Fed Steals Punchbowl, Party Ends, Hangover Starts

[FRED]

Fed Steals Punchbowl, Party Ends, Hangover Starts
June 20, 2006 (Bloomberg)

Move along, people. There's nothing to see here. Move along.

There's nothing mysterious or sinister behind the declines we've seen recently in global financial markets. The Federal Reserve has taken away the punchbowl it spent two years pouring absinthe into. The party is over, and the guests are staggering off to endure skull-cracking hangovers. So far, so predictable.

Liquidity Downturn Drives Markets and Economies
June 20, 2006 (Andy Xie - Morgan Stanley)

Central banks have buffered the global economy against deflation shocks repeatedly since 1998 by releasing more money into the global financial system. The liquidity has kept the global economy strong by inflating financial assets. This unique episode is ending as deflation shocks end and the deflation-exporting economies begin to export inflation.

AntiSpin: How far do the world's central banks take the "Ka" phase of "Ka-Poom"? Will there be a "Poom" phase at all? Yes, but not until the world's central banks become fearful of deflation. How long will that take? More on this later today...

[Charles Mackay]

In EJ's post entitled "Poom" happening? 05-12-2006, I suggested that we were in the mini-ka. It now appears that there is even more evidence that that is the case...
CM

[Charles Mackay]

If EJ's revised ka-poom graph is roughly correct then trading this "mini-ka" could be a very profitable affair. Maybe the best chance to make money in "real" terms left in the cycle.

[jk]

how do you play the mini-ka?

short commodities? sounds perilous. currencies? will people think of the dollar in a flight to "safety"? bonds? long dated zero tbonds? sounds plausible. long dated tbonds to play a deflation scare then with exquisite timing, move it all to precious metals for the poom phase. i don't know that i can be so agile. and andy xie's article talks of the problems for countries that have been dependent on foreign portfolio flows. i wonder what country he might mean? so, no, not tbonds. foreign currency denominated bonds?

so, again, how do YOU play the mini-ka?

[Charles Mackay]

short commodities? sounds perilous. currencies? will people think of the dollar in a flight to "safety"? bonds? long dated zero tbonds? sounds plausible. long dated tbonds to play a deflation scare then with exquisite timing, move it all to precious metals for the poom phase. i don't know that i can be so agile. and andy xie's article talks of the problems for countries that have been dependent on foreign portfolio flows. i wonder what country he might mean? so, no, not tbonds. foreign currency denominated bonds?

so, again, how do YOU play the mini-ka?

jk, I was thinking more in terms of a buying opportunity all across the board in gold, energy, and commodites ...to get gains in real terms vs. just nominal terms which maybe the case in the actual poom. If I'm reading EJ's thesis correctly, the last poom will just be up up and away on inflation and just staying even on purchasing power may be the best we can hope for on our assets. Hopefully EJ will chime in and confirm whether he thinks we are actually in what I'm calling the "mini-ka"

[jk]

playing the mini-ka

is your notion then to stay in cash and hope to recognize the bottom? the problem here is one of timing. first, if a deflationary scare is at all delayed, we might have some inflation before we get there, with a loss of value for cash. second, of course, is recognizing when it's safe to get back in.

jk, I was thinking more in terms of a buying opportunity all across the board in gold, energy, and commodites ...to get gains in real terms vs. just nominal terms which maybe the case in the actual poom. If I'm reading EJ's thesis correctly, the last poom will just be up up and away on inflation and just staying even on purchasing power may be the best we can hope for on our assets. Hopefully EJ will chime in and confirm whether he thinks we are actually in what I'm calling the "mini-ka"

[Charles Mackay]

No, just adding to positions in this mini bear