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Thursday, June 07, 2007

Very Nervous

I'm drowning in work, but keep watching FRB Treasuries. In a high-risk environment, which this is, indexing expected rates of return (adjusting for risk) against treasuries for all other investments is the way to go. And the expected rates of return are not there given recent movements in Treasury Constant Maturities (TCM).

Nor, in a global sense, are most dollar-traded stocks a good return if you figure in the declining dollar. So what you've got is a nasty situation in which interest rates are going to have to go up for private credit, both consumer and commercial. Mortgage rates are going to rise, which is going to further push down housing.

Ugly as it sounds, the Fed should be raising rates to stop this from running away. Yes, it would put the economy down, but it would be a much shorter problem.

There will probably be good discussion over at Calculated Risk on these movements.

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