Deflation

The John Hancock tower, Boston's highest skyscraper, was sold after foreclosure for HALF of the 2006 price.

Lee Adler in Radio Free Wall Street says that all the Fed purchases of MBS are most likely coming directly from Fannie and Freddie. "How is this inflationary? Do you think Fannie and Freddie are going to be lending all this money back out?" No, I don't. Which confirms a long-standing suspicion of mine: The Fed is not monetizing so much as transferring the debt. Unless they print enough to cause a massive collapse of the dollar, it won't be enough to stop deflation. If they print enough to inflate, then we will have the side effect of a dollar collapse. Right now, I'm still siding with the deflation argument.

CDOs Becoming ‘Unmanageable’ as Trading Costs Surge, Fitch Says. CDO's are managed entities that buy and sell bonds and CDS. The crux of the article is that there's no liquidity left in the CDS market. The bid/ask spreads have become wide enough to drive a semi through. Since the bond market has been joined at the hip to the CDS market, I expect that problems in the CDS market signal upcoming problems in the bond market. For example, if CDO's can't hedge, will they dump their bonds? Will they hedge another way, perhaps by buying puts or shorting stocks? Who knows, except that it will most likely be messy.

Mexico Government Plans to Seek $47 Billion IMF Credit Line. This is not a good sign for emerging markets. It looks like the fundamentals have been deteriorating rapidly since the beginning of this year. Does the IMF even have $47 billion left, or will they have to sell more of their gold?