Thursday, July 9, 2009

when bad news is good news (for me)

I find myself cheering for global financial panic these days because I'm trying to buy a house and because I have acquired some Australian dollar debt.

Every time a bad economic report comes out, people run to the relative security of the USD and US gov't treasuries. This moves exchange rates in my favor. And mortgage rates are strongly correlated with treasury returns.

The only bad news that is bad for me right now is talk of excessive inflation, because inflation expectations also impact mortgage rates. At the moment, there is a lot of talk about USD inflation, but there is also a lot of talk about USD deflation. And that is fine by me. I expect deflation for the next several quarters followed by inflation above 5% for several years, but what do I know.

So, I say bring on the US stock market crash and let the freedom fighters in China prevail. Better yet, let another smallish currency turn into confetti like the Icelandic Kronor did. Imagine what that would do to exchange rates and treasuries.

And it would put an end to all this diversified reserve currency BS that some G8 leaders have been rambling about.

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