Easy Credit Builds Bubbles

Strong retail sales growth was reported this morning. Closer examination shows that the strength was due to car sales – more 140% LTV loans with subprime credit. Oh yes, that will end well.

But in the meantime, the question of “does she, or doesn’t she?” arises, referring to Ms Yellen’s raising rates as a result of this apparent economic strength.

The reality is, she dare not. First of all, she will not willingly burst the bubble she has created. And secondly, the government simply cannot afford market interest rates given the massive debt load that President Obama has given us. However, the headlines have upset the bond market and so a new buying opportunity is coming up. If traders really believe that Fed liquidity pumping will be curtailed, then they should be running to get out of stocks. Right now there are enough willing dip buyers that you can get out.

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