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Bond Outlook March 21st

Bond Outlook [by bridport & cie, March 21st 2007]

What can investors do when indicators and opinions are so contradictory that they risk behaving like rabbits caught in headlights, unable to decide which way to run? Part of the answer is to ask the right questions. We have our answers, but we can only advance them as our viewpoint, as no one can foresee events accurately. We note that historically we have generally been on the right track, but that the timing has usually been much slower than we imagined, and that the manifestation of an incipient problem has shown up in somewhat differently than we first envisaged. The perfect example of the latter was the sub-prime market proving to be the weakest point in the housing bubble deflation rather than middle-class borrowing.


Question 1: Is the problem of the sub-prime market already over? Building starts picked up in January. No losses are being reported by the underwriters of CDOs, no hedge funds have reported huge losses, so perhaps the rot has been stopped in its tracks.

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