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Bond Outlook May 23rd

While the Fed may be worrying about excess cheap credit, the Chinese may be doing something about it as they divert some of their investments to private equity.

Bond Outlook [by bridport & cie, May 23rd 2007]

The excessive amount of cheap credit looking for a home, which we identified in our last Weekly as a source of concern for the Fed, is receiving much attention, not least from Chairman Bernanke. Credit looking for borrowers, or liquidity looking for a home, the money, fed by foreigners buying T-Bonds and other assets, has to go somewhere. The tightening of mortgage conditions and the slowdown of mortgage equity withdrawal have pushed the credit to other outlets, mainly to businesses and, to a lesser extent, to credit card purchases. In a way, the rise in stock market prices, pushed by mergers and acquisitions, and by leveraged buy-outs, finds its way into the pockets of households anyway, since, currently at least, individual investors are cashing out of equities, even as institutional investors are increasing their holdings.

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