I had been skeptical of the mother-of-all-carry-trade meme circulating this week--mostly because Roubini strikes me as a permabear, and I always want a second opinion backed by numbers before I believe a perma-anything.

Here's the article that persuaded me:
http://www.forbes.com/forbes/2009/1116/o...

It is full of salacious anecdotes about stupid sure-to-be-whacked bonds getting bid up way too high. The author persuades me that only one thing, the over-availability of credit, could account for the simultaneous rise of these bonds, gold, other commodities, and stock equities.


So what does it mean? Key questions---

(a) if this is a bubble, is there anything that could pop the bubble besides defaults and/or increases in the interest rates?

(b) is there anything that could cause interest rates to rise, *other* than action by the Fed?

(c) is it likely that the next liquidity crunch will trail the next credit crunch? or could liquidity for companies like Annaly get hit before credit?

(d) assuming that even when the bubble pops, that Annaly does not have trouble rolling over repos, how much will the popping of the bubble take NLY down?

(e) finally, how long until the bubble pops? will it be the usual 6-8 years between recessions? why/why not? do you foresee a run-of-the-mill double-dip recession, or something more catastrophic?