THEME: DOLLAR WEAKNESS

Here are some interesting tidbits:

At Washington Mutual, for example, 67% of loans were ARMs in the past quarter and of those, more than half reset in under a year. Here's the scary thing: ARMs produced much bigger savings a year ago. The short-term indices used to set adjustable rates have gone up much more because of Fed rate hikes than have the rates on long-term fixed mortgages, which ended the quarter about where they ended the third quarter of 2003.

"We are currently dealing with broad consumer uncertainty related to higher gasoline prices and a lackluster employment picture, which translates into uninspiring consumer confidence levels," Mattel's Chief Executive Robert Eckert said.

Kids today have more toys than I or my sisters ever had. Visit any Toys-R-Us and you'll see happy parents doting on their kids. But now parents are faced with tough choices for their discretionary income: toys or health care? Oh, and how about gasoline, heating oil, food, and education? All of these items are going up, and incomes and jobs are flatlining.

The structural indebtedness of the US consumer hangs on the price of real estate. Rising short-term rates will kill those real estate investors who borrowed to buy real estate in the last 3 years. Many of those investors did so banking with ARMs, interest-only loans, or other forms of debt leveraged to short-term rates.

The specter of inflation in items that we cannot live without (food, energy, healthcare, and education) combined with rising interest rates is a situation that can only be allowed by the Fed if it fears a scenario far worse: a currency crisis. Or if its senile.

Let's hope the Chinese, Japanese, Saudis, and all of our other creditors don't suddenly lose confidence in our system and pull the plug on our credit cards.