Bobby, what nobody has yet commented on during the rally in the long bond, was the fact that t-bills continued their bear market unabated. in fact short term rates have shot up considerably. even the Fed funds rate recently came in at 5 7/8%, and that was before yesterday's tightening with the target still at 5 1/4%.
what does this signify? two things imo...one, a flattening yield curve is a sign that a deceleration in economic growth rates might be in the cards. two, demand for credit is probably extremely high. looking at the acceleration of the growth in all the monetary aggregates (M3, the broadest, now at an annualized 14,7% since 20 September) this is probably a reasonable assumption. the acceleration in money supply growth also explains the latest rally - if the spigot is as wide open as it is now, it doesn't matter if valuations are reasonable or not...stocks go up anyway.
this is probably the most irresponsible Fed ever, except perhaps it's '20's equivalent. they seem hell-bent to inflate the bubble beyond anything the world has ever seen. if AG does get another term, he will eventually find himself presiding over one hell of a mess.
check out the t-bills:
decisionpoint.com
btw, i personally feel that in spite of all the tinkering government data are subjected to, an enormous acceleration in inflation is almost a certainty. all over the world printing presses are running overtime, first in reaction to last year's crisis and now due to Y2K.
combine the possibility of Y2K supply disruptions with an ocean of money and you have all the ingredients for run-away inflation.
and of course, the final glorious blow-off in the equity markets....
regards,
hb
PS: Rydex ratios near all time lows:
decisionpoint.com
decisionpoint.com
the next pullback may well be of 'tradable' size.... |
