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Strategies & Market Trends : John Pitera's Market Laboratory

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To: Jon Koplik who wrote (6972)	5/14/2003 2:52:23 AM
From: macavity	Read Replies (1) of 33421

Treasuries. I am unsure what the yield is on 10yr JGBs. All I know is that 30yrs went below 1% last week. "Prices are rich". I have been bullish Bonds all year, the catch is I have used it to validate my equity trades, and have not done well. Maybe the relationship from 1998 is breaking down. But, I do not believe it yet. The catch is this. Falling yields signify an absence of increasing economic activity. Rising yields signify an absence of decreasing economic activity. I just define it in terms of savers and borrowers. Right now no-one needs to borrow hence no real economic activity. Note, I have defined them in a negative manner. Yes, I know Uncle Sam and all those deficits, but the Fed has said they will print new money to buy this stuff. This is Japan plain and simple. In Japan the government buys bonds via the Postal Savings, in US the Treasury buys them with newly printed money. Whereas in Japan there was/is a surplus of domestic savings to be used on this daft venture; in the US they will use freshly printed money. Hence the Yen never devalued, but the USD will fall like a rock. If bond yields go down, there is no increasing economic activity. Forget inflation, Central banks will always print, this is what TV pundits talk. The yield curve is about borrowers vs. savers over time and whether people are prepared to borrow and invest money in business activities. The answer right now is NO! In Japan a lot of JPY swap traders I know are now playing USD as there is no volatility in Yen. They just laugh when they hear people describing Treasuries as rich. I just hope the $SPX will see sense and promptly collapse. No positions I will be bearish if we get a close below $SPX=919, or if/when the WEEKLY chart prints a new Pivot Low. -macavity

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