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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Lucretius who started this subject7/31/2003 11:21:52 PM
From: Teri Garner  Read Replies (1) of 436258
 
Since topping on June 13, 2003 the US Treasury Bond market (and Canada’s) has taken one of its swiftest drops ever. In barely seven weeks the market fell more than $15 or about 14% (as measured by the 30 year US Treasury Bond Future that trades on the Chicago Board of Trade (CBOT)). Indeed the drop was so swift we did wonder how that compared with the immediate drop after a top in other years.

Since the long-term bull market in bonds started back in October 1981 we have of course seen many peaks rises and subsequent corrections. While there has been some impressive drops none, however, none have matched this one over the first six weeks. The closest was a 12% drop in 1987 in the first seven weeks following an important top. The 1987 market fell almost $20 to the bottom or about 24%. The worst bond bear since the bond long-term bull got underway was the 1983-1984 collapse that wiped 25% of value. In dollar terms, the worst drop was the 1993-1994 bear market that fell $21.31.

Bonds have been shown to go through cycles of roughly 3 years. While we have shown this in the past it is worth repeating. Since the major bond market bottom on September 28, 1981 we have seen significant troughs in 1984 (July 2 – 1008 days), 1987 (October 19 – 1205 days), 1990 (September 24 – 1071 days), 1994 (November 11 – 1509 days), 1997 (April 11 – 871 days) and 2000 (January 18 – 2000). The average is just over 3 years with the longest being 4.1 years and the shortest 2.4 years. This suggests that the next bond market low should occur sometime between June 7, 2002 and March 6, 2004. We are past the early date and we are past the average date of February 4, 2003. This bond bear should bottom sometime in the next 7 months and could easily have another 12%-15% to fall.

This carnage is coming against the backdrop of the lowest interest rates in years and after the Federal Reserve has cut the discount rate an unprecedented 13 times in the past few years. The huge influx of liquidity into the market particularly over the past number of months as Gulf War II unfolded has contributed in no small way to a bubble in the bond market, the mortgage/housing market and probably once again in the stock market. It has become obvious now that the bond and mortgage bubble can no longer be sustained. Once again Fed Chairman Greenspan has given the impression that low interest rates, an endless supply of liquidity and fear of deflation has led to a bond bubble. Some have called it Greenscam.

gold-eagle.com
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