A.I.M Users Group Bulletin Board Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : A.I.M Users Group Bulletin Board

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: OldAIMGuy who wrote (6870)	2/21/1999 11:00:00 AM
From: JZGalt	Read Replies (1) of 18928

It's the 52 week Treasury rate. It bottomed about two months ago and has been slowly creeping up since. Not much, but enough to suggest that the FED is through lowering rates for a while. In looking back over the 16+ years of data in my IW spreadsheet, there's a tendency for the 52 week bond to "lead" the next interest rate move. Tom, Although the market is worried about this, it seems unfounded. First and foremost the Federal Reserve is there to fight inflation. If you look at trends in commodity prices and the price of gold you see no inflation on the horizon. We are importing very cheap oil and other raw materials. The steel industry is really getting kicked in the butt with cheap imports from Japan and Korea, but the US consumer is the winner here. Take a look at this chart and remember how much of the US economic system is based on energy either directly or indirectly. The drop in oil prices is in effect a huge tax break for the US. tfc-charts.w2d.com Gold: tfc-charts.w2d.com The second charge of the Fed is to protect the currency. In spite of record trade imbalances (see above), the dollar is not showing continued weakness against the yen in recent weeks. Fluctuations have more to do with the Japanese fiscal year and the repatriation of funds from the US to Japan to make their financial system appear stronger than it in fact is. Dollar Index: tfc-charts.w2d.com Check out the recent strength in the US dollar. It is highly unlikely that the Federal Reserve would hike rates and add to this strength. The third aspect of Fed policy is to continue to foster the stability of the world economic system. If the Federal reserve were to raise interest rates anytime soon, it would draw even more money out of the financial systems of non-US systems and worsen the economic recovery of the emerging markets. This is counterproductive where the markets in question are major US trading partners such as Brazil. In addition, slowing the US economy would worsen the fate of those countries which are using the continued economic strength as a way of keeping their economies afloat via exporting those cheap goods (again see above). All of this talk about Fed tightening because the economy is "too strong" is a crock. 4.75% on the long bond which has risen to 5.3% is a significant jump, but what people aren't looking at correctly is the 4.75% rate was reached at the height of the October drop in the market when demand for "safe" investements was extremely high from both US and foreign investors. Look at the longer term picture and you will see the anomoly was the 4.75% level, not the current 5.3% level. My guess is that rates will continue lower for the next few years as the productivity increases in the US economy continue and the demand by baby boomers for financial assets vs. hard assets continue. Remember that real interest rates are calculated by subtracting the inflation rate from the rate on the fixed interest instrument. Right now a 4+% real yield on 30 year bonds is actually near the upper end of the historic range. Look at this trend of 10 year treasury notes. Increasing prices mean lower rates on this sort of graph. tfc-charts.w2d.com Notice how the trend is up? Meaning lower interest rates and the spike in prices (lower rates) in the September/October timeframe correspond to the spike down in the dollar index? tfc-charts.w2d.com This would suggest to me that the majority of the interest rate movement in the past few months is and was not related to the Fed but normal fluctuations in the world currency markets. ---- Dave

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next