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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Les H who wrote (29955)	10/15/1999 3:17:00 PM
From: Les H	Respond to of 99985

TALK FROM TRENCHES: TSYS UP BUT GOOD SHIP DOW STILL AFLOAT By Isobel Kennedy economeister.com NEW YORK (MktNews) - U.S. Treasury traders got whipsawed Friday. Prices opened higher on shortcovering in anticipation of a stock market meltdown. Then they turned around, heading sharply lower on the shockingly strong producer price index. But after the New York Stock Exchange opened, stocks finally tanked and treasuries ricocheted back up. Treasuries are currently showing marginal gains across the curve versus yesterday's 3 p.m. levels. In his speech late Thursday, Mr. Greenspan fired another shot across the bow at U.S. equity traders. And his repeated "talking down" of the equity markets is beginning to make some wonder if Mr. G is just jealous about all the money people have been making off stocks despite his notorious irrational exuberance speech in 1996. And, they say, the Fed is supposed to worry about inflation not stocks. And so far Greenspan's accuracy has been off the mark anyway, analysts say. Since 1996, his verbal jabs have dented but have never sunk the "good ship" DOW. A return to dry dock for repairs usually sends the DOW out to roam the seas once again. And this time, the pattern looks the same. Some say that you could sink the Titanic and the Bismark, but you can't sink the "good ship" DOW. Mr. Greenspan's speech today had been delayed, raising speculation whether he hurriedly did a re-write to fix some of the overnight damage he caused in the equity and currency markets! But alas, Mr. G didn't mention stocks. In the event of a stock market rout, senior market strategist says 2s/30s steepeners have outperformed other curve trades during past equity wash-outs. During the 7% equity slide on Oct 27, 1997, 2s and 5s moved lock-step when 2Y yields rallied 28 bps but the 2s/30s curve steepened 8 Bps. In the 11% stock decline during the last week of Aug 1998, 2s rallied 21 Bps while the 2s/30s spread widened once again by 8 Bps and the 5s/30s curve steepened only 4 Bps. And for you history buffs -- or for some of the neophytes out there who have never seen bond yields cheaper than 8% -- here was the price action of U.S. Treasuries during the Oct 1987 stock market crash. On Oct 19,1987, which was called Black Monday, the Dow Jones Industrial average fell 508 points to close at 1,738. Stocks lost 23% of their value that day, the largest daily percentage decline in history. But treasuries rallied wildly. Here are the yield closes on 2Y note during 1987 stock market crash: Thursday Oct 15, 1987 9.19%; Friday Oct 16, 1987 9.04%; Black Monday Oct 19, 1987 8.45%; Tuesday Oct 20, 1987 8.04%. Here are yield closes on 30Y bond during 1987 stock market crash: Thursday Oct 15, 1987 10.22%; Friday Oct 16, 1987 10.17%; Black Monday Oct 19, 1987 9.81%; Tuesday Oct 20, 1987 9.48%; Thursday Oct 22, 1987 9.08% Friday Oct 23, 1987 9.09%. Treasury prices got a lift on today's stock market weakness. But after this week's debacle in the credit markets, not everyone is singing a happy tune. In fact, one source said the only difference between this market and the Titanic is they had a band. Inflation is still a big worry for fixed income types and today's producer price report was a barn burner -- up 1.1% overall with the core rising .8%. The numbers were well above the worst expectations and reflected gains in cars, tobacco and energy. Some are now saying inflation is back and that will give the Fed a reason to raise rates next month. But other seasoned players think the end could be near. They say this is the 4th major bear market since 1984. During the first three, the downmarkets lasted 12, 15 and 13 months respectively before the markets headed into their upturns. The current bear run is in its 12th month now. Nobody knows if the market is ready to turn or if there are rougher seas ahead. But as most veterans know, when everyone is on the same side of the ship it is probably time to countertrade the market. By the way, we got some flak this week. We were accused of being too bearish. In fact, one of our readers suggested that if the Treasury market ceases to exist -- and he implied that could be soon given this week's debacle -- we could become obituary writers at one of New York's leading papers! Hey, we don't make markets. We just pass on the market chatter. And what chatter it is. One depressed salesman said Friday, "I am pounding nails in the floor with my forehead." And that was before PPI hit the tape. It's been a rough week, have a good weekend. Just think, you did not have to read about Japan in this column again today. -- Rob Ramos and Kim Rellahan contributed NOTE: Talk From the Trenches is a daily compendium of chatter from Treasury trading rooms offered as a gauge of the mood in the financial markets. It is not hard, verified news.

To: Les H who wrote (29955)	10/15/1999 3:18:00 PM
From: Les H	Read Replies (1) \| Respond to of 99985

FED OFFICIALS: INFLATION RISKS RISING IN FACE OF STRONG CONSUMER DEMAND economeister.com