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

To: pater tenebrarum who wrote (31883)	10/29/1999 9:28:00 PM
From: Haim R. Branisteanu	Respond to of 99985

Heinz, dollar drop offshore money getting out of the US just as simple. They smell a soft economy coming in the US plus some stagflation. Haim

To: pater tenebrarum who wrote (31883)	10/30/1999 3:55:00 PM
From: Lee Lichterman III	Read Replies (3) \| Respond to of 99985

Well this is going to be one interesting end of year that is for sure. I have run through at least the charts I keep posted on my site and they are for the most part supporting the bull case. I have bullish forks that support this rally and they fit pretty well. The TYX made a waterfall drop and a weekly bearish engulfing hinting that rates should continue to drop and the Bond should continue to rise following as I posted here off and on class two signals for a week. I did have a class 3 over bought on the Dollar so it's drop may have just been technical and I have to admit, I can't get any good lines on it so I don't know the extent it will drop before recovering. I see a few danger sign hints like IBM, DELL and CPQ trying to party with the rest in the rally despite warnings, lower earnings etc yet at the same time companies that did well on earnings and gave bright outlooks like MMM dropped ina nasty way Thursday and Friday. A mix of euphoria and pessimism or else dumping of "granny stocks" to chase the high flyers maybe? I am basically inthe bull camp but am worried about a few things as I put in my comments section on my site. On that note, sorry that I was late updating but I had a busy morning and just finally finished my update. My site of course is at home.att.net For those that have good historical charts, I would take a look at 1994 and the rally that happened then. That was about the best comparison I could find to this one and keeps me guarded in my optimism. Basically I couldn't find where a correction ever recovered like we are now. '94 had the closest thing to this with large white candles and gaps like now starting 10 October. It shot up for 3 days then slowed down and continued to climb slowly for 5 days. It then retraced 50% for weeks, had a one week rally then made new lows in December ending on December 9th. It then had a more normal rally back to the 200 Expodential DMA and sat on it for 3 weeks until 95 when it finally started this last accelerated bull leg to now. Others I looked at that kind of looked like now were Dec 91, April 92, May 94 and they all retested their lows later on. Basically my charts are bullish but history is against a genuine recovery here. Which will win, the charts or history? Good Luck, Lee

To: pater tenebrarum who wrote (31883)	10/31/1999 10:36:00 AM
From: Les H	Respond to of 99985

Corporate Bond Yields Top 8.00% John Lonski, Moody's senior economist in New York An accumulation of global inflation risks has lifted borrowing costs for both corporations and municipalities. Joining a climb in Moody's long-term investment grade corporate bond yield average to a 4.5 year high of 8.02% on October 21st, our municipal bond yield average topped 6.00% for the first time since March 1995. Thirty year lows of 6.72% for investment grade corporate bonds in December 1998 and 4.93% for long-term municipal bonds in October 1998 offset much of the damage from economic turmoil overseas and set the stage for a surge in interest sensitive activity. Long-term investment grade corporate bond yields now top the annual growth rate of core CPI inflation by 6.0 percentage points, which falls just shy of a peak in real corporate borrowing costs at 6.1% in December 1994. Nominal borrowing costs still fall far short of November 1994's 8.94% in corporate bond yields. In response to the then steep climb in real borrowing costs from 4.1% in December 1993, corporate bond issuance would plummet from $52.8 billion in the fourth quarter of 1993 to $25.0 billion in 1994's final three months. As real corporate bond yield retreated to 4.2% in 1995's fourth quarter, the quarterly tally of corporate bond issuance would recover to $51.7 billion. Earlier this year, rising interest rates were not overly lethal to bond offerings given that the 5.0% average real long-term corporate bond yield remained below its 5.6% average of the last 15 years. As a result, the $14.8 billion average monthly investment grade corporate bond sales in 1999's first half was virtually identical to the $14.7 billion monthly average in 1998, or when real corporate bond yields averaged 4.6%. However, as real corporate bond yields jumped from 5.2% to 5.7% from the first to the second quarter, corporate bond sales slumped from $78.7 billion to $48.2 billion over the same span. Thus far, interest rates have risen this year in anticipation of an emergence of inflation that has as yet been largely unrealized. Bond yields may not move significantly higher until faster price growth begins to trim real borrowing costs. If higher product prices generate a recovery in corporate earnings, a pick-up in inflation risks would be evident. A recovery in global demand has boosted commodity prices and the revenues of basic materials and energy companies this year largely through a reversal of last year's steep declines. However, our index of industrial metals prices remains 6.7% below its level at the start of the Asian crisis while businesses have generally been unable to raise prices indiscriminately without jeopardizing sales growth. Inflation will need to become less myth and more broad reality for nominal interest rates to approach their level at the end of 1994. Services Absent From Latest Climb In Inflation A faster pace of consumer spending abroad diminishes the need for overseas competitors to offset weakness in domestic markets by trimming prices to boost sales growth in the US. Further, the expansion of overseas demand has lifted the price of industrial commodities, which has served to raise inflation pressures in the US but also firmed the earnings and credit worth of a number of energy and basic materials companies. Since most recently peaking at 3.3% in December 1996, the annual growth of the consumer price index descended to a low of 1.5% as of November 1998 before rebounding to 2.6% in September. However, higher commodity prices are almost exclusively responsible for the CPI's climb (see nearby graph). After falling from 3.1% in December 1996 to -0.3% in March 1998, the year-to-year change in the commodity component of the CPI has since climbed back to the 2.8% increase of September 1999. Over the same span, the annual growth of service price inflation has fallen from December 1996's 3.4% advance to 2.5% as of September 1999, which differs insignificantly from the most recent low of 2.4% in August 1999. The 0.4% average monthly rise in the CPI's commodity component in the half year ended September was up sharply from the flat average monthly change over the first 21 months of the Asian crisis. In contrast, the 0.2% monthly rise in service prices over the last six months was identical to the average monthly gain over the prior 21 month span. An extended acceleration of inflation is less likely absent a contribution from the 58% of the CPI represented by services. An inflationary increase in business pricing power might be inferred if the price of services begins to climb higher. Inflation risks are transmitted globally primarily through changes in the price of tradable goods and exchange rates. Unlike the CPI, services are excluded from the Labor Department's primary index of import prices. In response to global economic weakness, the yearly change in import prices excluding oil related goods deepened from -1.8% in June 1997 to a bottom of -4.2% as of September 1998. A higher federal funds rate and a flatter 0.5% year-to-year decline in the non-fuel import prices in September 1999 follows closely the rebound in overseas demand. That the CPI has followed closely the path of commodity prices underscores the extent to which overseas economic weakness underpinned rumblings of deflation. The moderation of service price inflation notwithstanding the acceleration of commodity prices serves to highlight the ongoing inability of businesses to lift prices. September's 3.4% year-to-year rise in medical care services was below the 3.6% annual increase of both September 1998 and the last five years. Similarly, the yearly increase in the price of education and communication has climbed from 0.2% in June to 1.0% as of September, which nevertheless trailed the 2.9% average yearly rise of the last five years as well as September 1998's 1.2% increase. Demand For Short-Term Funds Widens Money Market Spreads A desire to maintain liquidity as a defensive measure near the end of this year has accelerated the pace of short-term debt growth of late. While a steady if unspectacular supply of bond offerings suggests that access to long-term capital has not dried up in response to Y2k related worries, corporations can establish and additional margin of safety by accessing money markets. The ultimate effects of Y2k are unknown but the potential downside risks warrant a cautious operating stance. Few corporate finance officials want to be caught short on liquidity in a manner that would jeopardize sales, debt service or the ability to meet short-term obligations, including payroll, as they arise. As the failure of statistical risk models relying primarily on historical data to fully capture the pronounced increase in risk aversion of last fall demonstrates, contingency planning requires preparing for the downside risks of the worst case scenarios, regardless of probability. Short-term debt growth is likely to accelerate after bottoming in the third quarter. Since soaring by 27.6% annually in September 1998, the year-to-year growth of commercial paper outstanding had descended to 8.1% as of September 1999 for the flattest such rise since November 1994. As of mid-October, the yearly increase in commercial paper had climbed back to 13.6%. Similarly, September's 11.3% annualized advance in commercial and industrial loans outstanding topped annualized growth rates of 5.2% over the last six months and 6.5% since September 1998. In response to a strong demand for funds as a precaution against liquidity shortfalls around the century date change, three-month dollar LIBOR rates have climbed from 5.51% in mid-September to a recent 6.22%. The spread over T-bills on 90-day commercial paper has soared from 72 basis points to 102 basis points over the last four weeks. Commercial paper spreads peaked at 111 basis points in October 1998 with a high of 153 basis points on October 16th, 1998, or one day after the Fed engineered a mid-meeting emergency 25 basis point cut in the federal funds target. In contrast to late 1998's reactionary jump in yield spreads, an increase in risk aversion prior to the possible arrival of liquidity problems. If Y2k is a yawner, money market spreads should fall sharply as redemptions increase and liquidity fears subside.