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Strategies & Market Trends : Zeev's Turnips - No Politics -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (2830)	11/2/2001 8:35:35 PM
From: LTK007	Read Replies (2) \| Respond to of 99280

<But there is no doubt that the sticky nature of longer-term rates has exasperated policy makers. This is especially the case with mortgage rates, since consumer spending has been the only prop supporting the economy in recent months. Keeping consumers feeling flush has, therefore, become a top priority. One way to do this is by lowering mortgage rates, encouraging people to refinance their home loans and put more money in their pockets.> this the key quote i think from my earlier post ( siliconinvestor.com question i have for Zeev will it work this yet another near desperate move to get consumers to keep spending----myself,i feel any move that encourages consumers to increase debt is in the long-run very dangerous--but like you are asking Zeev,will it effect the near term ticker tape?? This policy if followed by a decline in housing prices would that not lead to dire consequences? Is not the Fed frankly gambling now? What about the the surplus? etc etc.:) yadda yadda:)Max

To: Crimson Ghost who wrote (2830)	11/2/2001 11:52:55 PM
From: pompsander	Read Replies (2) \| Respond to of 99280

George: Let me add one piece of personal info on immediate reaction to the demise of the thirty year bond. In my line of business I sit in on asset allocation decisions for a number of large pension trust funds, although I am a non-voting observer of the allocation process. The timing of the Treasury's move this week caught virtually everyone by surprise and really caused some professional head scratching in meetings held today (Friday). Despite the emergence in recent years of the ten year note as a benchmark utilized more widely as a surrogate for mortgage, securitized debt and interest rate trend forecasts than the 30 year, the "old reliable" 30 year Treasury has always played a most critical role in allowing pension managers to safely dedicate actuarially determined costs for fixed pension liabilities. No other security could do it so neatly - even the best corporates present some credit (or, god forbid, default) risk, and liquidity is a concern in even the best corporate paper. If securities lending is utilized to enhance return, nothing can be lent like a nice portfolio of long treasuries. But with all the Fed and Government's efforts to shove down the long end of the yield curve to incent investors to either put capital to work by borrowing at such rates or by allocating funds out of measly yielding 4.75% thirty year paper into stocks which, with a reasonable dividend, can return virtually as much (e.g: JP Morgan, GE, BAC) but with lots more upside liklihood than would a bond bought at this point in the rate cycle, nothing seemed to work. What to do if you are the Gov? Tighten the supply of the thing everyone wants and/or needs. Those who still need it and can't do without it will pay a premium to load up on what is left (as happened in the past 48 hours, shoving the yield way down.). Pure genious, this move by the Fed. To make this long story a little shorter, decisions reached in some asset allocation meetings Friday went as follows: Go ahead and buy the 30 year treasuries needed to lock up dedications and other hedging schemes already approved and built into funding policies. Get the supply tied up now, rather than have to deal with even a tighter market later. Then, recognize that with the 30 year at 4.95 or thereabouts, and the dedication set, the time is right to begin to move available assets into some of those quality stocks which either pay a healthy dividend or which have sufficient growth prospects at these levels to likely exceed the rather boring returns bonds will produce over the next three to five years. The move by the Treasury to end issuance of new 30 year paper, timed beautifully and couched in rhetoric about reducing the average cost of government debt (ridiculous arguemnt if you think about it - now would be the time to issue all the 30 year paper the market would eat if the Government really wanted to lower its average cost of debt over time) has accomplished its real purpose - moving the long end of the yield curve down hard and fast, and hastening the decision of money managers and allocation gatekeepers to slide into equities. I think we see a stronger year-end rally now, maybe after Zeev's retest into early December, but I think we will come out of there with guns a blazing on the equity side.