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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5525)	2/8/2002 1:14:46 AM
From: macavity	Read Replies (1) \| Respond to of 33421

Mr Gross. He is short the short end and long the long - obviously. This 'extra' 1% thing is him being over-simplistic. No-one buys a bond because they can pick up 1% IF THE CURVE STAYS THE SAME . I always thought that yield curve carry trades were more effectively done with duration-neutral spread trades. Still I do agree with him. There is a simple rule. If you keep on going one way and nothing happens, then going the opposite way will not make things worse. (I reckon it actually makes it better). Look at Japan - the way to end the misery is to raise rates not lower them. Then the construction companies which are bankrupt will stop borrowing and stop making the situation worse. End the misery, do not prolong it! Mr G is just perpetuating easy credit. If it got us into the mess, how is it going to get us out of it? Yeh, he is making things better for the feel-good crew, but that does not help in the long run. Good luck to Mr Gross and his position. I still see Uncle Sam as a net issuer of bonds. With JGBs and Treasuries looking like they (may) have formed long-term bottoms. Equity heading south. Maybe the time has come for Gold. It is the one commodity I know where the supply has been reducing over the past years. Good luck to the gold bugs! -macavity

To: Hawkmoon who wrote (5525)	2/9/2002 5:32:11 PM
From: John Pitera	Read Replies (1) \| Respond to of 33421

Thanks Hawk, Bill Gross and Pimco have such a big book that many might argue he's talking up his positions. He also probably thinks that it's what the FED should do. The Japanese have had little success in running short rates to zero and leaving them there. I agree with his outlook, and mentioned that I think that over the next 3 to 6 months the short end of the curve is going to move up in yield and down in price relative to the long end of the curve. ( a flattening of the Yield curve). I guess that the curve between 90 days and 2 years may go down the most in price relative to the longer end. Message 16987117 Barrow runs one of the biggest value oriented equity funds in the world and has a great track record. I thought his comment that the yield curve should flatten in 2002 was definitely on the mark. It seems that shorting the shorter end of the yield curve say the 2 year note and going long the 7 to 10 year portion of the yield curve could be a good positional trade to put on and hold going into Q2 or even Q3. With a stop loss of course. If Ed Hyman is right that Q1 of 2002 is going to have near 3% growth and we'll be seeing GDP growth rates between 4 and 5% by Q3 and Q4 of 2002, the curve should flatten, with shorter rates underperforming long rates. We've reached an interesting Paradox. Ed Hyman and James Barrow of Vanguard are suggesting a stronger economic rebound and that FED Funds are going up. Bill Gross is saying that conditions are weak enough, and that to give incentive for institutions to go out to longer term bonds, short rates have to go up. Short rates going up Gross surmises, will move long rates lower since it will create greater demand for longer dated bonds and help mortgage owners refinance their 15 and 30 year mortgages. This can reliquify the consumer by reducing his monthly payment and also by enabling the homeowner to monetize his house.(by taking say an extra 50,000 out and spending it. Thus stimulating the economy. We can now see the parallels 0f Economics and Physics. "The difference between what the most and the least learned people know is inexpressibly trivial in relation to that which is unknown." - Albert Einstein