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Politics : Stockman Scott's Political Debate Porch -- Ignore unavailable to you. Want to Upgrade?

To: pogbull who wrote (8515)	10/26/2002 3:18:03 PM
From: Jim Willie CB	Respond to of 89467

key portion to FinSense on bond yield curve - rising yield curve spread indicates new inflation threat - even as economy further slows - 2000 signal was "inverted" which screamed RECESSION - 2002 signal now "upsloped" which screams INFLATION - new Bond supply is coming, and should increase for months investors dont seem to comprehend the powerlessness inherent within the FedReserve walls I have predicted this all spring/summer/autumn long the Fed has no serious influence anymore, as they lie wounded and stripped of any weapons their weapons are spent the only remaining bullet is being saved for emergency how many more FOMC meetings before the market figures it out? we knew this for six months the stock market is Descending a Wall of Hope Treasuries Debt Update Earlier this week we saw a continuation of last week’s decline in U.S. Treasuries. As the week progressed and equities began to sell off, some of the money came back to the bond market. One very important thing to note is that the bonds with longer maturities sold off more than the shorter maturities, causing the yield spread to widen (difference between short-term and long-term interest rates). A widening of the yield spread is usually interpreted as a warning against future inflation and indicates a loose monetary policy by the Fed. For the gold bugs out there, a widening spread can be construed as “gold-friendly.” If you go back to the second half of 2000 you will find exactly the opposite situation. The yield curve wasn’t just flat, but was actually inverted. The Fed was raising rates at the time and short-term interest rates were higher than long-term rates. That’s when the door was slammed shut on the bull market in stocks. Since then, the Fed has been backpedaling with unprecedented rate cuts. Earlier this year the yield spread topped out just over 4%, and now stands at 3.5% and is heading up again. In light of the widening yield spread, I thought it was interesting to see the market’s reaction when the Federal Reserve released its “Beige Book” on Wednesday. The Fed basically said that manufacturing has slowed, retail sales were weak across the country, labor markets are still soft and commercial loans are weak with rising delinquencies. Today durable goods orders were released for September and showed a decline of 5.9%. That was the largest decline in ten months. The bright spot still remains in the housing sector. Sales were higher for both new and resale homes. Thirty-year fixed mortgage rates have risen from 5.7% to 6.3%, but still remain at 30-year lows. / jim