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To: Knighty Tin who wrote (254281)	8/6/2003 9:52:07 AM
From: ild	Read Replies (1) \| Respond to of 436258

From yesterday's ContraryInvestor on yield spread between 10 year Treasury yields and the Fed Funds rate: So far, the current period is not characterized by simultaneously rising long and short rates, typical of an economic recovery of the 1950's through 1980's. Moreover, unlike the early 1990's, long rates and short rates are not falling simultaneously at the moment. They had been until six weeks back, but for now that's no longer the case. We'll admit, six weeks does not make a cyclical trend, but we believe the current yield spread indicates stress. Anomalistic lows in Fed Funds coupled with a very highly levered economy and fixed income market. We're witnessing pressure cracks. Certainly the 1992 period was also a period of financial stress. But back then the Fed had 600 basis points of refueling capability and long term rates were behaving by falling sympathetically with the Funds rate. This is different. The Fed is basically out of conventional bullets and bonds are not behaving according to plan as of late. We'd suggest that if this yield spread "breaks out to a new high" we may find ourselves in a period unlike anything experienced in cycles of the last half century. An indicator that may reflect the fact that imbalances have become too great for the system to handle, gracefully or otherwise. To say the least, it's a confusing period without many easy answers