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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: russwinter who wrote (4583)	1/8/2004 2:30:42 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Brian Reynolds More on corporate debt issuance and the rollover Equity Bubble Ahead? The possibility needs to be acknowledged On Tuesday, we wrote how we think that, as long as the corporate bond market remains healthy, then equity prices would be expected to continue their general uptrend, with nothing worse than the occasional correction happening from time to time. Yesterday, we took a look at some of the signals we are looking for in the corporate bond market that would indicate a worsening of the equity market's prospects. There is yet another scenario, one that may seem unthinkable after what we've been through in recent years: a return to a bubble environment. We've written how junk bond yield spreads have narrowed by 700 basis points since hitting a record 1100 basis points during the near-meltdown. That means that we are only about 150 basis points away from the incredibly narrow spreads that prevailed in the two years prior to the Asian crisis. Those low spread levels sparked the surge in corporate debt issuance that led to the equity bubble. We can't say, and are not predicting, that we will return to those narrow spread levels. We think junk is ahead of itself, and have thus underweighted junk funds in favor of equity funds in our personal portfolio since the middle of last year because we think corporates no longer offer good value for the risk involved. But, further tightening is a possibility that cannot be ruled out given the events so far this year, especially considering Fed Chairman Greenspan's reiteration last weekend of the Fed's policy to not prevent or stop a bubble, but to only deal with its consequences. We've noted that the recent narrowing in spreads, coupled with the new issuance market emerging from its traditional holiday slumber, could lead to an unusual surge in issuance this month. That issuance would provide the first test of the year of the corporate market's resilience. That surge in issuance is happening now. Tuesday and Wednesday saw the largest two-day issuance period in three years, when the commercial paper squeeze forced droves of issuers to replace low cost short-term borrowing with higher cost longer-term bonds. Such a surge in issuance would be expected to at least push spreads a little wider. Instead, junk spreads narrowed by 5 basis points or so over that time, and have tightened 25 basis points this year. That price action raises the possibility that the corporate bond market could become even more exuberant than it already is. If so, that means that equities might even exceed the scenario we presented last summer of the Dow hitting 12,000 sometime in 2005 (with an intermediate target of 10,500 by this summer; we have hit that already) under the present conditions in the corporate market. That would not be a positive long run development, as it would likely take short sellers out of the game just as the next batch of corporate bond maturities that are stacked up in 2006-2008 comes onto the horizon. Should companies have as much trouble rolling over those maturities as they did in the 2001-2002 time frame, a repeat of the deflation in stock prices of the last few years could then happen.

To: russwinter who wrote (4583)	1/8/2004 2:39:54 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Metals on my Mind Minyanville hired a new gold analyst. Laurie My fellow Minyans, Professor-to-be Laurie McGuirk offers his thoughts on the metals from his perch in Australia. Please note that nothing in his missive is intended as advice and we offer his thoughts--and everything else on Minyanville--with educational intents. Enjoy. Hope everyone had a good break.At least it was 90 degrees down here so the beer and prawns went down nicely. Pity about the snow for our Northern Hemisphere mates.... tough! I was surprised a little at gold/silver in late Dec.Nice moves.Silver was totally expected... but I love Silver! .Gold - just doing what its supposed to. Whats the bigger issue... premature speculation or premature evacuation? I think we could be 5 years from evacuation stations. Gold equities have stalled and drifting lower- fine- but can one afford not to stay with ones positions when stocks move 15% in a day?? I expect that we may see a nice dip and buy opportunity to re allocate assets from the paper sphere to the commodity world. The metals have been on a tear lately.The old regulars--gold,silver,ally,copper--and even nickel and lead(??) have had a great run the past week/month/year or two....it must stop, right? Whatever. "Its all to do with the Dollar!" Whatever."Gold is a barbarous relic". Whatever."Silver will be worthless once digital photo takes over".Whatever..sorry, but have heard it all before. Commodities is a funny game that leaves many crying....here we go again. Gold is, in my opinion, getting ready for a wild next few weeks. We may see close to $393 (for the really fast players) and potentially above $440. "Monetary Metals", almost an oxymoron if one has the Federal Reserve Bank as ny kind of reference, appears will be "the GO". Lets see what happens. Gold hit a low of $417.50 as I pen, but I defer to the fact that India and most of Asia and the Middle East arent too fussed at these levels and are buying. I doubt we see $411 the next few days without serious currency moves. India's currency and stock market are on a roll and as such are readily comfortable in providing the extra few US dollars required to buy REAL METAL. India is the biggest gold importer by far and should not be disregarded. Too much history there to ignore. There's no inflation but ... My mates at Bear Sterns research show me that we have seen the past 12 months .... CPI Increase 1.8% PPI Increase 3.4% Energy Up 25% Food Down 5% Grains Up 18% Livestock Square Industrial Metals up 40% Precious Metals up 18% Hmmmm. Some of the base metals have been hit hard the last few sessions. Copper and nickel leading the way. They have run a long way the past few months. Markets don't go one way...but they do trend. Hmmm. My guess is the trend isn't down! There's always a second chance for the latecomers!Personally--and this is not advice--I am looking for buying opportunities. Stay with what you know and what you are comfortable with! Laurie