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

To: mishedlo who wrote (4791)	1/11/2004 2:36:26 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

<SEP 04 EDU04 98.4750 - 1/4 point> I think assuming that the E3 (my comments only relate to E1 to E3, as the others may be fairly priced, especially out at E7) will be priced at only 23 bps over FF after a 25bp FF increase is just flat out wrong analysis (specifically as it relates to how ED respond to reversal). If you had read my post to you reviewing the last two monetary reversals, you would have noted that the ED2/FF went from 65bps to 150bps after the surprise rate increase then, and in 99 it went from 35 to 80. Given that everything is so coiled right now the E3/FF could easily go from 53 to 100-120, after a change in bias or an increase. The E3 seems to have a little more tightening built in (52bps) than the E2 (24bps), so the E2 might have more bang for the buck, but the relationships post-reversal still holds. You will see much larger than a 25bps reaction to a monetary reversal. <The intent of the FED is clear, hikes will be based on jobs, and the market still does not believe it.> Two points (assuming anybody here even gives a hoot about this debate?: 1. Why do you keep saying the market doesn't believe it? That's not squaring with the facts. I think I'm about the only one who doesn't believe it. Are you saying I'm the market? I won't even have a trade going on this until tomorrow, and even then I'm not typical? The market's been Bernanked (given a big slimy dose of moral hazard), and that's evident from looking at the Fed funds futures. Can be viewed at lab tools at thread header: cbot.com It says zero chance of an increase through April, 12% in May, and only 18% in June, 38% in July. You have to go out to August, to get the market ponying up with 76% likelihood on a mere 25 bps increase. 2. Even if the labor market is the only Fed indicator (I think their flawed version of inflation is too), the numbers I'm tracking really don't show labor conditions weakening. The W&S numbers I track were continually down yoy until December. Finally now they are up a little. Here's 12/1 to 01/8/9. That's probably a fair period to use, because it catches the YE bonuses, holiday peculiarities, mail overlap, and reporting static. All the static should be out of these numbers now: 172,767 versus 172,605. Now I'll admit those aren't even fair labor numbers, but you still have the stimulus of 4% to personal income because of the tax cut. So I'd submit that a 4.1% PI gain (even if all of it is tax stimulus) doesn't justify a one percent FF rate. I'll keep you posted on this trend, but I think there's is a chance February might offer a positive surprise in these total count employment numbers everybody is so hooked on? And if the labor numbers don't offer much, watch those import prices (1/13), PPI (1-14), CPI (1-15), and in Feb. Even more importantly than weirdly constructed govt. numbers, watch intermediate goods prices, as those are already baked in.