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

To: Crimson Ghost who wrote (5322)	1/16/2004 7:24:01 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

From Scott Reamer Minyanville The Fed’s reflation efforts have been historic in size, speed, and length Global reflation among the G7 too, has been historic in proportion Fiscal reflation efforts are the largest since LBJ’s ‘Vietnam/Great Society’ era The current account deficit, at 5.3% of GDP, is a record for a developed economy Foreign public capital flows into US debt is setting records of pace and size The US$ is declining (q/q) at a pace only seen once before in history MZM and C&I loans are contracting at near historic rates The Fed is targeting asset prices in an effort to bolster consumer spending Household debt and debt service ratios are at all-time highs Employment trends have never been this weak at this stage of a recovery Wage and salary trends have never been this weak at this stage of a recovery Consumer spending has not contracted for 47 straight quarters; an all-time record Multiple stock market bullish sentiment measures are setting all-time records VXO at 8 year lows INDU hasn’t seen a 5% correction since 7/03; longest record since 1987 92.6% of stocks above their 200 day moving average; all-time record Wall Street strategists recommended equity allocation level at all-time high Insider sell-to-buy ratio all-time high (36:1 in 2H:03) 55% of tech stocks valuation greater than market multiple: same as March 2000 Junk bond funds record inflows: 60% more than 2000, ’01, and ’02 combined At current valuation levels, expected total return for SPX is 0.1% for the next decade If I told you in either October of 2002 or March of 2003 that dozens of all-time records for macroeconomic, financial markets, and sentiment figures would be set inside a year, you would have scoffed. Mostly because the probability of the above taking place was extremely low against 40, 60, and in some cases 100 years of statistics. Just as improbable as the dealer drawing a 5 when holding a 16. It can happen. Betting it will, over time, will make you poor. Understand that, though I appreciate all of the above risks, and that we are “overdue” for a 5-10% correction, they aren’t helpful from a timing standpoint. We’re in uncharted waters here, so keeping a stern hand on the helm and a watchful eye on the horizon will be pretty important over the next several weeks. The risk environment being what it is has other costs beyond simply making a long position more risky than at most times in the last 100 years of equity ownership. Those other costs revolve around the stability of the financial system itself: those costs involve systemic risks. John and I have touched upon this systemic risk obliquely in various posts over the last year: the Fed’s intervention creating moral hazards, malinvestments, over-indebtedness, and across-the-board increases in risk appetites. But there are two new things that investors should note: (1) this risk environment is eliminating the checks and balances that are essential to a healthy financial system by removing the desire to short stocks, to arbitrage volatility, or to play defense with portfolio allocation. These things don’t come back quickly, just like they don’t go away quickly. (2)The second thing to note, and this is an important development, is Fed Chairman Greenspan’s end-zone dance on January 3rd via a speech given to the AEA in San Diego. When one considers that no central bank intervention of this magnitude in the history of economics has ended with anything other than dire consequences, such hubris is even more remarkable. The path from gold-standard advocate in 1964, as Greenspan was, to economic central planner in 2004 must have taken an intellectual path of enormous complexity: a Gordian knot of a road. But know this: economic central planning, whether it be from Soviet-era apparatchiks or modern-era central bankers, has never worked. Never. Joining Greenspan in his endzone dance is akin to betting $10 to win $1 that it will this time.

To: Crimson Ghost who wrote (5322)	1/16/2004 7:29:41 PM
From: mishedlo	Respond to of 110194

Focus on Metals from Minyanville Metals across the board have been belted in the past couple of days. Corrections occur in every market, every day, so don't run out and neck yourself if you're feeling a little down in the dumps. If you're jumping for joy, cool, just don't fall in love with your position as they generally will come back and bite your backside. Just remember 5 days doesn't change the long term trend. The daily Gold chart has the 200 day moving average at about $375, the weekly at about $310...that's a fair discount to spot in the current environment. With gold closing on $408 it appears a test of $400 is inevitable, sometime soon, maybe not today BUT.... Goldman was the big buyer late yesterday around $408ish when it appeared that we were in for an absolute hiding. Today the Japanese went after gold early in TOCOM but serious physical buyers arrived to hold the low at 407.50 in Asia. India (the world's largest gold player) is a buyer here judging from the local import centre premiums. FYI the hourly gold 200 period moving average is just on $420. Entry timing is as important as entry level. Since then it's all been about the dollar. Euro looks likely to test the $1.22-23 level. Gold expect a test of 401-399 in near term.... this appears to be a short term dollar correction. No metals fundamentals are changed (except that every freaking Central Banker in the world is saying how good everything is, how "their" currencies should be lower and that there is no inflation). Astounding. Some metals equities are some 40% lower than they were a month ago with gold lower then. Hmmm. Dunno what kind of valuation technique they are using but it does pose some questions about metal equity valuations. The "normal" analysis of a business does not apply to metals/mining. In most analysis, one would look for the lowest cost producer of a given product as they will enjoy the biggest cashflow benefit from a rise in their underlying commodity/product. My contention is that if one believes that a given commodity/product will rise in price then one should be targeting the HIGHEST cost producer as they will get the biggest margin benefit. Think about it this way... if goldmine A produces at $100 and the price is $300, they make $200. If the price rises to $400, they make $300 or an increase of 50% of their margin. Goldmine B produces at $290 with the price at $300. He makes $10 per ounce. Skinny, but making something. If the price is $400, he will make a $110 or his margin increases by 1000%. Who is the better buy??? Silver has been crushed the last few trading sessions but again is some 20% higher than a month or so ago. Very solid physical support at 6.15ish and anecdotal evidence suggests a very serious shortage of deliverable metal in the "retail" market (up to say $25k). Long delivery delays across Europe (3 months plus) and also here in Australia suggest a tightness in physical supply. Hmmmm. Show me the silver (if it's available)! Something's cooking in silver and I suspect it could get a little scary. The base metals all followed suit and gave back a little/lot of their massive gains the past 6 months. Coping well in the 90 degree heat here although those in North America must be freezing their bits off right now... Enjoy the weekend Laurie.

To: Crimson Ghost who wrote (5322)	1/16/2004 7:39:26 PM
From: mishedlo	Respond to of 110194

Corporate Spreads from Brian Reynolds Interestingly, corporate spreads have reversed almost all of the slight widening that occurred in the wake of Friday's soft payroll report that prompted Treasuries to run ahead of corporates. What is even more significant is that corporate spreads have been able to tighten despite an usually strong surge in new corporate bond issuance. The past 10 days have been the 4th strongest such period in three years, meaning that companies are making even stronger headway in rolling over the mountain of corporate debt that matures this year. This remains one of the most significant positive factors for the equity market. We must keep an eye out for any spread turbulence that lower Treasury yields can create, but so far there does not seem to be any.