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

To: ild who wrote (28434)	3/11/2005 3:40:46 PM
From: patron_anejo_por_favor	Read Replies (2) \| Respond to of 110194

I expect that trend to continue until we reach the next intermediate top.....

To: ild who wrote (28434)	3/11/2005 4:48:27 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Commodity rally getting frothy, commercials are now substantially short (except grains). Something's lurking out there, I think China. Gold still looks at least neutral to hold, but I think the commodity currencies are about to get hit. An interesting play to maintain PM exposure might be to hold GBN and ANO, which have huge leverage to a SA Rand drop. Could you post Rydex PM cash flow? One of the CI's had a chart showing mo/mo change in CPI, and commented how the MoP could use the tougher comparisons to manage expectations for propaganda purposes. Could you post that? In gaming this out and just to give you insight on how I develop trades, I'm thinking there may be a long ED trade (or even a note trade if you have the stomach, I don't) developing. The commercial long position is historic. There are several unfriendly numbers coming over the next seven trading days: next Friday's import prices, and on Tues. the 22nd a PPI number (rough energy month), and the FOMC same day. I think the Wizards raise 25 bps and remove the measured language on that day. The CME trades ED for an hour afterwords if there are some higher rate fireworks then, and during the next seven days, it may get stretched. They also trade an evening session, and for ten minutes on Wed, prior to the CPI report. The mo/mo change last year in the CPI was 0.4%, so we could get a "friendly" (even if bogus) number on inflation. That sets up the trade, plus I would expect a chorus of economic fallout news will follow. () CI contraryinvestor.com It's All In The Perception...A very quick note we want to point out regarding our anticipation of upcoming CPI readings looking out over the next four to five months. You know that the year over year rate of change in the CPI for January of this year registered 3.0%, down from an annual rate of 3.3% in December. Inflation's falling, correct? It just so happens that between now and June, we're running up against some tough year over year comps in the headline CPI rate. Below is a graph that shows the annualized month over month changes in CPI during 2004. Had we extended this view of life back to 2001, you'd see that the January through June time frame in 2004 showed us the greatest consistent six month increase in annualized month over month CPI over the entire period. Quite simply, it was a period of meaningful acceleration in CPI rate of change. So here we are in the first six months of this year now getting ready to comp against strong 2004 CPI results. The reason we bring this up is that there's a good probability we could see further declines in the year over year rate of change in headline CPI over the next maybe five to six months. Important, we believe, in terms of macro market perceptions looking ahead. Not only do we have a Fed repeatedly telling us that inflation is simply not a problem, but we believe we are now facing a short period where the headline CPI rate will actually be dropping. Could this spark some animal spirits in the equity market? Sure. How about bonds? Could this headline perception precipitated by a rate of change decline in headline CPI help keep bond bears as frustrated as possible? You better believe it. Could a rate of change decline in the headline CPI give the Fed some cover to perhaps ease back on Fed Funds rate increases for a few months? Maybe. What a temporarily declining rate of change in CPI would also do is influence perceptions regarding real, or inflation adjusted, numbers. As you know, above we painted the picture of the "real" year over year change in service sector wages. Had the CPI been lower, the rate of change in real wage acceleration would have been higher, and this could have been accomplished with absolutely no change in nominal wages at all. So what lies beyond perhaps June of this year in terms of the CPI? As you can see in the chart, the comps should get a whole lot easier. Although many factors will influence the headline CPI as we move ahead, our bet would be a year over year decline in the CPI annual rate of change through maybe May or June, and then a reacceleration upward in the latter half of 2005 to perhaps well beyond where we now stand. If we had to guess, we'd say 3.5%-4% CPI numbers by year end 2005. It's the potential for a shift in perceptions in the meantime that we're anticipating. Let's put it this way, you've been warned. Don't be surprised to hear the "there's no inflation" chorus grow louder near term until proven dead wrong in latter 2005.* It's all simply due to the rhythm of the numbers.