Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Ask Mohan about the Market -- Ignore unavailable to you. Want to Upgrade?

To: tekgk who wrote (10355)	12/6/1997 1:32:00 PM
From: Zeev Hed	Read Replies (3) \| Respond to of 18056

tek: While I agree with most of the problems you cite, and I abhore all form of "superiority complex" as much as you do, it would help to counterpoint that with some positives: 1. The lowest unemployment rate in 24 years. 2. A new peak in national disposable income. 3. The lowest mortgage rates since I bought my first home in 1968. 4. A first break under 6% in the long bond in a long time (Some help, since when?) 5. A flexible industrial complex moving away from brawn industries to brain industries. 6. The most efficient agricultural complex in the world. 7. The smallest budget deficit in at least 20 years. 8. Air quality which is better than 20 years ago. 9. A peak in exports (unfortunately well matched by a rabid appetite of foreign goods, thus still a trade ballance deficit, I was hoping to see this decline and swing the other way by the end of the cntury, but I know I will be disapointed there). 10. A very smart financial move of buying cheaply essential commodities (including oil) and selling dearly paper (the green stuff and the variety of stock certificates). Zeev

To: tekgk who wrote (10355)	12/6/1997 6:39:00 PM
From: robnhood	Respond to of 18056

tek,,,<an attitude of superiority>,,I think is demonstrated very clearly by the rapidity with which the IMF,,is throwing their/our money around,,, they asked for 20,,,it came so easy and quick,,they're not fools,,they asked for 60,,thats coming with relative ease ,,now they're gonna go for more,,don't know if you have a wife and kids, but <g> rr

To: tekgk who wrote (10355)	12/8/1997 4:49:00 PM
From: Cynic 2005	Read Replies (2) \| Respond to of 18056

tekgk, great note! Let us talk about this: biz.yahoo.com My back of the envelope calculations indicate at least $275 bil bonds need to be issued just to service the 5.5 tril debt (@ 5%) Assuming the bull market will bring in another wind-fall in tax receipts, let us say, we will have a zero budget deficit for FY 98. Is $275 bil considered an immaterial amount of bond-supply. Or, am I reading this wrong? -Mohan ------------------- Monday December 8, 3:59 pm Eastern Time YEAREND -- Shrinking supply key to US bonds in '98 By Steven Scheer NEW YORK, Dec 8 (Reuters) - There were many reasons for the U.S. Treasury market's banner year in 1997, and tighter fiscal policy and supply were at or near the top of that list. The supply picture looks only to improve in 1998, with some economists forecasting fiscal year 1998 will bring the first U.S. budget surplus since 1969. Other experts predict a small deficit, which would still shrink new Treasury issuance. Coupled with expectations for continued low inflation, Treasury yields could forge new record lows, particularly at the longer end. ''Put those two together and you have a market with a bias to lower yields,'' said Rob Coughlin, managing director and head of government bond trading at Merrill Lynch & Co. ''The sharp decline in the Treasury's cash needs coincident with the decrease in the budget deficit will continue to be a significant factor underpinning bond prices ... into 1998.'' He pointed out that the 30-year bond fell to its 5.77 percent record low four years ago, even without the benefit of declining supply. At around 6.0 percent currently, its yield was only about a quarter-point above its all-time low. Meanwhile, demand for U.S. Treasuries is very high. Yield levels are deemed ''cheap'' as compared to other government bond markets, and uncertainty in many emerging markets has led investors to the safety of U.S. securities. At the same time, the supply pool is shrinking. The Treasury has cut auction sizes sharply the past year or so, resulting in an added premium for Treasuries. Two-year notes, for example, have come down from nearly $19 billion a month in 1996 to $14 billion; five-year notes from $12.5 billion to $10.5 billion; 30-year bonds to $10 billion from $12 billion; and weekly three- and six-month bills to $14.5 billion from twice that. More telling is the estimated Treasury issuance for the fourth-quarter of 1997, which is seen at $118 billion -- the lowest since June 1995 and well below the $140 billion seen at the end of 1996. Further reductions could be in the offing if the U.S. fiscal picture remains bright and if the Treasury continues to finance the federal debt with Treasury inflation protected securities, better known as TIPS. About $32 billion in TIPS are up for sale in 1998, including a 30-year issue. That represents $32 billion taken away from traditional auctions, further reducing conventional supply offerings. But analysts said slashing auction sizes has reached a limit. More cuts might end up being a negative for the market. The Treasury ''has got a bunch of attractive alternatives'' to keep from cutting auction sizes further, said Lou Crandall, chief economist at R.H. Wrightson & Associates. Reducing auctions sizes further could result in inefficient levels, Crandall said, ''and be subject to a squeeze. That could be bad'' for the Treasury market. The fiscal 1997 budget deficit was estimated at around $22 billion and seen moving to a $10 billion to $20 billion surplus in fiscal year 1998. ''The biggest reason for a surplus is the strength of the economy,'' said Mitchell Held, managing director and co-head of economic research at Salomon Smith Barney Inc. ''Employment and income growth are strong and revenues are high.'' Some noted that the budget picture could be helped by the volatility in U.S. stock markets during late October to mid-November. Many investors may have booked profits after the Dow industrials' 554-point plunge, or 7.2 percent, on October 27. The added capital gains taxes could add a few billion dollars to government coffers, economists said. What the Treasury should do is a matter of debate, and economists said a clearer picture of its fiscal situation will be seen in April when tax receipts roll in. But cutting auction sizes further is not a preferred option, they said. As such, some have called for elimination of the November 30-year bond auction, leaving just two bond sales a year. Others said a better tactic would be to move five-year auctions to quarterly from monthly. A few have proposed getting rid of three-year note auctions completely -- not so farfetched since the Treasury stopped selling four-year notes at the end of 1990 and seven-year notes in early 1993. Steven Ricchiuto, chief economist at ABN AMRO Chicago Corp, said three-year note auctions were appropriate because they come when quarterly interest payments are due. Still, he added that the Treasury could conceivably fill in the holes with cash management bills if the threes get cut. What may end up happening is the federal debt may be financed mostly by foreigners, said Robert Brusca, chief economist at The Nikko Securities Co International Inc. He said Japan and other nations need to buy Treasuries as a result of their current account surpluses. Equities are increasingly an option, but foreign governments that need to buy U.S. assets ''like fixed income more than stocks,'' Brusca said. Therefore, ''They may take (Treasuries) away from U.S. residents,'' he said. Players said one potential problem with altering the auction schedule was that the Treasury may have to change it back again as financing needs grow. They pointed to forecasts the U.S. budget would revert to a deficit in 1999 and 2000.