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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: Clint E. who wrote (17950)	10/9/1998 9:34:00 AM
From: bobferg	Read Replies (3) \| Respond to of 68660

Good morning Clint. Rate cuts alone won't help IMO, Greenspan needs a little help from the bond pits. Here is my macro thinking, I hope it explains how I am trading this market. This market rolled over on July 21st, I know because I shorted the spooze that day the moment I knew the top was in. The top was in when Greenspan, on the 1st question put to him at his semi annual Humphrey-Hawkins testimony, confirmed that the IMF was down to it's last 10 billion, essentially broke. Greenspan had let the cat out of the bag, the dirty little secret was out, and the smart money started heading for the exits, having only stayed at the trough for so long because none of them could afford to leave the momentum party too early. Greenspan had reaffirmed to the world that all financial investing really is is a "confidence game" and with the IMF broke the "confidant of last resort" (read: US bank bailer outer) was down for the count unless they got funding. This put the ball in Congress court, and they immediately shot down IMF funding and went on August recess. Then the stock/financial selling really started gaining steam. (They are close to agreement on the $18 billion now, after countless trillions have been lost world wide) The heavy blow to the market came in August when the bond traders, for many reasons (flight to safety, deflation worries etc) pushed bonds below the 5.50% fed funds level i.e. inverted the yield curve. This toasted the banks as the easy money was no longer available i.e. borrow fed funds and buy bonds on margin, the formula Greenspan showed them in 1990 when he reliquified them back then. Now, we all know from our school days the the instrument of fed monetary policy is the banks. When the fed wants to expand the money supply they ease and the banks normally get the job done through loans, spreads etc. When the fed wants to shrink the money supply and cool the economy they raise the cost of funds to the banks. In 1980 Fed Chairman Paul Volker had to invert the yield curve to finally cool the economy and kill the inflation. The problem recently is this: the bond traders were so far out ahead of Greenspan that even when he cut rates the yield curve stayed inverted, the bond ghouls took long yields to 4.7% when Greenie cut fed funds to 5.25% last week. Greenie knows he is in a viscous cycle, he can't help the banks with the easy money and when this fact dawned on the market stocks sold off big and will continue to do so even if Greenspan continues easing as long as bonds rally/bond yields fall also keeping the yield curve inverted. How will the worlds financial problems stabilize if Greenspan is powerless to help which he is right now? If you were the King of the World and could decree actions you would have only two options available to you: a)Decree the price of crude oil up to recapitalize Mexico/South America. Have you noticed the price of crude is up off it's lows during the seasonally weak gasoline/heating oil transition period? And all the high level oil producer meetings lately? I can assure you the US govt is nodding and winking a little price fixing approval. :) I even look for the US, at any moment, to declare it in the national interest to add to the Strategic Petroleum Reserve. b)To right the US yield curve and fix the worlds liquidity machine you would decree a monster bond selloff because you realize that poor Mr Greensapn is faced with a dilemma similar to the Japanese experience ie he could chase the bond traders with rate cuts all the way to 1% and still have an inverted curve. Did you happen to notice that bonds came within 1 tick of a lock limit down yesterday? With the Dow down 200 intraday there was no flight to quality? When it dawned on the market that bonds were getting killed on a weak stock day, and foreign central banks were dumping bonds big time only days after G7, (which in turn started the hedge funds unwinding their yen carry trades, they know the bond top is in) stocks rallied led by the banks. As I type bonds are down 1 19/32 and the sp futures closed up 10.70 on Globex, a bond selloff is bullish to right the curve/liquidity machine!!!!!!! We make our money anticipating, not reacting. So when you hear a talking head on TV soon crying bearish due to rising yields you can just smile, and buy the dip :) Everything is through the looking glass now, backwards for the time being. There is danger for the bulls still with leverage unwinding still possible and until the yield curve is actually righted, but with bonds selling off to back over 5% yesterday & today (so far), Greenspan is only one 1/4% cut from repairing the yield curve...but only as long as bonds keep selling off. If he cuts overnight, outside of a regular FOMC meeting, the shorts could get slaughtered. I bought Dell yesterday on the 200dma for a trade, it is still a traders market IMO so no way I would hold anything (long or short) through an earnings report.