They are comparing them to equity yields, I think. So as the percieved equity risk declines, their yield requirement rises.
The higher the equities go, the higher the risk becomes... (IMO), so a perception of "comfort" with the equity markets leads to a misunderstanding of what risk is, (or unwillingness to understand it so).
A constant increase in their yield requirement at some point must seem unreasonable from a safer instrument than those of equities.
This is giving some foreign investors a negative spin on the US at the moment.
Enough so to start pulling money out of a relatively safer place ?... comparatively speaking, of course...
In addition, the weaker countries may be negatively impacted by a potential increase in rates, be this by the market or by the Fed.
Either way... the Feds seem to be somehow limited in their ability to be the ones leading a potential increase, rather, I think they seem to be acting as the boogey man.... just in case the equity markets get out of hand.
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Here is another view of the same thing... (By one of the Worden Brothers of TC2000 fame.
Before (# 1)
TIPS & HINTS
Thursday, Friday, May 14, 1999, 4:00 P.M., ET
In 218 B. C., the Carthaginian general Hannibal crossed the Alps and played havoc with the defending Roman legions of Italy, winning a number of brilliant battles, although never taking Rome itself. For many decades thereafter, when Roman parents wanted to get some discipline across, they told their kids to watch out or "Hannibal would get them."
We all know that history repeats itself. It may well come to pass that, from the low-lying canyons of Wall Street to the dizzying heights of Mount Fuji, children may some day be admonished that Greenspan will get them if they don't rein in their irrational exuberance.
In the meantime, we have to wait until Tuesday to find out what his "bias" is going to be in the wake of what could be construed as an inflation unfriendly CPI report. In other words, how does Alan feel? At night does he have dreams of winning mighty battles against inflation? Or does he see himself as a pensive seer, deep in thought, gentle of manner? These are the clues we must look for if we are to discern his "bias." Of course, he may just tell us – in 20 or 30 carefully crafted sentences averaging maybe 3 or 4 hundred words each.
The market is scared, and the whole thing looks a little pat to us. We suspect things aren't as bad as they seem, but there is no doubt that Greenspan holds enormous power on the tips of his sometimes-forked tongue. We'll wait, but we don't think anything will happen to break the back of the market next week.
Here are a few interesting daily charts to look at. COMS, LGTO, PCLN, MOT. All have a bullish "bias."
more before # 2
TIPS & HINTS
Monday, May 17, 1999, 4:00 P.M., ET
A confidential source has informed us that tomorrow's Federal Open Market Committee Meeting will not be a "meeting" in the sense that we have come to understand the word. It will actually be more of a "séance," held in dim candlelight, the objective of which will not be to manipulate interest rates, but to "cast a spell" over the investment public. It is possible that the "policy bias" will be set by the spirits of all departed predecessors to the Chairman job, provided they agree with Alan. And we don't think Alan is very interested in rocking the boat too much at this juncture.
The Nasdaq Composite looks as if it may know even more than our confidential source. It looks as it is raring to break out on the upside.
Our favorite charts today: check out dailies of PCLN, PLA and/or PLA--A. Longer-term investors may enjoy looking at the weekly chart of KO.
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And then....
After
TIPS & HINTS
Tuesday, May 18, 1999, 4:00 P.M., ET
Are you happy now? An empty question, because we know the answer. Of course you are happy. If you suffer from Wall's Street's most ubiquitous phobia, fear of rising interest rates, you are happy because the FOMC didn't raise the Federal Funds Rate. But if you are one of those impassioned monetarists who were afraid the Fed was soft on inflation, you are no doubt basking in grateful tranquillity. Because the Fed "officially" changed the way it is "leaning" and let us know that it will not tolerate excessive inflation.
Does the "official policy bias" mean anything? General George Armstrong Custer, for example, betrayed a strong bias against Native Americans. This led to the annihilation of him and his troops at the Battle of Little Bighorn. But we see no Bighorn for Alan and his troops. Not necessarily anyway. Irwin Kellner, economist and columnist at CBS MarketWatch has kept track of past biases. He reminds us that the Fed shifted its bias toward tighter money in March of 1998, then cut rates 3 times in response to specific events (such as Russia's default and the collapse of a major hedge fund). With this and other examples, Kellner makes a pretty strong case that the Fed will either raise or lower rates based on specific events in the future – not based upon some prior commitment, such as that implied in this relatively new "spin city" tool, "policy biases."
The important thing is that we can all go back to work now and stop making fun of Alan (who was last seen walking up Capital Hill leaning to one side). The market was pretty sure of what the Fed would do. After some brief handwringing in the form of a quick selloff and bounceback, it is now sitting poised to do something. That something will be what it was planning to do anyway. The market was rotating from sector to sector, always with something moving well on good buying. We continue to find secondary stocks replete with opportunities. The problem is that they are increasingly becoming short-term overextended. This means ferreting out strong stocks ripe for pullbacks, and then waiting for those pullbacks to materialize.
Here are a few charts to look at: UNFY (2-day chart), PMI (2-day chart), PDLI (daily chart).
tc2000.com
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Of course... there is always the possibility that I am totally and clearly confused... |
