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Pastimes : The Naked Truth - Big Kahuna a Myth -- Ignore unavailable to you. Want to Upgrade?

To: MythMan who wrote (44730)	6/2/1999 6:19:00 PM
From: Cynic 2005	Read Replies (1) \| Respond to of 86076

1929? 1973? 1987? Try early 1994! I like the logic. <<And as much as the bulls like to talk about the outstanding "value" available today in the credit markets, they miss the most relevant factors. With the leveraged players forced to unwind positions and, at the same time, companies lined up with additional supply, today there is a major supply and demand imbalance. In the past, the leveraged speculating community absorbed much of the previous record security issuance but now they not only are not buyers, they are looking for opportunities to sell. Increasingly, this is reminding us of early 1994. After the Fed reduced rates to 3% back in 1992, it became quite popular to borrow at low short-term rates to finance the purchase of other higher-yielding securities. This looked as good as free money until rates began to move higher in 1994. Today, it is worthwhile keeping in mind that in early 1994, with yields on 2-year Treasuries at about 4%, and the 30-year bond trading at about 6.2%, few foresaw that by May these rates would go to 6.2% and 7.6%. And, by November of 1994, the long-bond yield surpassed 8%. Then, similar to what we see developing today, rising rates set in motion a self-feeding process of deleveraging, forcing the speculators to dump securities and the derivative players to both hedge exposure and unwind positions. This inevitable reversal of huge excesses developed into the worst bond bear market in decades. And while we don't necessarily see Treasury yields moving to that extreme, we see the excesses in this past speculation in the junk and asset-backed area. We certainly expect considerable dislocation in these sectors going forward, and we see this turmoil feeding a general contraction of liquidity for financial markets, both bonds and stocks.>> prudentbear.com