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Got the address backwards. Please see attachment for my ponderings on
bonds and some questions. This along with John Stevenson's piece should
give plenty of food for thought for the next day or so...
Steve Poser
Message-ID: <357EC987.5A7B@xxxxxxxxxx>
Date: Wed, 10 Jun 1998 16:59:35 -0100
From: steven poser <swp@xxxxxxxxxx>
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Subject: MKT: Bonds, Greenspan, technicals
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I have had a long held view that the long bond would trade to at least
5.45%, even to 5.20%, that I have stuck to through these gruelingly
boring months since we hit the yield low early this year. The date that
I projected was July 2 for bonds to top, based on a Fibonacci day count
from the high yields in the early 1980s. As of now, I have no reason to
change that. I put this in a piece for former clients of mine in
December, and it was substantially reissued in the monthly newsletter of
the MTA (Market Technicians Association) in February (www.mta-usa.org).
We are very near a new high in bonds (no place near elsewhere on the
curve though)and now one has to wonder whether bonds can rally beyond
those levels.
My initial reaction is the 5.45% area will be about it, at least for
now. Longer term, after a back-up in yields, to over 6%, even 6 3/8-1/2%
being possible (surprise rate hike in Q3 or Q4?), the trend to lower
yields could resume.
Where might this come from? Well, as a technician, my main concern is
market psychology. In fact, in my opinion behavioral finance and
technical analysis are one and the same. That is why I am very
interested what people think of Alan Greenspan's speech today. The way I
read it, it should be very bullish for bonds, if you believe inflation
is and will be tame. While in past speeches, he clearly was biased to
the idea that history would repeat itself, this time, though he notes
that history suggests that inflation/growth are unprecedented, he does
not seem so sure as he usually is that inflation must kick in. Greenspan
is acutely aware of market psychology. He is already saying that Asia is
still a problem. By early 1999, adjusting to the euro and the computer
problems attendant with that will also be a drag on the global economy,
and then comes Y2K! So, there will be excuses not to significantly or
even at all increase rates for another 2-3 years.
The question is: Is this already factored into the market and is that
the current interpretation of today's speech?
Steve Poser
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