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CPI includes services as well as goods, though it may very well be over
weighted in goods. CPI is barely registering. I do think that
commodities are bottoming, but CRB should fall to 190/185 AND THERE IS
RISK EVEN INTO THE 160/150 area, though I do not think so. The more
important Journal of Commerce index (as far as inflation goes) shows no
signs of bottoming.
As for services, there is greater inflation there than in goods, and if
commodities turn around, there could be a pick-up in inflation. But it
will also require either a large protectionist swing from Congress, or a
turnaround in Asia and other emerging markets, which are exporting
inflation. If the economy slows at all, much of the service inflation
will subside too. With a huge wealth effect and a strong economy,
companies still have no pricing power.
As for the Fed, money supply is growing quickly, but money demand might
not be keeping up. The real Funds rate is probably neutral. It sure is
not loose. I disagree with those that say it is tight.
I think that the economy will eventually slow, but it might not be until
later in 1999, maybe on the back of Y2K problems. The Euro will fail.
Those guys still have not figured out that they have to spend every last
Euro they have to fix their computers for 2000 (what is left anyway
after converting for the Euro). So, the Euro, I think, will not be a
problem (then again, I never thought they'd get this far, so I could be
surprised).
We are a debtor nation, but compared to others, we are in pretty good
shape. If we go into a recession, which I expect we will, bond yields
will have one final drop, maybe to 4.50% or a bit less. But, between now
and mid/late 1999, I suspect the trend will be mostly higher yields.
Futures should reach back above 130 soon, but do not be surprised to see
an approach in the next several months to 5.75/6.00% again (note that is
still not above the 1997 yield peak of 6.10%). Everybody seems to have a
line in the sand at 5.50/62%. Watch that get blown through, get
everybody short, and then watch it scream to lower yields) when we spend
a couple of months unable to extend the losses.
Steve Poser
Ira wrote:
>
> You are looking at the commodity sectors for signs of inflation which at this
> time are not seen. Everyone is talking about deflation at this time. No one
> seems to be paying attention to the split between the rapidly rising costs of
> services and the decline in commodity costs. The is a botoom to commodity costs
> and it isn't zero. If we have become a service economy, then rising costs in
> that area would effect the economy greatly. Commodity prices are falling and
> yet companies are having a hard time finding employees (I should state,
> Qualified employees). The US is still a major debtor nation and we are printing
> money like it is going out of style. If the ECU is successful, a big if, then
> it will become the currency of choice and there will be a major dollar drop and
> bond yields should skyrocket. There are two sides to every coin and sometimes
> the bottom side is just as interesting as the face up side. Just something to
> think about. Ira
>
> Earl Adamy wrote:
>
> > Sat down this morning with the bond charts to decide whether to scale back
> > on bond holdings which have appreciated nicely over 18 months. A couple of
> > years ago I had targets of 5.0% followed by eventual decline to 3.8-4.0% and
> > began loading up on long maturities as we did not want to get caught having
> > to replace short maturities at very low rates. The nasty reversal in early
> > October has been giving me concern along with the failure to rally quickly
> > off 5.3% area. On the fundamental side, I've been looking for a recession
> > running well into 2000, however the fiscal stimulus of 3 Fed rate cuts may
> > well counter any significant slowdown.
> >
> > After reviewing the monthly, weekly and daily charts, I think for now, bonds
> > still look healthy but bear a close watch. The monthly and weekly bond
> > charts seem to be pretty much intact in terms of both channels and fibs. The
> > daily suggests that a rally through 130 would seem to negate much of the
> > reversal unless/until a second failure occurs below the 11/6 lows. Looking
> > elsewhere, I see nothing in utilities, copper or oil which suggests danger
> > for bonds. The only major danger signal I see is coming from lumber and the
> > housing sector.
> >
> > Earl
> >
> > -----Original Message-----
> > From: swp <swp@xxxxxxxxxx>
> > To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
> > Date: Sunday, November 22, 1998 11:13 AM
> > Subject: Re: Fwd: GET: A useful tool
> >
> > >Actually, I had a downside target on bonds for 126-20 and had recs for
> > >my clients to get long from 127-00 on down with targets for last week at
> > >128-20. Pull back this week, then 130/131. For anybody working at firms
> > >with reuters, I will be on Reuters TV at 2:00PM eastern on Monday.
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