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Earl, after your good call on the Fed and interest rates the other day, I'm
going to go on the record right now and say there will be no US recession in
1999. Aside from the fact that the economy still has a lot of momentum, US
recessions are based primarily on inventories. Excess inventories by
companies are the fuel of recessions.
The problem with the "recession in 1999" theory is that too many companies
have factored it in, and therefore there will be no inventory overload.
Information technology and the internet are making it too easy for companies
to know at all times what their present and future demands from customers
are.
The other important thing to remember about bonds that I don't think the
market has properly factored in is the effect of the balanced budget. Even
if the surplus disappears because of slower growth, every year the
government makes about $300 billion worth of interest payments on the
existing debt. In the past, most of this money was used by investors to
purchase the new debt being issued every quarter. However, since no new
debt is now being issued, most of that money will go chasing existing debt.
In other words, the demand curve is expanding while the supply curve is
shrinking, and therefore prices have to go higher.
Bruce
-----Original Message-----
From: Earl Adamy <eadamy@xxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Sunday, November 22, 1998 5:44 PM
Subject: Re: Bond Prospects
>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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