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Over 4 yrs ago Martin Armstrong warned that the Clinton Administration was
making a huge mistake in funding the debt mostly on the short-end.
Armstrong warned that doing so would cause the yield curve to invert and
that the end result would be greater volatility in the financial markets and
a huge vulnerability to the next surge in inflation. Guess what?...
Armstrong was right! As we start a new commodity bull market we are about
to learn why most people don't finance their house on a credit card.
Effectively the govt is doing just that. Over 30% of our debt is funded 1
yr or less; and over 60-70% of our debt is funded 5yrs or less. A more
prudent administration would have taken advantage of lower longterm rates to
lock in most of its financing in 10s & 30s. But not Slick Willy! He knows
he won't be President when the proverbial fit hits the shan! So who cares!
If the Clinton Administration have decided to issue fewer bonds and buy back
off-the-run old bonds, they do so for a reason.
They are trying to negate the effects of a FED rate hike, but they won't
succeed. They will only force Greenspan to raise rates more aggressively
than he otherwise would, to have requisite slowing effect on the economy.
You can forget about the Surplus!!!
The Clinton administration just wasted it!!!
A steeply inverted yield curve means that the surplus will disappear faster
than most economists are willing to admit. By the time the Administration
realizes their mistake, its too late. It will be difficult to slow down the
economy without taking drastic action. In the meantime, commodities will go
on a tear, bring inflation that this administration would like to deny or
ignore.
The CRB just closed the month of January above 206.73, electing a key
monthly bullish reversal. The next higher monthly bullish reversals are now
at 231.74, 235.36, and 246.85. The gap between 206.73 and 231.74 is huge
and may suggest a fast move to fill the gap.
Granted a monthly signal on the Reversal System does not imply much about
the short-term. It could take a few months or more for the CRB to reach
231.74. In fact, we cannot rule out some limited weakness in the CRB over
the short-term. Just look at Gold.
GOLD is showing absolutely no strength even though OIL and many other
commodites have started a secular bull market. In fact the best thing that
could happen would be for GOLD to sell off into its 8 year cycle this
March. New Lows below 252 NY Spot into March or as far out as
May, would strongly suggest that a secular low is in place. A rally into
March--May timeframe would suggest a further decline for gold going forward.
A weekly close below 277.1 Gold NY Spot will accelerate the current selloff
in gold.
Not all commodities have started a new bull market, and gold is a good
example. But take a look at a range of commodity charts and you will see
the future a whole lot more clearly than politicians in Washington DC.
------
JW
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