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----- Original Message -----
From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: "Realtraders" <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, November 03, 2001 7:51 AM
Subject: [RT] TBond suspension - another view
> From Comstock daily comment, an alternative view often worth considering.
>
> http://www.comstockfunds.com/
>
> Deflationary Wage-Price Spiral?
> 11/01/01 6:00 PM
>
> The Treasury Department's decision to suspend the issuance of
> new 30-year Treasury bonds is an act of desperation in reaction to the
> continually weakening economy. The decision accomplished the desired
> objective of sharply lowering the yields on both the 10 and 30-year bonds,
> but is a definite indication that the economic authorities agree with
> Comstock's long-held view that the previous efforts at monetary stimulus
was
> not working. Although the move certainly accelerated the downward move in
> yields, we think that this was happening anyway as a result of severe
global
> economic weakness that is creating a soft pricing environment and even
some
> unusual pressure on wages. Various releases over the past two days painted
a
> gloomy picture of the economy. Quarterly GDP was down for the first time
in
> eight years, and consumer confidence plunged. Consumer spending was off
1.8%
> while personal income was only even despite the continuing payout of tax
> rebates. The NAPM Index fell to its lowest point since February 1991 with
> its new orders component dropping sharply. New construction declined for
the
> 5th consecutive month. Jobless claims continued at uncomfortably high
> levels, and continuing claims were at a nine-year high. Tomorrow morning's
> employment report for October will probably indicate further weakness. The
> weakness in the global economy combined with a huge amount of
overcapacity,
> particularly in technology, is putting significant pressure on corporate
> pricing power. In this case, however, lower inflation is not necessarily
> good news as the specter of deflation is becoming a distinct threat, and,
as
> we see in the case of Japan, deflation can have dire effects in dragging
the
> economy into a liquidity trap with no easy solution. The recent University
> of Michigan Survey showed a sharp decline in consumer inflation
expectations
> while the prices paid sector of NAPM Index plunged to its lowest level in
> more than 50 years. Throughout the nation we see business lowering prices
> and offering special incentives to get reluctant consumers and
corporations
> to spend. Even more unusual is the beginning of pressure to lower wages.
> Economist Ed Hyman of ISI has counted 57 pay cuts around the world over
the
> past six weeks. Ominously, he added that he couldn't recall ever seeing
> anything like this, and that it opens up the possibility of a potential
> wage-price spiral. In view of all these developments we think that the
stock
> market is jumping the gun at seeing the suspension of the 30-year Treasury
> as a positive. It's significant that despite today's strength the market
has
> not taken out its October 26th highs. The rally looks extremely tired at
> this point, and is most likely, in the process of topping out.
>
>
>
>
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