6 replies to this topic

[IYB]

With 2 year TSY's now trading 87 bps below the fed funds rate, "that day and that hour" draws ever closer. Can't say with total confidence whether that day will be days, weeks, or months fom now, but imho, there ain't a man on Earth (contrary to the omnipotence often attributed by many to Benacke, et al) who can hold back the tide.

"The inevitable march towards lower rates continues...."

Just some "big picture" thoughts, fwiw. D

[humble1]

i have read that, in this environment, lower rates are a bad sign for equity prices. lower rates simply followed equity prices lower (much lower, in some cases) at times in the past. what is your take, please sir ?

[IYB]

i have read that, in this environment, lower rates are a bad sign for equity prices. lower rates simply followed equity prices lower (much lower, in some cases) at times in the past.

what is your take, please sir ?

Actually it has been my observation over the years that both equity prices and bond yeilds discount the economic cycle, at least prior to and during the early to mid-stages of contraction or expansion. So both lead the economy lower (or higher), but only because they are predicting what is to follow in the big picture of the economy.

An extreme example which certainly makes the point was the 2000-2003 period, where the fed funds rate peaked at 6 1/2% on May 16, 2000. That day the SPX closed at around 1466. Three years later this same fed funds rate hit 1.0%, initially on June 25, 2003, and by then the SPX was trading at a paltry 975- some 35% lower. I don't need to tell you what the NASDAQ did in that period. Though the extent of advances and declines, of course, vary greatly from cycle to cycle, the principles at work are rather constant, and that's why I pay attention. I think this is what Livermore referred to as "general conditions" Best, D

[vitaminm]

http://www.nasdaqwiz...week020905.html

[ken29]

Hey Don, Do you think we're going to get short and sweet correction that ends in Sept/Oct or an old fashion bear market like in the 70's? Hard to believe the Fed and Wall Street would allow a correction longer than 3 months........

[IYB]

Do you think we're going to get short and sweet correction that ends in Sept/Oct or an old fashion bear market like in the 70's?

Hard to believe the Fed and Wall Street would allow a correction longer than 3 months........

Well they sure did in 2000-2003, as well as about 20 other times in the last 80 years. I know that my view on this is rather unpopular, to say the least, but I believe that in actuality, the Fed (as well as Wall Street for that matter) doesn't actually "allow" anything- they flat don't have the power. They are simply puppets of the much bigger forces at work. The real puppetmaster is the economic cycle. I know, I know! This is heresy, right? Wouldn't be the first time in my life I've been hauled before the council for heresy, nor I'm sure, the last.

Edited by IYB, 14 August 2007 - 04:13 PM.

[Russ]

Do you think we're going to get short and sweet correction that ends in Sept/Oct or an old fashion bear market like in the 70's?

Hard to believe the Fed and Wall Street would allow a correction longer than 3 months........

Well they sure did in 2000-2003, as well as about 20 other times in the last 80 years. I know that my view on this is rather unpopular, to say the least, but I believe that in actuality, the Fed (as well as Wall Street for that matter) doesn't actually "allow" anything- they flat don't have the power. They are simply puppets of the much bigger forces at work. The real puppetmaster is the economic cycle. I know, I know! This is heresy, right? Wouldn't be the first time in my life I've been hauled before the council for heresy, nor I'm sure, the last.

That was economist Martin Armstrong's view too, that nobody or country can control it (at least for very long)...it is too big..too many different forces of international capital. When things get rough capital sloshes around the world like a loose canon on the deck in storm, desparately seeking shelter.

Russ

Edited by Russ, 14 August 2007 - 06:50 PM.