Fed Policy

Bond market adjusting to end of Fed easing cycle, expected 2002 economic recovery and corporate rush to lock in lower borrowing costs.

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Fiscal responsibility goes out the window in Washington. Also, The Bombastic Earnings Charade: Why are companies allowed to make up their own accounting rules?

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Bonds still performing better than stocks in 2001, especially Junk Bonds. Commodity Diffusion Index declined sharply to 42%. Historically this is a significant positive for stocks and bonds.

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Two trading days into 2001, and the first day delivered the second-worst-ever, first day trading loss in the S&P 500 (the worst-ever being the first day of 1932!). Day Two: A surprise, 50 basis point Fed rate cut, brought an upside explosion.

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The public certainly is not afraid of Mr Greenspan…..Strong public confidence now a key stock market support factor.

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Rising equity prices, strong economic news, and inflation trends  make further Fed tightening likely (next year).

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Inflation is on the rise…normal business cycle inflation, not the rebirth of new secular inflation. Also, the stampede of the lambs…the powerbase for the stock market has moved from Wall Street to Main Street.

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Last month’s 25 basis point bump-up by Fed will not be the last. More tightening seems likely.

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Recent 25 basis point bump-up by Fed will not be the last. More tightening seems likely but T-bonds now look to be in the high end of a buying zone.

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Despite proclamation of a “neutral” bias toward future interest rate shifts, expect the Fed to raise short rates at least 25 basis points more.

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Transcript from late February conference call with Steve Leuthold and Byron Wien covering a wide spectrum of timely investment topics.

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Bonds expected to outperform stocks over next 6-12 months...economy should slow, inflation should remain under control, and corporate earnings momentum should gradually fade.

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Insight derived from Jim Bianco’s excellent Market Commentaries. At Arbor Trading Group Inc., Jim does some of the best, original, and thought provoking work that comes into our shop.

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Bond market was punished again in March by continued (forced?) hedge fund selling and unexpected stronger economic signals casting doubts on further Fed easing. Rising labor costs and higher energy and grain prices provided reasons for worry.

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Bond market was pummeled in February by weaker dollar, aggressive hedge fund selling, and Mr. Greenspan’s positive economic comments which cast doubts on further significant Fed easing.

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Bond market rally stalled out in January...concern over the recent spike in gold prices, political uncertainty, and upcoming treasury auction, seemed to outweigh the weak economic news. Bonds seem over-extended on a short term basis.

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Bond market rally continued in December. Government shutdown curtailed information flow, but economy still looks lame and inflation tame. Investors forced to focus on Washington's political farce.

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The big bond market rally continued to roll ahead in November, with yields in most bond sectors falling 20-25 basis points.

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Bond market rally continues: weaker economic news, lethargic consumer spending, and tame inflation reports increase likelihood of further Fed easing...other positives include stronger dollar, foreign buying, and declining budget deficit.

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Bond market rally sputters, as consensus changes from multiple Fed rate cuts to “one and done”. Greenspan upbeat assessment of economy chokes off further bond advance.

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