Sand Spring Advisors LLC
Presumably and Assuming...
July 16, 2003
by, Barclay T. Leib
We did not catch all of Greenspan's Congressional testimony on Tuesday, but we did hear much of the Q&A session. In at least that portion of his talk, we thought Greenspan sounded tired and somewhat frustrated with the economy, and seldom do we remember him using as many such expressions as: "Presumably, deficit spending today will at some point be reversed when one must assume that the economy eventually recovers." To us, this sounded like a man scratching his head and, having already pulled out a wide variety of stimulative stops, now relying more on mere hope than anything else.
Meanwhile, over in T-Bond land, it wasn't that long ago in our late May subscriber-only article entitled "Debt Bubble & Islamic Threats" that we were warning that the fixed income markets had become seriously overbought -- with Bullish Consensus figures registering above 94. Since that time, the bond has fallen precipitously. In Tuesday's session, and on the back of other portions of Greenspan's speech where he was mouthing imminent economic recovery, the bond collapsed almost two points, and has now racked up a total decline since mid-June of over 12 points (or -9.75%).
Now tell me that Fannie Mae (also in the news Tuesday with lower than expected 2nd quarter earnings and future earnings warnings) isn't having some sort of heart palpitations in dealing with this market volatility.
While a long-term debt bubble certainly exists, to our short-term technical eye, it may now be time to cover T-Bond shorts, let the bond market form a base over coming days, and then look for an opportunity to potentially play the fixed income markets from the long side, at least as a trade, once again. Using options might be the best way to do this since anything is possible in the current crazy environment. Catching falling knives can be dangerous.
We form this short-term technical view by looking at the T-Bond chart pattern below and the Fibonacci band rhythm that fits it best. This "best fit Fib rhythm" suggests that we are missing at least one more new price high toward 125 at some point down the road.
Source: Advanced GET End-of-Day
This T-Bond view would be consistent with analysis that we have previously provided to subscribers in our August 2002 article "The New Era of Government, Debt Deflation, and Weakening Consumerism," where we forecast a long-term target low in 10-year yields ideally towards 2.9%-2.95%. Such a target was not quite achieved at the June high of T-Notes. We believe it still lingers -- and will be seen after the equity market finally stumbles south from its faux bear-market rally of the past several months.
Non-subscribers are invited to access our June 29th article, "The Jig is Up: The Current Market & How Freddie Mac Likely Speculated," together with other past articles, by signing up for a quarterly Sandspring.com subscription below.
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