A path quite similar to this has since transpired, the bond leaving its low tick on Aug. 14, 2003, and then recouping 61.8% of the June-Aug. 2003 decline. While prices could stop right at current levels, one must be attentive that a slightly greater 73.6% retracement could yet transpire. Either way, and using Mr. Gross's language, a "High Noon" bond top certainly approaches.

We also hear of late many rumblings from the Bush Administration and others that an adjusted currency policy is forthcoming from China -- at first perhaps just a floating peg or wider bands for the yuan.

Yet we cannot help but think that any such shift -- while intended to make the U.S. manufacturing labor force more competitive over the longer term -- will only help raise price inflation (or perceptions that such inflation will be forthcoming) within the U.S. in the short term. Right now, the U.S. is successfully exporting much of its inflation abroad. But if China revalues its currency, and goods assembled there and exported to the U.S. become more expensive because of a higher yuan exchange rate, our inflation stats could start to steadily move higher. Instead of stuffing our inflation on the Chinese, we will be reimporting it here.

It appears to us that President Bush -- in his typical myopic way -- has bought into some economic advisor's simplistic vision that the way to heal the U.S. jobs situation is to revalue the yuan. Yet in reality, even if the yuan were revalued tomorrow, any resulting jobs shift back toward the U.S. would never occur in time for the November elections. If such were to occur at all, this would take years. Instead, by trying to posture himself towards job creation via a yuan revaluation, President Bush might easily and unintentionally unnerve U.S. bond markets.

We are currently looking for the bond market rally to top somewhere between the recent 113-22 high and 115-19 (73.6% retracemnt level) in terms of the March 2004 T-Bond futures contract. Therafter, a nasty "C" wave down in price (up in yield) should transpire towards approximately a 5.64% 30-year yield level. Then, longer term, and after the U.S. consumer hits something of a "debt servicing wall" at higher interest rate financing levels, new all-time lows in bond yields likely still beckon. This tentative longer-term yield path is shown below.

This technical view is of course very much in synch with those currently espoused by Mr. Gross. But we want to go a step further than Mr. Gross and make sure that readers understand that a yuan revaluation will not be the desired panacea to solve all U.S. structural imbalances. Instead, it could be the "trigger" to more fully reveal these imbalances.

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