Petróleo sob pressão após ataque dos EUA ao Irão

[Figas]

MONDAY a.m.
July 14, 2003




Macro Talk
by David Nichols

The chart below shows the yield on 30-year bonds (times ten). What's happening on this chart is the nightmare scenario for the Fed. Even though they cut short-term interest rates down to 1%, the long-end of the yield curve is starting to take off.



Since yields move inversely to bond prices, this means that many investors are selling long bonds. Somebody actually believes that the Fed's reflation push is gaining traction. That "somebody" is likely coming from Japan, as the Japanese are very large purchasers of foreign debt -- any yield is better than the no-yield available in Japan -- and I've read on my Bloomberg that the Japanese are dumping U.S. bonds. They are also dumping Japanese Government Bonds right now, pushing the yield up sharply there as well.

This dump in long bonds, causing a jump in yields, could have a serious ripple effect throughout the U.S. economy. It could lead directly to major problems in the U.S. housing market. We all know that the housing market has been the sole driver of U.S. wealth creation over the last few years. That "everything's okay" feeling hasn't been coming from stocks or cash, that's for sure.

So the Fed's sweating bullets on the rise in long rates. On previous rises, they've been quick to cut short rates further. Now they're out of bullets. They have indicated that the next step in their master plan is to wade into the open market and buy long bonds. They've "jaw-boned" about this, but haven't actually done it. Market participants bought into the talk, and did the work on the Fed's behalf. But it looks like the Japanese and others aren't listening so much to Fed-speak anymore.

The Fed's either going to have to start buying long bonds as they've discussed, or watch the housing market and the U.S. economy start to cave in. It's an interesting predicament for them. They surely don't want to actually have to buy bonds on the open market. That's a very radical and controversial policy step.

I'm bringing up all this "macro stuff" because we're coming into crunch-time for the Fed on this decision. If they do indeed step up to artificially lower the yield curve, keeping the long end down, then there's a good chance that we'll see some sort of final blow-out stage to the upside, in both housing and equities. Speculators will pile in behind them, and the liquidity spigots will be wide open, gushing at maximum strength. This scenario could very well lead to a further upside breakout in equities, and perhaps even a push up in the SPX all the way to 1150 or so. The Fantasy Economy will move into hyper-drive.

Equity investors need to pay close attention to what's happening on the long end of the yield curve. There can be little doubt that the failure of Fed's current strategy will eventually be spectacular. Markets can only be manipulated for so long. Bubbles and excesses always get corrected. The Fed's policies will end in heart-break. The only question is whether it happens now if they don't actually step up to lower long rates; or later, if they do. We'll be watching closely.

As for the current market, it's been stuck in a tight range since the June 6th spike. This behind-the-scenes macro-drama is creating confusion and uncertainty. Some sort of resolution should be coming soon.

One last Geopolitical Note: Even though the world is no longer paying attention to the situation in Iraq, it just may be getting ready to take over the airwaves again. Our intelligence source Debka is reporting that Saddam and his sons are amassing a new Iraqi army in their underground fortresses near their hometown, an area which they still control. Their analysis holds that the U.S. made a policy blunder by refusing to employ anybody that served previously in the Iraqi army. Apparently Saddam has put out a call that anybody who re-joins his army will be given twice the former wage, and recruits are streaming in because they need the money. Obviously this is worth paying attention to, and more details can be found in the latest report from Debka available on our Web site.

Sentiment Dashboard
by Adam Oliensis



SENTIMENT TANK: Drained 4 points to 1% full of negative sentiment on Friday.

SHORT-TERM: Hourly gauge is in an advance phase.

MID-TERM: Remains in neutral as it drifts. Now at 80/20. With the tank caught between about 1% and 5% and our Confidence Diffusion Index at 0 the minor fluctuations on this gauge do not express anything meaningful at the moment.

LONG-TERM: Weekly gauge closed the week at 96%, having flipped back onto the bullish side. Our weekly CDI is at a still-low 1, held low mainly by the fact that the VIX is extremely low.

BOTTOM LINE: As we've held for a while now, it would be POSSIBLE to get one more up leg if the SPX blows through 1015 to the upside. That could take the tank down to 0%, and it could remain there for some briefly sustained period. If that happens we could see SPX 1066-1080. Should that happen it would likely mark an important intermediate top, as the sentiment tank would have puked up everything including the fumes of any vestigial negativity.

If, contrariwise, the SPX fails the neckline of the H&S Top (971ish) then we'll likely get a decent intermediate sell signal.