# The Bull Pen



## wayneL (30 January 2006)

Well it's only fair the bulls have some place of their own.  

BTW I'm still a bear, but not averse to pulling on a pair of horns and MOOOOOING when expedient   : 

+++++++++++++++++++++++++++++++++++++++++++++

http://finance.news.com.au/story/0,10166,17980055-462,00.html



> THE share market is poised to smash through the 5000-point barrier as economists scramble to revise their year-end estimates to as high as 6000 points.
> Most analysts predicted a year-end figure of 5000, but a 150-point jump since the new year on the back of stronger commodity and gold prices has seen both indices almost eclipse that estimate.
> 
> The S&P/ASX 200 Index closed at 4919.28 points on Friday, while the All Ordinaries Index is also within striking distance at 4867.3.
> ...


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## sails (30 January 2006)

Hmmmm... bit of eurphoria in that article - might be time to start paying closer attention to the charts and thinking about puts    Interesting that there has been very little eurphoria in the media since the 2003 lows even though the Aussie market has made huge gains and is one of the indicators I watch for major tops together with chart reading for timing.  Still, while the charts are OK, won't be bucking the trend yet!


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## wayneL (30 January 2006)

sails said:
			
		

> Hmmmm... bit of eurphoria in that article - might be time to start paying closer attention to the charts and thinking about puts    Interesting that there has been very little eurphoria in the media since the 2003 lows even though the Aussie market has made huge gains and is one of the indicators I watch for major tops together with chart reading for timing.  Still, while the charts are OK, won't be bucking the trend yet!




Music to my ears


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## brerwallabi (30 January 2006)

Glad to see the bears go into hibernation, I had a short rest but back in to today, the bulls have taken over for a while but I think we could be in bear territory when the euphoria after reporting season settles.


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## michael_selway (30 January 2006)

brerwallabi said:
			
		

> Glad to see the bears go into hibernation, I had a short rest but back in to today, the bulls have taken over for a while but I think we could be in bear territory when the euphoria after reporting season settles.




heh eyes, when it does go to 6000, thats when all the Bears will come out...all of them!

atm bears are just waiting for weak points to catch and correct the bulls


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## michael_selway (1 February 2006)

http://media.smh.com.au/player/playlist.mpl/17933_4.asx?pl=17933.4




Hm Bulls on the up again?

http://www.smh.com.au/news/world/bull-roars-through-spectators/2006/01/31/1138590475612.html


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## Knobby22 (8 February 2006)

How the bond market is bringing gravity unstuck
By Alan Kohler
February 8, 2006

EVER since Sir Isaac Newton figured out gravity around 1680, and then watched his ideas at work with investments when the South Sea Company collapsed in 1720, the dominant idea of markets has been "what goes up must come down".

After several years of watching their wealth defy gravity, many investors are getting that old Isaac Newton feeling in the pits of their stomachs, waiting for the apple to bonk them on the head. It's called "mean reversion" and has a respectable history, but it's the mean reversion brigade who are being bonked on the head.

Global asset prices ”” stocks, property, infrastructure ”” are supported by a completely unprecedented bond market. If it ended, and long-term bond rates went up, the mean would zoom into view and all bets would be off.

If you are responsible for investing money, happily aloft on the updrafts of compound interest and wondering where the next air pocket is, then the first thing to think about is the bond market. The second is economic growth.

Long-term bond rates are stubbornly, wonderfully low, and the global yield curve is inverted (that is, long-term rates are lower than short-term rates). That normally means an economic slowdown is coming ”” high short-term rates cause it, and the low long-term rates anticipate it. But that's not true now because these are not normal times: the old contract between the price of long-term money and the economy has been broken.

The US Government will flog the first lot of new 30-year bonds for five years later this week, and the anticipation of hot demand for these items has already pushed their market yield below the two-year rate. Far from reverting to the mean, bond yields are moving lower.

The risk of long-term inflation has thus been put at zero. As risk is discounted, the prices of risky assets rise. Seven years of stable and falling bond yields has underpinned a succession of booms/bubbles in shares, property and now infrastructure that have had a habit of plateauing, even correcting occasionally, but not reversing.

In 1994, the Australian 10-year bond yield spiked to more than 10 per cent after Alan Greenspan raised short-term rates, causing carnage in the global bond market and a 20 per cent, 12-month bear market in stocks.

This time around, the US Federal Reserve funds rate has increased from 1 per cent to 4.5 per cent and bond yields have only fallen. This has become known as "Greenspan's Conundrum". Last year, Paul McCulley of Pimco (a big bond trading house) actually wrote that if Greenspan wanted long-term bond rates to rise, he would have to stop raising short-term rates and thereby damage the Fed's inflation credibility.

Of course, that didn't happen, and won't happen under Ben Bernanke. After 18 years of Greenspan, which followed seven years of the Volcker disinflation, the Federal Reserve's credibility in fighting inflation is now extraordinarily high, and so is the Australian Reserve Bank's, even as it sits pat on interest rates this morning. Investors have come to believe that inflation is no longer a problem.

This was supported at the weekend in a fascinating interview with 93-year-old Milton Friedman in something called New Perspectives Quarterly, in which the father of monetarism explained why inflation is not rising despite higher oil prices: "Inflation is a monetary phenomenon. It is made by or stopped by the central bank. There has been no similar period in history like the past 15 years in which you've had little fluctuation in the price level. No matter what else happens, this will maintain as long as the Federal Reserve maintains strict monetary policy and control of the money supply."

In other words, it is a fallacy that inflation is connected to energy prices. The Great Inflation of the 1970s was caused by president Johnson's tax cuts coupled with the cost of financing the Vietnam War in 1960s. Since the currency was backed by the gold standard the subsequent acceleration in demand could not spill into imports ”” because there was no tolerance for a current account deficit ”” so it produced a big increase in domestic demand and employment and national productivity collapsed.

The Fed capitulated after the collapse in 1976 of Penn Central (a railway company that had become the biggest issuer of commercial paper) and began printing money to prevent a recession.

Inflation took off, and the oil shocks of 1972 and 1979 simply worsened the situation.

Now it is entirely different. Productivity growth in the US has averaged 2.8 per cent a year for a decade and unit labour cost growth has kept to around 0.25 per cent a year growth.

US consumer demand has spilled into imports, allowing domestic productivity to grow and producing large current account deficits. The current account surpluses of the exporting nations have been recycled into long-term US bonds, along with OPEC's new surge in oil surpluses, creating consistent, strong demand for them. And finally, recent US pension legislation requires funds to match their assets and liabilities and forces them to buy up 30-year bonds to match their 30-year pension liabilities.

None of the factors that are holding bond yields down ”” Fed credibility, productivity growth and high demand for bonds from exporting nations and pension funds ”” looks in any danger of ending soon.

What's more, any significant shock ”” such as an expansion of the Middle East war to Iran leading to a spike in the oil price ”” is only likely to push yields lower, not higher, because a big rise in energy prices will dampen consumer spending.

On Saturday I will look at the other leg of the equation ”” economic growth.


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