Friday, June 03, 2005

NewsFinder Lehman Brothers Says FOMC is in the Sixth Inning


Now market mavens are trying to out-guess the inning being played by the FOMC baseball team. This market is very much like the market of late 1986 and early 1987. Long rates finally made a bottom around November of 1986. In the months leading up to the bottom, investors in stocks and in bonds were making money. Then the worm turned. Long rates gradually climbed off the bottom and money flowed more and more to stocks.

In other words, right now, retail investors have no business trying to catch the exact bottom in the bond market. The 30 year bond is at or near its historic low rate. Investors should realize that buying bonds at today's rates is a bet on the "never before". Why should an investor bet on the "never before" when it is common for stocks to take off after long rates have declined sharply.

One of the many market measures that I watch is the six-month change in the long bond. Right now this measure is screaming--BUY STOCKS!

The world wide economic slow down is giving the energy market time to catch up. The energy supply problem will not be solved over-night but it will be solved. Life will go on with gasoline above $2 a gallon. The long bond is forecasting low future inflation and modest future short-term rates--an ideal environment for real corporate profits.