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Enron Mail |
Sunday afternoon, April 29, 2001
COMMENT: In 1984, I coined the term "Bond Vigilantes" to describe the growing power of fixed income investors and traders over the economy. In recent years, they've lost some of their clout because the U.S. Treasury is paying off the federal debt. Also, inflation has been relatively tame, and so have they. Venture capitalists became the new power elite in the late 1990s leading the Nasdaq to record highs. Now the bond crowd is back: They are tightening credit conditions, while the Fed is easing. The Treasury bond yield is up over 50 basis points since March, which is boosting mortgage rates. The spread between A-rated corporate and 10-year Treasury yields has widened dramatically from around 150 basis points at the end of 1999 to more than 250 basis points recently. The high-yield and commercial paper markets are essentially shutdown for all but prime borrowers. On the other hand, the yield curve is ascending again with the 30-year yield more than 200 basis points above the 3-month T-bill rate. At the start of the year, the curve was inverted with a spread of 50 basis points. This is good news because an ascending yield curve gives banks and other financial intermediaries an incentive to lend. The banks also have lots of money to lend because shell-shocked stock investors are putting more of their funds into bank deposits, which are up $350 billion over the past 12 months. The resulting rapid rise in the monetary aggregates is Exhibit A in the case against both a recession and a prolonged bear market in stocks. Indeed, real GDP was up 2% during the first quarter and stock prices have rebounded nicely since early April. Still, the rolling recession is likely to continue rolling over the technology industry, and shows more signs of spreading to labor markets around the country. Furthermore, the stock market is now more than 15% overvalued as stock prices rose at the same time that earnings expectations fell and bond yields moved higher. SUBSCRIBERS: I can only conclude that either bond investors need Prozac, or stock investors are back on Ecstasy. For more on this subject, see my latest GLOBAL PORTFOLIO STRATEGY and tune into my Monday WEEKLY AUDIO FORUM. In my latest commentary, I also lower my outlook for 2001 S&P 500 operating earnings per share from $53 to $50. The profits recession is getting worse. In the latest EARNINGS WEEK, Joe Abbott and I observe that already 132 companies have publicly released downward guidance for the second quarter! We also slice and dice the Energy sector, which remains one of our "overweight" recommendations. PUBLIC: Our ONLINE CHART ROOMS are packed with Slide Shows of credit and yield curve spreads. Did you know that Xerox is the best performing component of the S&P 100 so far this year, followed by Microsoft? We've added more Daily Stock Trackers to help you keep track. Check out the important results of April's CIO Magazine Tech Survey (in partnership with yardeni.com) on Tuesday morning at 10 am on www.peoplepolls.com. FIDO: Please click on Fido (the dog logo at the top of every page on the web site) to review your account. If you do business with Deutsche Bank, you can get home delivery of several products by e-mail. More will be added this summer. Dr. Ed ******************** 1) You can now automatically add/delete this update and other products. Just click on Fido (the dog) at the top of any page on the site OR review your yardeni.com account at http://www.yardeni.com/customers/info2.asp OR send a message to support@yardeni.com. 2) Subscriber-level access: http://www.yardeni.com/yardeni1/userAuth2/idpass.htm ******************** Home: http://www.yardeni.com Global Portfolio Strategy: http://www.yardeni.com/weain.asp Earnings Week & Month: http://www.yardeni.com/stocklab.asp#earnings Weekly Audio Forum: http://www.yardeni.com/waf.asp Global Economic Indicators: http://www.yardeni.com/ecindin.asp Stock Lab: http://www.yardeni.com/stocklab.asp Stock Market Indicators: http://www.yardeni.com/stockindicators.asp Interactive Stock Price Derby: http://www.yardeni.com/stockderby.asp E-conomy Center: http://www.yardeni.com/cyber.asp New Economy Center: http://www.yardeni.com/neweco.asp Greenspan Center: http://www.yardeni.com/greenspan.asp People Polls: http://www.peoplepolls.com/ Multi-Lingual: http://www.yardeni.com/#languages Mega Trades: http://www.yardeni.com/megatrades.asp ********************************************** VIRUS ALERT: No attachments sent with this message. ********************************************** The information and opinions in this report were prepared by Deutsche Bank or one of its affiliates (collectively "Deutsche Bank"). 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