Bond Market Improves

Post #108,656 by deSitter 7/7/03 11:40:31 PM Reply	Bond Market Improves According to pundits, this means that the deflation threat is over. Can someone explain this? Also - I've believed all along that computer employment would come roaring back even for locals. Why? There may be a cycle - shed workers and get the same productivity, then hire them back after recovery and end up with with a net increase of productivity with the same former number of employees. Is this conscious or simply a side effect of a new way of doing business? -drl
Post #108,659 by ben_tilly 7/8/03 12:47:10 AM Reply	Who can explain someone else's reasoning? I have no idea what bond figures the pundits that you are talking about used for their reasoning. Let alone how they think about it. But I can do my own (at best semi-informed) speculating from some charts that I know how to find. Long-term treasuries have been going up for a few weeks. Standard textbook theory says that treasuries have no risk except for interest rate changes, so that would suggest that the market is discounting the scenario where a deflationary episode creates long-term near-zero rates. Strike one for the pundits. OTOH the same treasury curve gave little indication that deflation was a concern back when I was first talking about it last year. The crystal ball is sometimes cloudy. Furthermore swap rates (the premium one pays for the risk of floating vs fixed debt) fell during the Iraq war and have been bouncing around since then with no real direction. Textbook theory notwithstanding, in the last few years a number of bond markets have noted that treasury rates respond to government policy shifts (which affect possible future supply of treasuries), and swap rates are a better direct measure of thinking about interest rate changes. Therefore they actually price off of swaps, not treasuries. This suggests that the pundits are looking at the wrong measure and there is no clear shift in thinking about interest rates (and therefore deflation). Also both are significantly below the range they were in from December through March. And those rates were ones which already reflected widespread industry concerns about deflation, even if said concerns had not yet reached widespread circulation in the general public. More confident does not equate with very confident. And finally I see some narrowing of premiums for riskier bond classes in CMBS (the bond market I know best), which says nothing directly about the likelyhood of deflation, but suggests growing confidence within the bond market that marginal businesses will manage to make their payments. Of course that data may be mistaken... My conclusion is that there seems to be a noticable recent uptick in confidence, but not to levels where one should say that the market is "predicting" that it is over. Cheers, Ben "good ideas and bad code build communities, the other three combinations do not" - [link\|http://archives.real-time.com/pipermail/cocoon-devel/2000-October/003023.html\|Stefano Mazzocchi]
Post #108,712 by gdaustin 7/8/03 1:52:37 PM Reply	Some of it tied to the Stock Market A lot of companies have all their free cash tied up in stock investments. When the market does well, their "short term financial instruments" provide them with a healthy return, so they can start projects. When the market does well, they don't have to fund pension plans out of current earnings, they have money to do other things. When the market does well, the tide raises all ships. Finally, some of the cyclical nature of IT jobs is due to the fact that business people need 5 year ROI's out of technology investments. The investments made in 1999 and 2000 are finally fully depreciated, and more importantly if your last upgrade was in 1999 with a 400mhz PC, then you could be losing some competitive advantage. Also, I think companies needed to take a breather after the Y2K and Internet pushes. Now that they've had their websites open 3-4-5 years (or even 7-8) they have a much better idea of what works and what doesn't. They're looking for some firming in standards, like XML, Web Services, and SOAP, too. If Sun, BEA, IBM, HP, and Microsoft can all just STANDARDIZE Web Services (and really commit to it), then I think many companies are ready to open their wallets and at least do a prototype. Glen Austin
Post #108,713 by gdaustin 7/8/03 1:56:08 PM 7/8/03 2:01:31 PM Reply	Watch the Falling Dollar... The federal reserve has put so much money in the market now, that bond traders see interest rates going up. More dollars chasing fewer goods. I just read on the news this morning, that as of July 1, everyone's tax witholding will be dropped by between $32 and $160 a month. In addition, the gov't is giving you your child care tax credit this August, instead of on your next tax return. Yet more money being thrown at the economy. The net effect should be about $600-1200 back in my pocket in August. Actually, if you have credit, it's a great time to be buying things on 0% interest. Bought a computer last week. Might buy another one this week. (Both 2.4 ghz Celeron for about $469 with killer flat screen monitors ). Thinking about trading in my car for a 0% loan on a new one. Thinking about redoing our kitchen floor. In a year or two, these items might actually be MORE expensive, for a change. Edited by gdaustin July 8, 2003, 01:58:01 PM EDT Edited by gdaustin July 8, 2003, 02:01:31 PM EDT Expand All History

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