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(March 22, 2002) FINANCIAL INSTRUMENTS: INTEREST RATES--Treasury instruments continued to show weakness in the face of what traders feel is an imminent move to higher rates by the U.S. Federal Reserve. I suppose when you wish hard enough, some things may come true. The economic reports of late are providing some evidence that a return to prosperity may be in the offing and consequently a potential return to what the Fed fears most, inflation. That being the case, last week the Federal Reserve opted to move their bias from negative to neutral indicating that the next move in rates may very well be up. Considering that the Fed Funds are at 1 ¾% it was hardly likely that rates could be lowered any further anyway. However, even with rates this low, the actual rates for a borrower to buy a home is still around 7.5 to 8% and the 0% to 3.9% auto financing may soon come to an end. Given that scenario one might assume that not enough was done to reverse the economic downturn and that recent supposedly favorable news is really a "bump in the road" to continued economic declines. While some sectors of the U.S. economy are starting to show a "levelling off", the employment picture remains bleak. As I have stated ad nauseum, "unemployed consumers do not consume anything". My admonition of seeking a place to return to the long side of bonds holds albeit contrary to technicals at this point. The shortened holiday week and end of the quarter window dressing for stocks might wreak some additional havoc in bonds but once again, we would look to the long side on any break which I expect would be correcting after the Easter weekend.

John L. Caiazzo

www.acuvest.com

E-mail: futures@acuvest.com

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