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FISHBACK MANAGEMENT & RESEARCH
P.O. Box 23798, Lexington, Kentucky
(November 20, 1997) FINANCIAL INSTRUMENTS: MARCH BOND FUTURES–Bonds broke out to a new high, and our bond market model remains bullish. As we stated last week, however, there are certain situations that are deteriorating. Interest rate trends remain mixed. Long-term rates are failing across the globe. But short-term rates are now higher than they were one quarter ago. This configuration means that the market is pushing rates lower, but that the Fed is not acting to lower rates. The yield curve is bullish, but only barely. For two consecutive weeks, the rate on the 13-week T-bill was identical to the rate on the 26-week bill. We are rapidly approaching an inverted yield curve, which would be very bearish. Sentiment on bonds is in “no man's land.” But, gold...the price action in gold and gold stocks is as bullish as it can be, at least for bonds. The gold stock index (NAU) is collapsing and fell to a new 4-year low yesterday. According to the sentiment in the gold market, inflation expectations are just about dead. The net of all this is that our market-timing composite is bullish for now. We will, however, have to remain vigilante to any further deterioration in our indicators and a potential increase in volatility.
Don Fishback
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