Precious Metals Market Timing The Interest Rate Conundrum Ron Rosen Jun 13, 2005 Conundrum (NOUN) = MYSTERY, PUZZLE SOLUTION ON LAST TWO PAGES FRBSF Economic Letter 2005-08; April 29, 2005 The Long-term Interest Rate Conundrum: Not Unraveled Yet In congressional testimony on February 16, 2005, Federal Reserve Chairman Greenspan characterized the recent behavior of long-term interest rates as a "conundrum." Typically, long-term rates tend to rise as monetary policymakers raise short-term rates. But not in the current episode. Despite steady monetary tightening beginning in the middle of 2004, the yields on long-term U.S. Treasury securities actually have declined since then by about 50 basis points. As a consequence, the current level of long-term interest rates seems to be well below what one would expect on the basis of economic fundamentals. ---------- By DAVID LEONHARDT Published: June 10, 2005 For the last year, the Federal Reserve has been conducting a relentless campaign to raise interest rates. In that same year, the rates that matter the most to many people - mortgage rates - have drifted back down, returning to near 30-year lows. Testifying before Congress yesterday, Alan Greenspan, the Fed chairman, called the current situation "clearly without recent precedent." Even as the Fed has lifted its benchmark short-term rate eight times since last summer in an effort to choke off inflation, the average rate on a 30-year mortgage has fallen to 5.61 percent, from 6.3 percent, according to BankRate.com. Mortgage rates are now slightly higher than they were in 2003, when they were the lowest in at least three decades. In effect, the bond market - where long-term interest rates, including those for mortgages, are set - is stimulating the economy while the Fed is trying to stabilize it. ---------- June 9, 2005 NEWS ANALYSIS by Rich Miller No matter how meager the yields, bond buyers are insatiable. But why? Greenspan & Co. can't say -- but they're sure noticing. Back in February, when he first addressed the issue of stubbornly low bond yields, Federal Reserve Chairman Alan Greenspan called it a "conundrum." The mystery revolved around a simple question: Why were long-term interest rates falling even as the central bank was jacking up short-term rates? Back then, Greenspan ventured that the anomaly could be a temporary aberration and that in no time, bond yields might start acting in more traditional ways. More than three months -- and two more rate hikes -- later, bond yields have once again been falling, surprising not only Greenspan but many market pros as well. Indeed, in early June, yields on 10-year Treasury securities fell sharply, to below 4%. Greenspan doesn't think the falling yields are a sign of slower growth ahead, as many in the market believe. Indeed, he's expected to tell a congressional hearing on June 9 that the economic expansion remains solidly on track. HERETICAL THOUGHTS. But even with the economy powering forward, Greenspan seems increasingly convinced low bond yields may be an enduring phenomenon, driven by a complex of international forces the Fed has yet to fully understand. ---------- ANGRY BEAR Wednesday, June 01, 2005 The Long-term Interest Rate Mystery As I start getting reacquainted with the financial press following my 10-day 'vacation', the first thing that has caught my attention is the continued fall in long-term interest rates. The 'conundrum' about which Alan Greenspan spoke a few months ago has not resolved itself, after briefly appearing as though it might back in March. Instead, the mystery has deepened, in the sense that long-term interest rates have fallen noticeably over the past month or two even though the Fed continues to increase short-term interest rates. Of particular surprise to many observers, in recent weeks the bond market has completely reversed the rise in yields that we saw a couple of months ago. This resounding defeat of the bond market bears has been so striking as to convince some of them, like Stephen Roach, to give up being a bear altogether. ---------- 60 YEAR INTEREST RATE CYCLE Long interest rates bottomed in 1946. It may be difficult to believe but we are headed for a bottom 60 years later in 2006. This is happening in spite of much being written about a coming dollar collapse and sharply rising interest rates. The economic and financial leaders of this country are completely perplexed as to why long interest rates are still going down. The Chairman of The Federal Reserve Board, Allan Greenspan, says it is a conundrum. He is raising short term rates but long term rates seem to have a mind of their own and refuse to follow his lead, thus a conundrum. However the Maestro of time and cycles, W.D. Gann, has this to say. "The future is but a repetition of the past. "The thing that hath been, it is that which shall be; and that which is done, is that which shall be done, and there is no new thing under the sun." -Ecclesiastes 3:1. In order to be accurate in forecasting the future, you must know the major cycles. I have experimented and compared past markets in order to locate the major and minor cycles and determine in what years the cycles repeat in the future." "Time is the most important factor in determining market movements because the future is but a repetition of the past and each market movement is working out time in relation to some previous time cycle." The master cycles that most affect our lives are the 30 and 60 year cycles. "There have been only 3 historic lows (price) in 140 years. These occurred in 1864, 1920, and 1981. The time periods between these lows were 56 years and 61 years. It is this 60 year cycle which is especially intriguing." -James Flanagan of Past, Present, Futures; an excellent source of Historical market information. What is currently happening in the long term Treasury bond market should help us understand the cyclic nature of the precious metals markets, shares included. I do not mean this as an insult to anyone or any institution but it does seem that the more economic degrees one has and the greater their position of importance in the world of finance the more they believe that they can control the system and the system will respond to their actions and maneuvers. It appears to me that the only time the system responds to their maneuvers is when unknowingly their maneuvers coincide with the cycles. They are most likely not aware of this and mistakenly credit their actions with the result. Those of us who lack the PHD, MBA and other economic background in some ways are most fortunate. We are not inclined to think that our education has given us the tools to control nature. We are more likely to realize that we best "Go with the flow" for whatever reasons and don't fight it. The chart below is an excellent demonstration of the 60 year interest rate cycle. click image to enlarge the chart Subscriptions to the Precious Metals Timing letter are available thru the Delta Society International www.trade-Delta.com - click on Ron Rosen Timing Letter for instructions on how to subscribe. In spite of my attending Washington and Jefferson College and then 4 years later New York University this is where my education first began. An education like this helps keep ones feet on the ground, no pun intended. I surely hate war as much as anybody but service, ex war, would be a great education for every citizen. Service of some kind where you meet your fellow citizens is a most beneficial learning experience. You learn about folks that you might otherwise never come in contact with. The more you learn about people and yourself the better your market insights will be. That's me in the middle facing inboard. Jun 10, 2005 Ron Rosen email: rrosen5@tampabay.rr.com Subscriptions are available at: www.wilder-concepts.com/rosenletter.aspx Disclaimer: The contents of this letter represent the opinions of Ronald L. Rosen and Alistair Gilbert. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Ronald L. Rosen and Alistair Gilbert are not registered investment advisors. Information and analysis above are derived from sources and using methods believed to be reliable, but Ronald L. Rosen and Alistair Gilbert cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. The Delta Story Tee charts reproduced courtesy of The Delta Society International. 321gold Inc