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November 8, 2005
Buy Treasury Bonds
As of today, Treasury Bonds are down about 2 1/2 points from where I recommended buying them on October 7th. I still think they are a buy and still think we are right in front of at least a 10-12 point rally that will take them into new contract highs.
I believe:
The bull market in energy has ended and with it any whiff of inflation we have seen in the last year has peaked out. Maybe not that soon, but I think we'll see $35 oil before we see $70 again. Even with the inflation numbers seen this year (which is bearish for Bonds), the Bond market is still exactly where it was when the year began. This indicates there are other factors besides inflation at work in the interest rate market.
Even with the Fed having raised short term rates at every meeting they've had, Bonds are still exactly where they started the year. This has befuddled a lot of people, including the Fed. Same as with inflation, this firmness in the Bond market is a sign of underlying strength.
The constuction and automobile industries are the backbone of our economy, both of them combined being directly related to creating more jobs in this country than anything else there is. 
The housing market IS slowing, and if the housing stocks, which have been generally falling dramatically (20% to 40%) since August, are any indication of what's coming in the industry, the news going forward won't be good. It had to come sooner or later, when those gazillions of new houses we've all seen popping up everywhere start to sit without buyers and the "For Sale" signs start multiplying, and with the slow down, construction industry jobs start disappearing....As for the automobile business, all you need to know is that GM and Ford are both in such sorry shape they are dealing with bankruptcy rumors....Bottom line? If these two industries are in trouble, all of those ideas about rates going up, up, up (!) are going out, out, out the window...
I keep saying it....There is a lot of talk about long term rates going higher, but for that to happen, you've got to have willing sellers...and it is my very strong opinion that there simply aren't "any"...Bonds are instruments that pay interest for a long, long time and investors who already own Bonds are most likely just not interested in selling them...As an example, if in November, 1990, you had bought a 30 Year US Treasury Bond, you would own an instrument that has been paying you 8.35% interest for the past 15 years and still will pay you 8.35% for another 15 years...Would you sell it? I doubt it....and neither would anyone else....As I've said all year, I believe there are no natural sellers in our Treasury market, just the usual backwards thinking interest rate analysts who keep yelling "Sell!", and speculators who keep trying to do so.....
On the buy side, aside from the fact United States government paper is still considered the safest long term instrument on the planet, and will CONTINUE to attract foreign buyers at EVERY auction we have, there are the Bond Positive Demographics of the Baby Boom. As all of the Boomers approach and enter retirement, secure interest bearing instruments like US Treasury Bonds will become a larger and larger part of their savings and retirement accounts...As opposed to the 1990's when all the retirement account money was being thrown at stocks, as we go forward, more and more of those funds will now find their way into Bonds...the point being, this will represent a steady influx of buyers to the Bond market.
To simplify then: No natural sellers + steady influx of buyers = higher bond prices (and lower long term rates).
I'm curious. If you have actually read this, please call your stock broker or financial advisor and ask him what he or she honestly thinks about buying long term Treasury Bonds....HERE AND NOW. Then give me a call or email. I'd love to put together a survey of your responses, even though I'm pretty sure I already know what the answer will generally be...that is, "No way, Jose!".
If I know anything at all about this market, I can tell you they generally will turn up BEFORE the Fed finishes its tightening campaign. I can also almost promise you they will turn up when absolutely everybody is CERTAIN they are going lower. I think we are "right there" in both cases.
If you've ever been in this market with me before, you'll know what I mean....It's time to step up.
Give me a call....
Buy March Bonds. Buy March Cotton. Two Great Trades.
Charts Follow....Thanks,

Bill Rhyne
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