Interest rates again rule equities. We say this not so much because of what happened today, but what is going to happen over the next few years. We want you to focus on the political climate of interest rates as the increasing certainty of a tax cut and a debt repayment plan begins to surface. First of all, the bond rallied today nicely and closed with a yield of 6.12% - still much too high in our opinion, but certainly better than moving toward 6.25% which seemed so certain yesterday. Secondly, President Clinton announced that it is exploring ways to buy back debt to reduce the $3.6 billion that is held by the public. With a surplus of $69 billion last year and a projected $100 billion this year, the political tide is rising for a tax cut and a debt repayment plan. This is a bi-partisan effort, which makes it appear very likely that it will be accomplished soon. Let us say here again: Wall Street likes two things. 1. They like tax cuts, and 2. They like fiscal responsibility - whether it be with individual companies or with the largest financial country in the world.
What the debt reduction means for investors is this: If the US retires debt, they will not have to issue new debt. If they don't issue new debt then there will be a shortage of supply of bonds. If demand remains the same, there will be a gentle force pushing existing bond prices higher. As you know from reading The Bull Market Report, higher bond prices mean lower interest rates and since Wall Street thrives on lower interest rates, this could equate to higher equity prices. That in a nutshell is a very simplified version of the possible effects of a debt restructuring on the US bond market and on the US stock markets. Things are never quite this simple of course, and there are many more factors that will influence the long bond interest rate over the next five years, but having the US Treasury buying bonds and retiring them is a giant step forward in the right direction.
Please read the following two press releases. We couldn't be more excited about the bullish prospects for the stock market.
Todd Shaver The Bull Market Report Washington, DC USA
IN THIS ISSUE:
$$$$$ US TREASURY TO CANCEL NOVEMBER BOND SALE $$$$$ U.S. MAY BUY BACK DEBT $$$$$ QWEST TO PROVIDE DSL IN 13 MARKETS $$$$$ NORTEL NETWORKS RECEIVES $100 MILLION CONTRACT $$$$$ MORGAN STANLEY INITIATES COVERAGE ON MSPG, EXDS, ELNK $$$$$ EARTHLINK NETWORK AND FREE IMACS $$$$$ AMERICA ONLINE SAYS BUSINESS IS STRONG
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$$$$$ US TREASURY TO CANCEL NOVEMBER BOND SALE
The US government said it would cancel November's 30-year bond sale and the bond had one of its best days in last few weeks. Also Treasury Secretary Lawrence Summers said the United States would propose rules to buy back debt given mounting cash surpluses.
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$$$$$ U.S. MAY BUY BACK DEBT
The Clinton administration, seeking ways to manage its exploding debit is exploring buying back a portion of the $3.6 trillion national debt held by the public, something that has not been done since 1972.
Speaking to reporters at the White House, President Clinton said the new procedures will set the stage for completely eliminating debt held by the public by 2015, something that has only happened once before in the nation's history, in 1835 when Andrew Jackson was president.
Clinton likened the proposal to a family refinancing its mortgage to save when interest rates decline and then paying off the mortgage early to eliminate interest payments. He said: ``Let's refinance our nation's mortgage and then wipe the ledger clean. We have the chance of a lifetime to do it.''
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