Monday, March 07, 2005

Mr. Greenspan's Conundrum: Is The Bond Market Playing With Fire?

According to the crack analyst team at Midwest Research, the current 3-plus year rally in the Commodities Research Bureau Index recently became the longest on records going back to 1960, by 15 trading days.

Perhaps this fact is one reason Alan Greenspan calls the current long-bond yield "a conundrum."

On the other hand, the bond market--especially after Friday's 'whoopee' reaction to the jobs report--would probably take the glass-is-half-full view, and point to the fact that the CRB is at the peak of an extended run as a clear indication that the China-driven raw materials inflation has peaked.

Whatever the case, on top of the long-running surge in oil prices--one of the reasons behind the CRB's hefty move of late--oil-rich Iran has just warned that any attempt to impose sanctions on its nuclear activities would lead to an oil crisis in the US and Europe. "Playing with fire" is what Iran's top nuclear official called it.

Not for nothing that the last oil shortage--in 1979--was caused by production cuts in...Iran.

Perhaps the bond market is right, and Alan Greespan is wrong. Perhaps, though, as the CRB suggests, the bond market is playing with fire.

Jeff Matthews
I'm Not Making This Up