On the surface, real U.S. Gross Domestic Product grew by 0.5%, or at an annualized rate of 2% for the first quarter (2001). That was only the first surprise, but it was enough to give dollar bulls the impetus to hammer back Forex markets on Friday, as it was first announced.

Yet despite broad dollar momentum, the GDP data upset a premature recovery effort in the Treasury bond, and forced a retest of the prior week's lows before pulling itself up again by Tuesday, of this week, in order to threaten a two week double bottom - with neckline resistance at 102 on the June contract.

National Association of Purchasing Managers Index	30 Year Treasury Price - 3 month chart

On Tuesday, bond traders were fed fresh news from the manufacturing front: the National Association of Purchasing Managers informed us that their index couldn't muster enough valor to, well, exceed market expectations. Further troubling for the bond bears (though even more so for the Treasury) were reports, which have begun to reveal that auto sales fell so significantly in April that discounts couldn't even lure customers into the car lot. As regards the Treasury, I wonder how many people had already spent their "tax refund" in the first quarter, considering that autos were the single one largest factor affecting the consumption component of this GDP series?

Not even giving that a second thought, however, the still optimistic crowd on Wall Street grabbed the moment and bid up stock prices in anticipation of yet another ½ point rate cut (Bloomberg headline). Undoubtedly, the boys club (which includes ladies these days) at the Federal Reserve Board approved of the equity market's belated reaction to their repeated stimuli, even if stock prices weren't the official target of their deliberations. Nonetheless, it does not tend to work out well for them when markets price in additional rate cuts, before they arrive.

This Week in the GIC:

• Should the Fed Target a Dollar/Gold Price?
• The New versus Old Dollar Paradigm
• The Outlook for Dollar / Gold
• Greenspan's views on the retirement of the public debt spoken to the Bond Market Association in West Virginia, April 27 2001.

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Sincerely,
Edmond J. Bugos


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