Today's domestic equity's are rallying off the news of the Federal Reserve. As a spring board you have worldwide equity markets reacting in the same manner. It is my fear that these substantial moves are not related to the fundamentals. It is just assumed that a fed cut will automatically fix the problems by providing more liquidity to the money supply.
After talking to a interesting consulting firm at the career fair today, it is in his opinion that there are many fund still lacking in discipline and knowledge of their own investments that are still to come in the red. In my past entries i have trying my best to paint a contrarian bullish scenario, but with the recently upward bounds in the domestic equity indexes, and as they approach old resistance levels it is my belief that key economic events will truely determine or not we are able to break these resistance levels. As these levels are approaching, it would wise to start looking for signs of weakness.
PPI and CPI.
The PPI and CPI were in general down on a whole, though looking at core rates slightly up. It is my belief these are only lagging indicators, and in the coming months with all this excess liquidity, inflation will be more prevalent.
Oil:
Once again oils still have upward momentum, and continued today to press higher currently reaching aroud $82 a barrel and around 81.97 currently. Continued tight supplies of oil and fears of storms are ever prevalent 10 of the past 11 weeks oils have slumped to six month lows as cited by Angela Macdonald-Smith and Christian Schmollinger.
Similar conditions exist within natural gas, people are worried about there being enough supplies for the upcoming winter.
Once again the $100 dollar per barrel is being harped on again, which is no surprise. The effects of such an environment in my opinion would be to extreme and would not last long if ever to occur. Such repercussion could only have a negative affect on the economy strongly biting into the consumer (consumers would simply stop paying gas, and find other means of heating etc if prices were to reach that high)
If you are such one person who strongly believes in oil reaching $100 per barrel, you can only be a bear.
I am still taking the stance the Oil is indeed inflationary, though to what extent and at what time is all dependent on the zeightgheist of the time. One can argue with higher gas prices lower middle class and poorer classes will downgrade their means of living, and middle class americans will just save less and spend less on other items, either way its a negative impact on the economy.
It would be most important to maintain sentiment and volume and how much momentum remains in this move. It is possible that further momentum will lead to higher prices with a slight retracement and head back up to higher prices, but i feel seasonality will not let prices reach ridiculous levels. Unless pending, we have a huge supply crisis, or massive storms that will be wiping out supplies.
Housing:
Considering the Bond markets, the majority of people had already priced in .25 rate cuts, so with this move its gives more free fall or cushion for mortgages to fall. My fear is that this significant drop will affect all the people who need lower rates to make these payments. Essentially we are only extending the problem, instead of fixing it. With these lower rates, banks will only continue this malicious practice. I'm sure now many prime lenders are finally loosing up, or at least the very tips are starting to thaw.
Expectations of the consumer to be confident from this rate cuts will not be fore awhile i feel. As with any cut, there is the lag affect with the consumer. I mean obviously i feel that the feds might over do it and cut more based on lagged information and indicators. Previously what happened is that there was not enough liquidity for these banks to make these loans, and people were not paying them aka defaulting etc... with this new wave of liquidity, we are back to where we started. As i have said before, long term bubbles can only mean long term solutions. The housing market will be stale for some years. Housing reports should be no surprise for people at this point, though im sure it will always will be. It is not as if we live in the time of Manifest Destiny with massive amounts of land to claim. Many internal problems in housing and bond markets need to be worked out, many investors have lost confidence in these secondary markets and that takes time to repair...
So all in all, if all other areas can perform well, we will see average growth in general.
Currency:
This recent move With the Fed pushed the US to near all time lows vs the euro. Most interestingly this move may lead for some countries to abandon tying their own currencies to the US dollar, for example saudi arabia did not lower interest rates in synch with the US. News from the middle east might suggest that the dollar maybe sold due to inflationary risk. Im sure this move in the Fed further prompted carry trade. I'm sure the Yen and Australian dollar are benefiting from this. In terms of the dollar and euro, further downward moves maybe limited to the fact that investors will buy us currency to protect options if they should weaken further against triggers 1.40's. I can confirm this by looking on the currency charts, resistance seems to be form and volume slowing down. Right now the Australian dollar will should remain healthy vs the yen. Currently the US dollar presents a good deal of risk, but many people may be willing to take that risk as the dollar is poised to strengthen. The current weak dollar may lead to an outflow of goods and capital to other countries, which can be seen positive for GDP growth eventually...
The roommate is complaining, off to bed...
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