10 replies to this topic

[TTHQ Staff]

MORE CORRECTION TO COME! March 16, 2007.

As if investors didn’t have enough to worry about with the slowing economy, this week provided evidence of why the Federal Reserve is even more worried about inflation than it is about the economy.

It seems like ancient history now, but the Fed just stopped raising interest rates last June, nine months ago. Prior to that, it had raised rates an unusual 17 times in a row. The goal of the rate hikes was to cool off the economy, in an effort to ward off inflation. Perhaps the Fed halted the rate hikes in June because it thought it had inflation under control. Perhaps it was because it feared the stock market decline that had begun in May was the beginning of something worse. Perhaps it feared it had already gone too far, and the higher rates would eventually slow the economy too much. In any event, it halted the rate hikes.

Almost immediately, Wall Street and investors began anticipating the Fed would completely reverse course, and start cutting rates. The stock market ended the correction that was underway. June turned out to be the market low for 2006. The market rallied off that low and continued higher through the fall and winter in an unusually one-sided move, without even minor pullbacks or corrections, such was the enthusiasm. That bullishness was in spite of the bursting real estate bubble, rising oil prices, and increasingly negative economic reports.

The driving force was primarily a conviction that the Fed would soon save the situation by cutting interest rates. Investors, guided by Wall Street’s spin, even began to perversely take negative economic reports as good news, likely to force the Fed to ignore its inflation worries and start cutting rates.

The Fed was not at all encouraging in that regard. At each of its FOMC meetings since last June it has given pretty much the same guidance, that while not raising rates, it was not considering a cut in rates, still more concerned about inflationary pressures than about the economy.

But investors would not give up hope.

The rest of Sy Harding's article is at TTNMA

[fib_1618]

Those latest inflation numbers make it virtually a guarantee that the Fed will hold rates unchanged at next week’s meeting, and will reiterate the warning that it is still more worried about inflation than about the slowing economy.

Agreed. In fact, it's a foregone conclusion based on the FED's behind the scenes activities.

The problems with the economy and inflation had already caught consumers’ attention, resulting in the decline of consumer spending and confidence.

Oh really? So, it wasn't the price of petrol artificially moving .75 higher during this same time period; nor was it the record cold weather that kept many from venturing outdoors (no less making it practically impossible to transport goods which drives prices higher because of supply and demand); nor was it the recent price action of the markets moving down by 3% in such quick fashion that every uninformed media outlet was screaming "big trouble" and using every piece of potentially bearish mantra ammunition that has been the very foundation of every single advancing price structure since the 1930's in that somehow "caught consumers attention"????

Please...

I've been doing this for 30 some odd years and still it fascinates me that this same "spin" continues to be used from an old and out of date play book.

It's also amazing to me how, after all these years, people still buy into this seemingly persuasive argument.

Cynically yours

Fib

[da_cheif]

FIB...why u ol koot......i thought i was the oldest one around here.....snort

[TTHQ Staff]

I've been doing this for 30 some odd years and still it fascinates me ...

Fib

I think Sy Harding has a few years on you, you old Fibber.

[nimblebear]

Those latest inflation numbers make it virtually a guarantee that the Fed will hold rates unchanged at next week’s meeting, and will reiterate the warning that it is still more worried about inflation than about the slowing economy.

Agreed. In fact, it's a foregone conclusion based on the FED's behind the scenes activities.

Oh really? So, it wasn't the price of petrol artificially moving .75 higher during this same time period; nor was it the record cold weather that kept many from venturing outdoors (no less making it practically impossible to transport goods which drives prices higher because of supply and demand);
Please...

[mss]

FIB...why u ol koot......i thought i was the oldest one around here.....snort

I'm older than both of you. Been at it from 1953, lightly and heavy from 1960.
mss

[jjc]

Those latest inflation numbers make it virtually a guarantee that the Fed will hold rates unchanged at next week’s meeting, and will reiterate the warning that it is still more worried about inflation than about the slowing economy.

Agreed. In fact, it's a foregone conclusion based on the FED's behind the scenes activities.

Help me out here fib. Are you refering to the Repos? Could you explain further?

[da_cheif]

FIB...why u ol koot......i thought i was the oldest one around here.....snort

I'm older than both of you. Been at it from 1953, lightly and heavy from 1960.
mss

u over 80?

[airedale88]

FIB...why u ol koot......i thought i was the oldest one around here.....snort

this yr marks 30 years for me. i remember the 1st cold call from the boiler shop i joined.

[mss]

FIB...why u ol koot......i thought i was the oldest one around here.....snort

I'm older than both of you. Been at it from 1953, lightly and heavy from 1960.
mss

u over 80?

No, over 72, got interested in the market when I got out of high school. Bought 50 shares of Penn. RR and never looked back. Got out of college '60 had a starter portfolo of $10k+ with GM, GE, RCA all in small amounts. Don't have any of them now, all other "stuff".
Used to read some of your writings (never a sub) once in awhile, still do your postings.
mss