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December 12, 2005
Sunrise on a hot capital market, Mon., Dec. 12, 2005, 8:32 AM
My day today started over five hours ago, but the sunrise is now behind me, and the markets are ready to rally.
Dow equity futures are +32, and Gold is up $10.
I note with interest that Bank of America Securities has raised the asset allocation for bonds by 5 pct to now 20 pct. They also say that the large cap equities are looking better as PE multiples have become more attractive this quarter. But, in the words of the CNBC anchor, they are not ready to put their money where their mouth is.
I wonder why not. :-)
Could it be that today's hot market just might be ready to take a vacation? The rallying cry on Wall Street seems to be that the Fed is now going to ease up on the tightening process. LOL. I guess that means the Treasury Dept and the Fed have accepted a lower USD is in store for America, and those precious metals are really going to have a big run.
The one thing new to me is the realization that the Treasury has to print new money to meet the bills of government as they come due, and the Fed has no option but to talk down rates at the same time they increase them.
I say; leave the short rates where they are, and let the long rates rise. Then the mortgage holders can roll over in cheap short-term mortgages without having a housing market bust. The rising long-term rates are going to reflect a stronger economy and rising inflation, but what's to worry. Corporations will return to capex programs by retaining the cash they are presently dividending out or using to buy back shares. And later if they need to raise more capital for capex, rather than borrow it from banks at high(er) rates, let them issue more shares, at higher stock prices.
I think it's time to finish a program of adjusting global currencies, and get on with building wealth. There is nothing wrong with today's inflation rates, or money supply growth rates, as long as real wealth is being created. There are plenty of opportunities to do that.
But we all have to stop saying there is no inflation, when there is. We have to stop saying that the jobs being created are terrific when engineers and well-educated graduating students cannot get career-type jobs.
We can start by letting the commodities markets go to where they will collapse from too much speculation. That will bring down all equity prices for a sharp pullback, which may slow economic growth somewhat, but it won't stop it.
Worrying about hidden agendas in Washington and competing capitols will continue to hurt the economy, and the capital market. It's time the capital markets and the global economy took precedence to political gamesmanship.
As I see things on this crisp, cold morning, overlooking Lake Ontario, anyway.
Posted by Posted by Bill Cara on December 12, 2005 08:32:15 AM | Category: Cara Today in the Market
Discourse
It has been my belief that the fed would continue to raise until something breaks... I just think that the housing market will break sooner than most believe. By mid 2006 many adjustable rate loans will put the pain to speculators and 2nd home owners. Prices appear to flattening now. As the average home owner (with a mortgage) has 25% equity how much of a dip can they take? I actually found that number to be amazing- the naverage home has risen 100% in value in 10 years and the smucks have pulled it all out and spent it.
To avoid a housing wreck the fed could stop earlier. THAT would be huge for gold I believe.
So I continue to hold gold but am increasing my treasury exposure as well.
Posted by: stockman ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
December 12, 2005 9:08 AM [link]
I'll bet that a moving average of non-seasonally adjusted, non-core CPI would show significantly higher inflation but a moving average of PPI would show it even more accurately I think.
-RW
PS: Try saving your images in JPEG rather than GIF format. GIF is great for graphics but even at higher resolution doesn't handle full color well (pixels drop out, the 'frosting') and the file size tends to be too large. At lower resolution (72 dpi), even high image quality JPG files will be much smaller in size and reproduce color much better. There is no reason to save JPG at higher resolution (150 dpi and up) and/or highest image quality unless you plan to print them.
Posted by: RW at
December 12, 2005 9:26 AM [link]
...here I was thinking that Bill had captured a pic of an incoming Gold Dust Storm and now I find out it is just Pixie dust :-)
Posted by: RedDog at
December 12, 2005 10:02 AM [link]
Doug Kass (Seabreeze Partners)- "Considering Some Gold Shorts Today;Late last week I initiated several new short positions, including Phelps Dodge (PD)."
Now I can see someone lightening up, or staying sidelined; but that just sounds suicidal to me.
When gold went parabolic in late 1979 that move was very fast and deadly if one was short:
Posted by: stockman at
December 12, 2005 10:14 AM [link]
stockman-
Well, it has definitely entered the crazy season and he probably thinks that the potential fall from here is bigger than the rise. So do I but I realize I may be wrong so I am mostly on the sidelines. See you guys in the Spring.
Posted by: MarkM at
December 12, 2005 11:36 AM [link]
All-
Look at this from ADVFN:
"Yu Yongding, a Chinese government economist and chief consultant to the central bank, told Market News International that China must reduce accumulating dollar-based assets, and also cut its existing holdings."
Bill, care to comment on this? This is BIG.
Posted by: MarkM at
December 12, 2005 12:21 PM [link]
Mark, re comments of Yu Yongding:
(1) Not likely to be reported unless authorized by Mr. Joe
(2) Probably true if PBOC is worried about interest rates in China lifting due to domestic inflation problems
(3) Would weaken USD against Yen, making net imports by China from Japan more expensive, therein establishing a good reason to revalue the RMB higher. A higher RMB would alleviate pressure on Mr Joe to raise rates in China
(4) Would make Wal-Mart purchases from China more expensive, as USD would be devalued unless other foreign investors would step up to the plate to buy U.S. debt
(5) Would give the U.S. Administration a whipping boy (other than "inflation") for the forthcoming lift in interest rates under Bernanke
(6) Would really help gold and in fact all metals as a higher RMB would create greater buying power for desired metals and precious metals
(7) Would serve as a significant force against U.S. economic growth, probably pushing the domestic economy closer to recession, if not all the way in
(8) A lot more...
Posted by: Bill Cara at
December 12, 2005 12:49 PM [link]
Bill-
Well, thinking geopolitically, China needs to address its needs for inputs. If they are soaring(price and demand) then strong RMB helps out a lot. Feds HAVE to tighten and I foresee 5.5% rates mid year. So.... along the stalking horse line, here is perfect cover for what needs to happen. MONEY AND POLITICS =THE GREATEST GAME.
Posted by: MarkM at
December 12, 2005 1:02 PM [link]
The Fed is going to keep tightening, sure as shootin'. That whole "story" about language change by the Fed meaning it was going to LOOSEN is a crock. I read the minutes and the language and it didn't hint one way or another. All it said was that a language change might be necessary in the future. That could mean RESTRICTIVE not ACCOMODATIVE as well. The unfortunate part was that the discussion followed the note about SOME members warning about going too far. Well, they should given Fed history. But there was no mention that they thought they had gone too far ALREADY. Games, games, games by the Shills and Mountebanks.
Posted by: MarkM![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
December 12, 2005 8:49 AM [link]