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October 27, 2006
The equity rally may lead to Fed rate cut, Fri., Oct. 27, 2006, 4:48 PM
I suppose the good news is that as long as rates stay high, we've got some time to distribute stocks, and do the research for when the equity market next hits an Accumulation Zone.
Merrill Lynch says: "Expanding asset prices should weigh against lower yield prospects," which is just a good way of saying that Paulson needs Bernanke to cut rates in order to save the housing industry and the U.S. economy from going into recession so early on his watch, so he (Paulson) is helping pump the equity market today so that his colleague (Paulson) can start cutting.
I think they both know what happens when rates get cut. And if we were watching closely from 3Q00 through 1Q03, rates were lowered in lock-step with equity prices, and after that when equity prices started rising, the Fed was able to lift its rates.
As to rates rising again, I think that the Administration and the Fed will let precious metals start to fly and equity prices of the techs and financials lag before raising rates " in order to save the homes of the average Joe.
If middle class America are put out on the street, or the prices of their homes sag well below the water mark, I can't imagine them working too hard at their jobs, and that's going to affect things like productivity, taxes, and the like.
I think the public will take inflation ahead of deflation, and so that's the way I'm playing it.
In any case, here is today's Merrill Lynch discussion on rates. Download ML Oct 27 report on trading treasury rates.
The segue to Larry Kudlow: he says -- "I'm here to tell you Goldilocks is alive and well."
I told you Larry is always good for a laugh. But, I think he ought to stop reading children's books. (lol)
Posted by Posted by Bill Cara on October 27, 2006 04:48:41 PM | Category: Bonds
Discourse
The short term rate weekly chart failed to breakout this week, although it looked like a layup tuesday night. It was really close, though:
Several stocks I follow had been threatening to breakout, or did so earlier this week, only to wither up in the latter part of the week and close below their breakout pivots.
Based on todays GDP report that rate cut may come sooner than people expect...
"Excluding motor vehicles production, real GDP was up at just a 0.9% annual rate in Q3 after 3.0% in Q2"
Posted by: Tradesman ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
October 27, 2006 9:00 PM [link]
Auto production numbers were bizaree, not? 26% increase?
But you see the "resilience" of the American consumer. As long as the stores have their lights on, we will spend. It will take some headlines (1.6% GDP, layoffs, unemployment over 5%) to reign us in.
I don't think much risk will be priced in to this market until the fund managers can write up 3Q results. Today was a start to the end of the insanity. 4Q rebound? Not likely. I think it'll be worse and as Bill has pointed out in serial posts, my belief is that David Rosenberg has it closest on how this comes out. I do believe however that the Fed will fight his scenario tooth and nail and we run the grand experiment of trying to repeal the business cycle. That will just draw things out, create some more imbalances and set us up to fight another bubble another day.
Posted by: MarkM at
October 28, 2006 7:30 AM [link]
Roubini's been bearish for 2 years but his calls lately are right on the money:
That's the way I have it also. Rally into year end, sell off into April/May for cycle low. A November ST low should develop first.
Posted by: MarkM at
October 28, 2006 5:35 PM [link]
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BTW have you seen these new "spend-to-save" credit card solicitations?
Are you kidding?
To what lengths are these "snake oil" credit issuers permitted to go, and, in reality, when do they realize that the con will actually come back to bite their asses?
How stupid is the idiot that believes that this is a "savings" instrument, but how much more foolish is someone to offer credit to such an idiot?
Posted by: Rigdon![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
October 27, 2006 6:16 PM [link]