6/26/08

Economics

As I am sure you know, yesterday was Fed day. In the press release accompanying its decision not to raise rates, my bottom line interpretation is that it (1) lowered the risk of an economic down turn (our forecast), (2) raised the risk of mounting inflationary pressures (also our forecast), but (3) failed to tell investors which of the two carried that greatest risk, leaving unclear the strength of its determination to curb inflation.

I may be wrong but I think that in this lack of clarity will serve to keep investor uncertainty at an elevated level and therefore keep stocks range bound at best. Indeed, I think that the only thing that changes Market psychology is a break in oil prices and that l probably is not going to happen until (1) the dollar strengthens [which is not going to happen until monetary policy tightens], (2) the demand for oil [and other commodities] rolls over [which is probably not going to happen if the Fed is correct about the economy] or (3) the supply of oil [and other commodities] improves [if that happens it won’t be because of any help from our elected representatives].

The only possible positive to come from this Fed meeting is its view that the economy is improving which could allay potential investors fear and help negate one of the concerns I voiced in yesterday’s Morning Call--‘investors (may be) starting to believe that the economy is in much worse shape than I currently believe and they are revising down their earnings assumptions and valuations of stocks in those sectors that they had previously believed would be relatively immune to a slowing economy.’

Barry Ridholtz parses the Fed statement:

http://bigpicture.typepad.com/comments/2008/06/fomc-still-too.html

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More on ‘your tax dollars at work’:

http://www.powerlineblog.com/archives2/2008/06/020833.php

More on inflation:

http://www.realclearpolitics.com/articles/2008/06/resurgent_inflation.html

George Will on immigration policy. He makes an interesting point that by limiting the immigration of highly skilled workers, we contribute to outsourcing:

http://jewishworldreview.com/cols/will062608.php3http://jewishworldreview.com/cols/will062608.php3

May new home sales were reported yesterday; and they pretty depressing:

http://bigpicture.typepad.com/comments/2008/06/holy-snikes-new.html

fiscal profligacy (Government spending as a percent of GDP is too high and the looming explosion in entitlement expenditures will make it worse. There is no good solution save spending discipline.). GOP Senators vote for earmarks:

http://www.clubforgrowth.org/2008/06/gop_senators_kill_earmark_vote.phphttp

More chart porn on the open interest in oil contracts versus the price of oil:

http://mjperry.blogspot.com/2008/06/oil-prices-double-futures-contracts.html

Politics

Domestic

International War Against Radical Islam

The Market

Technical

Three things happened in yesterday’s trading:

1) once again neither the DJIA or the S&P went anywhere which brings me back to one of the conclusions from Wednesday’s Morning Call: ‘both the DJIA and the S&P have barely rallied since they hit the lower boundary of their clearly defined May to present down trend; the longer we go without a rally, the more likely we are to have more to the downside’,

(2) intraday the S&P traded above the lower boundary of the 1982 to present up trend as well as its April 2008 low, but failed to close above either; as I have said several times, the longer we go without the S&P recovering above those levels, the more likely that we need to look for lower points of support--in this case, it would be either the lower boundary of the May to present down trend or the January 2008 low. This also suggests down side price risk,

(3) most of the stocks that were whacked hard in Tuesday’s Market and raised some of the concerns I expressed in Wednesday’s Morning Call rebounded nicely. It would appear that the ‘random occurrence’ scenario most adequately explained the ‘unexpected peculiarity’ of our stocks’ performances Tuesday.

My bottom line: confusion. While I am heartened that our holdings’ Tuesday performance appears to have been a one day affair, I don’t think the Fed did anything to lessen investor anxiety and the technical action of yesterday’s Market is worrisome. So our Portfolios are going to stay on the sidelines for at least one more day.

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Data on investment strategists recommendation for stock allocation in portfolios (its an inverse indicator):

http://bespokeinvest.typepad.com/bespoke/2008/06/recommended-sto.html

Short interest on the S&P continues to rise:

http://bespokeinvest.typepad.com/bespoke/2008/06/sp-500-short-in.html

Fundamental

The latest oil inventory data versus historical averages for this time of year:

http://bespokeinvest.typepad.com/bespoke/2008/06/energy-invent-1.html

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Mastercard

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