Open Thread
If its Saturday nite, then its time for an Open Thread.
The questions before you: Is a pause a done deal? I think the Fed may surprise many with a hike and then a change in policy statement.
What is the market resposne -- is there still a Summer rally out there to be had?
What say ye?
Saturday, August 05, 2006 | 08:04 PM | Permalink
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Comments
No summer rally maybe a backtest of NDX 1600 and more down into Sept\October, then a rally.
30y treasuries have carved out a good bottom and other than maybe a backtest I think that price is going higher for the 30y giving stocks some relief.
As a result I give the Fed one more hike a change in statement suggesting a pausing policy with room to move rates up or down at whim.
Posted by: AnderL | Aug 5, 2006 8:44:09 PM
The global central banks are acting in unison to remove liquidity from the market, and there actions are slowly causing volatility in the global markets. Focusing on Tuesday misses the bigger picture that liquidity is being taken out of the market. I think that the Fed has to raise rates on Tues if they are to have credibility going forward, inflation has only gotten more momentum and any perception by the market that the fed will be soft going forward will only embolden the leveraged specs. Either way, expect volatility going forward...
Posted by: Heuni | Aug 5, 2006 8:46:55 PM
September/October bust, major declines 25% possible in all the major indexes as correction begin to nearing housing led recession in 2007. Economy will show "surprising" weakness this fall leading the way down.
FED will hike again and said they are done essentially..........for now. It will be bland and to the point without much cluttering.
Posted by: Cherry | Aug 5, 2006 8:48:39 PM
I think its a hike and a mention that inflationary pressures should ease as economic growth wanes. I dont agree with the them and really dont like how they are calling a top on inflation. There is scant evidence of deflation brewing. I also think they should be mindful of the fact that the dollar seems acutely vulnerable.
Posted by: James | Aug 5, 2006 8:52:15 PM
I say that there SHOULD be a hike, not a Pause! The BoE, ECB and even the Russians all raised rates- we have to be able to roll over debt to stay afloat since we can't actually pay it. The only way to sell it will be to eat the discount which only works for a short while.
But I think that what we'll actually see is a Pause! anyway because I suspect that pimco got the inside scoop. The market will go wild for exactly one hour, then sell off thru the close. And keep selling off the rest of the week as it finally dawns on the bulls that this is not a Good Thing, it is a harbinger of some bad times to come.
Posted by: whipsaw | Aug 5, 2006 8:57:24 PM
I guess you could say we are already having a "rolling bear move" of sorts. Many groups(online retailers, oil drillers, home builders) have been hit pretty well.
Others, like the major brokerage stocks, and many of the ETFs(especially the foreign ones), hang in there as great momentum plays back to the upside.
So I guess that we could go back up another 3-5% in the next 30 or so days.
What bothered me more than anything this week was the huge drop by UPS when it reported. This stock is an informal barometer of the nation's business, coast to coast. And if you look at its chart, it doesn't look like it has finished its descent.
The long drops in AMZN and EBAY appear to mirror UPS' bad luck.
I fear that the economy is contracting far more at this very moment than anyone really imagines, regardless of what the Fed the does. The two year cycle of tightening is hitting the economy like a slow motion train-wreck.
Here in Chicago, we experienced mild price appreciation in our real esate, relative to the coasts over the last 5 years; yet, the city and Chicagoland suburbs are FLOODED with new and existing product for sale. The Chicago Tribune reported last week that home sales here had their biggest monthly drop in over 6 years.
I just believe with the market internals(A/D line, and cumulative UVOL/DVOL) continuing to deteriorate, it will only be a matter of time before the fundamentals of the economy catch up with stock prices.
I am not a great short seller; I continue to wait for much lower prices, which may be months away.
Posted by: RickR | Aug 5, 2006 9:10:23 PM
I think Bernanke's comments have been less hawkish than other Fed members. Poole (non-voting) stoked the hike fears this week. But I'm going with Bernanke and thinking that he's the one to keep an eye on. Not these other Fed Freaks. No hike this time.
The market (SP500) has already made it back near the top of the summer trading range. Folks get more bearish the longer we are in this trading range. Check out the 50dma of the put-call ratio from May through July. This would suggest to me that if we can bust through, we have a lot of potential buyers out there.
I could list the Wall-o-Worry stuff out there. And I wouldn't be the least bit surprised if we went back down to the bottom of the trading range again. But I got aggressive near the bottom of the range and think that ulitmately we bust through and up to new highs in this bull market. So why try to get fancy?
Posted by: muckdog | Aug 5, 2006 9:17:22 PM
PIMCO (to use Barry's phrase) has a BIG dog in the fight. Don't take them seriously. I posted the para below on an earlier thread. Copying it here.
Bill Gross and his minions have been trying to talk the Fed into pausing for a long long time. I remember Paul McCulley on CNBC - right after Katrina hit - stating emphatically "The FED is done!". That was about six well deserved hikes ago. PIMCO's extremely large holdings of long term bonds gives them a big axe to grind in this context. I'd use that as a contrary indicator, if anything.
BTW Bill Gross and the other erudite economist at Morgan Stanley - Stephen Roach - also predicted, with no caveats, that the 10 year would yield between 3% and 4.5 %. This was made about a year ago. And the bond has spent very little time in that range since. Being well above it for most of the time.
Posted by: Bluzer | Aug 5, 2006 9:18:15 PM
To add to your PIMCO comments, Bill Gross commented in his monthly posts in late 2002 and early 2003 that stocks were done for a long time.
The guy has done so well financially for himself that I believe he has a hard time believing anyone else can possibly be right.
Posted by: RickR | Aug 5, 2006 9:40:34 PM
I'm still trying to figure out how to reconcile Stock Trader's Almanac's saying 2007 should be a great year with the fact that the market is usually down after the fed stops raising rates. Any idea which trend is stronger?
Posted by: Becky | Aug 5, 2006 9:44:02 PM
Most likely a Hawkish Pause, next a Dovish Hike, Next a Hawkish Hike and least likely a Dovish Pause
Posted by: tyoung | Aug 5, 2006 9:48:46 PM
Treasurys seem to be asking for an easing in policy. I'd also note the banks have been very strong performers (BAC and WCF are at 52 week highs), perhaps anticipating a steepening curve?
No hike on Tuesday. I think the next policy action from the FED will be an easing and I believe it will occur before we exit 2006.
Posted by: S | Aug 5, 2006 10:07:33 PM
Lest we forget, Bradley model turned down this week and we have a jupiter, saturn, neptune T square working(a most significant and historical astrological configuration), not to mention the moon's declination and eclipse all at the same time. my model's say the market crashes the third week of august or soon thereafter. Summer rally? forgeddboutit. I am buying way out of the money sept oct nov oex and spx puts. Hang on gang, this could be ruff!
Posted by: farmerMoonBeam | Aug 5, 2006 10:13:16 PM
I will grant you that Gross has been wrong for a while and does have a heavy bias, but to be blunt I think he cheated and knows what the score is this time. But I don't think that it really matters too much in a directional sense for the market overall. Friday's exhaustion rally may have reflected the extent of buyer enthusiasm in any case.
Posted by: whipsaw | Aug 5, 2006 10:26:22 PM
a pause?
a hike?
it doesn't matter. this has all the hallmarks of a "sell the news" event. we saw the beginnings of it friday afternoon.
no one's impressed.
the market will be lower at the end of the week. (except maybe gold)
wall street has been whining about this for months, and now that it's here, the market reaction will be tepid, or at best you'll get a brief rally, which the smart money will be selling into.
if double digit earnings growth can't get the party moving, why would a rate pause in the midst of a economic slowdown spur a rally?
lol, and imagine what a hike would do... it's all downhill from here.
Posted by: m3 | Aug 5, 2006 10:46:19 PM
i agree with whipsaw that there should be a hike....i thought another.25bps was a dead cert a week ago but
i honestly can't predict at this point so won't.
Tuesday's not that far away....Let's just wait and see what uncle ben brings us.
agree with m3--it probably doesn't matter either way.
Question for all you kiddies....
I'm using oanda for currency trades....
Who do you kind folks use for options/futures/indices and how happy are you with them???
Posted by: brion | Aug 5, 2006 11:14:06 PM
There are many good theories outlined in the posts above.
What 'm3' said above sort of rings true. It does feel like a sell the news type situation. The chatter is exhausting.
Posted by: r | Aug 6, 2006 12:05:02 AM
I agree with Barry, fwiw = another 25bp and language that effectively announces a pause.
I just think the inflation stats have been too high for them to stop yet (even if I think raising rates is the wrong thing to do).
I would feel a lot better about the future if gold would tell us things were going to be OK. As it is...... gold just continues to flash: inflation!
Posted by: diva | Aug 6, 2006 12:35:46 AM
It's been a long time since the Fed faded the Fed Funds futures pits and threw them a curve ball. I expect them to pause and remind us that the economy is "moderating" but that they're watching ever-present inflation risks and could hike again.
I don't expect a rate cut until crude oil is trading below $65 and other commodities are falling.
Technical indicators show the market is short-term overbought:
% of NYSE stocks over 40 day moving average @ 70%.
New High/New Low Ratio @ 88%.
5 day and 14 day stochastics overbought or near overbought on most indexes.
Most indexes bounced off top of Bollinger bands.
Market also has unhealthy internals:
% of NYSE stocks over 200 day moving averages has only made it back to 56%.
Fosback's High Low Logic Index spiked to 1.60 in the first week of August.
NYSE advance/decline line bearish divergence.
MACD bearish divergences on SPX, DJIA, RUT, NYSE.
Posted by: Craig H | Aug 6, 2006 12:41:07 AM
I strongly believe they will raise rates & hence i'm thinking of going short the 10-year bonds & long the US$. The reason i'm taking this contrarian spread trade is: the 10-year has been rising for 6 weeks & US$ falling alot alongside a short on SPY.
With wages increasing YOY to 3.8%, big ticket orders for durable goods were stronger than expected, the ISM # was 78.5 vs 76.5 in June & the PCE also being above Fed's comfort level. All this points towards Fed raising rates, hence i believe 10-year bonds which have been rallying on thoughts of Fed pausing will have a rude awakening & on tuesday the aforementioned spread trade presents a good day trade, if all goes like i believe it will.
Yaser Anwar
http://equityinvestmentideas.blogspot.com
Posted by: Yaser Anwar | Aug 6, 2006 2:10:19 AM
Bernanke is a model guy. The minions in the bowels of the Fed are rerunning their economic models with all the latest data.
Based on the speeches, they are trying to determine whether future inflation is rising or falling. Future inflation is the key for the Fed.
Personally, I don't see inflation slowing down at all for a while. Over half of the items in the CPI are rising at >3% y-o-y. Energy passthrus have to happen. I just received my electric bill for July here in SoCal and saw that it had frigging *doubled*.
The real question is whether the Fed's models include asset-price inflation -- and the passthru to core inflation.
Usually academia is best at explaining events AFTER they happen. In other words, perhaps we need to go through the mother of all asset-price bubbles followed by uncontrollable stagflationb before economists at the Fed understand the mess.
We're gonna have to pay for Greenspan's asymmetric responses (fast to cut, slow to raise, and cut at the first sign of trouble.)
Posted by: WhateverMan | Aug 6, 2006 2:20:49 AM
With a 113,000 employment gain, which is now BELOW the breakeven point of 125-150k of new entrys into the workforce, We should see unemployment slowly rising and labor inflation easing.
But with more hikes "still in the pipeline" according to Bernanke's logic- That would cause new job creation to fall to about 100,000 per month which would be a soft landing and increasing labor slack at a controlled pace.
I say its a pause for sure.
They are willing to tolerate 2.75 core inflation for a while
The "comfort zone" is in ruins
Posted by: Steven | Aug 6, 2006 3:25:50 AM
whateverMan..i just got this months' Edison bill.....420$ dollars.
Four hundred and twenty dollars.
Completely dusted ANY utility bill i've ever had.
Posted by: brion | Aug 6, 2006 3:29:16 AM
Posted by: Craig H | Aug 6, 2006 5:58:46 AM
I'm looking for another 25 bps b/c of the reputation factor. While I think the Fed would like to pause or cut, Bernanke doesn't have the clout to pull it off yet. There's too much expectation among the public of inflation. And all those dollar denominated securities in the hands of trading partners need to be justified to their owners, nevermind new issues. Was it something like 23 central banks have hiked recently? Most notably the BoE and the ECB; even the BOJ is in on the action. The last thing the US needs is securities and currencies of other nations to pay better than the dollar. The data has been mixed as well, and better to err on the side of too much than too little lest he destroy his currency too early in his tenure.
Posted by: Khyron | Aug 6, 2006 6:00:50 AM
