The Patient's Improving, For Now

Saturday, March 24, 2007 | 09:26 AM


Kopin Tan has taken over the weekly Trader column duties from Mike Santoli:

"THE PROGRESSION OF ILLNESS FOLLOWS a typical arc: Symptoms surface. A diagnosis is rendered. Then comes a prescribed remedy and, possibly, recovery.

But for investors who had been fretting about the contagious spread of mortgage delinquencies, a benign economic prognosis from the Federal Reserve last week was all it took to feel sprightlier -- and drive up stocks prices. In holding interest rates steady at 5.25%, the Fed also dispensed with a customary threat to tighten monetary policy as needed. The famous phrase's conspicuous absence was interpreted, rightly or wrongly, as a willingness to begin cutting interest rates soon.

That mere whiff of a possible prescription was enough to send this patient into recovery. Stocks raced to their biggest one-day gain this year once the Fed statement hit the tape. The broad rally lifted all sectors, with financial stocks leading the way. Cash flow into U.S. mutual funds eventually topped $2.2 billion on the week -- the first time since July 2005, according to Banc of America Securities, that domestic-equity funds hauled in more cash than their overseas counterparts."

I had a few choice words in the column:

Whether the market's suddenly improved sense of well-being is warranted remains to be seen. Barry Ritholtz, chief market strategist at Ritholtz Research & Analytics, likens investors' clamor for a possible rate cut to "praying for chemotherapy."

"The Fed begins cutting rates for two possible reasons -- when it's apparent that inflation is no longer a problem, which isn't the case here, or when economic growth slows dangerously," he says. Steady inflation gauges and firm commodity prices -- crude oil is at a three-month high, and copper prices are up 12% this month -- suggest inflation remains a threat. So was Dr. Bernanke more concerned about the economy than he lets on?

You know what I think on this already . . .


The Patient's Improving, For Now
Kopin Tan
Barron's THE TRADER, March 26, 2007

Saturday, March 24, 2007 | 09:26 AM | Permalink | Comments (5) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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excuse me,this may sound like a dumb question.if excessive debt/credit is one of the major problems facing our economy, how will more debt/credit help? you would almost think that the fed and our gov. were trying to run this country in the ground.

Posted by: randy | Mar 24, 2007 11:17:53 AM

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