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A Very, Very, VERY Strange Day-Cartoon Update
Friday was one of the strangest days that I have seen in the markets recently, because it was a day in which some seriously negative news was released without an accompanying bad reaction. The first piece of news regards the fed and it’s something I personally couldn’t agree with more, because it brings the idea of further rate cuts well into question. Further easing by the fed at this time would be a de facto tax hike on consumers because it would weaken the dollar and drive the price of oil well past $100/bbl. The potential hit from $100/bbl (or more) oil would only drag consumers and the overall economy down with the banks who were instrumental in causing the current credit problems with their greed and stupidity. Federal Reserve Governor Randall Kroszner said yesterday that, “the current stance of monetary policy should help the economy get through the rough patch during the next year, with growth then likely to return to its longer-run sustainable rate.'' The projection is exactly in line with Bernanke's Congressional testimony from last week. The speech was widely covered in the financial press and their conclusion was basically the same; further easing may not happen at all. And remember, the last FOMC vote was not unanimous-Hoenig voted to hold. That in itself should have signaled extreme reluctance on the part of the fed to lower rates in December. Assumng that Hoenig will vote the same way it appears there are at least two FOMC voters are aligned in the "hold" camp for the December meeting. Markets are not at all prepared for this possibility because another move in December is currently about 80% priced into the fed funds futures. The second piece of bad news came from the head economist at Street-God Goldman Sachs. Jan Hatzius, said “the likely mortgage credit losses pose a significantly bigger macroeconomic risk than generally recognized. It is easy to see how such a shock could produce a substantial recession or a long period of very sluggish growth.” He estimates that $400 billion of mortgage losses may force banks, brokerages and hedge funds to cut lending by $2 trillion. All of this came on top of bad reports this week from retailers, lousy guidance from economy bell-weather FedEx, a surprisingly bad number for industrial production and overall CPI at the highest level for several years. The very, very, [I][I]VERY[/I][/I] strange thing that happened on Friday was that the DOW and S&P GAINED on the day and wound up mildly positive for the week so my question now is how long the Plunge Protection Team a.k.a. the White House Basement Traders can continue to prop this up. Hell, even the perma-bull talking heads on CNBC are singing the virtues of defensive trades like Proctor & Gamble and utilities. SEC filings released this week revealed that Warren Buffet bought J&J and other health care stocks in September and if the Oracle of Omaha is indeed going defensive you can bet your bottom dollar that something’s in the air. So don’t be fooled by Tuesday’s dead cat bounce and Friday’s prop-up job. The bond, commodity and gold markets have this right. Or do you want to bet against Mr. Buffet? Until the carry trade/equity connection is broken (whenever that may be) as markets go bear carry trade pairs like GBP/JPY will depreciate, the dollar will gain on the high yielders and it will fall against the Yen which is exactly what has happened so far. And because commodities are priced in dollars, as this progresses further the prices of oil and metals will fall. The only pairs that haven't really moved are EUR/USD and EUR/JPY. Yet. The Bears will eat for Thanksgiving and they may slaughter the turkeys all week. Thanks for reading my post. I hope you use my blog occasionally, because I am posting what I feel to be some very pertinent news items there: [COLOR=darkgreen]Thenewstraderfx.blogspot.com[/COLOR] And I invite you to check out my trade room-for ten bucks a week it’s a pretty good investment. I’m chating there everyday. Contact [email][email protected][/email] with any questions you may have.
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