Monday, May 02, 2005

All Eyes on the Fed

Tuesday the Fed makes its announcement of the funds rate along with a statement that will be carefully scrutinized by the market participants. To me, the market seems to think it's a foregone conclusion that they will raise rates 25 bps, as previously mentioned in the Wednesday Update; but, their statement could be a catalyst for the market, one way or the other. My take tonight is that this week the market wants to move up and it will after the announcement. Between tomorrow's announcement and June's announcement there will be significant time for the market to draw another conclusion, a much more bearish one.

The Fed needs to continue to prop up the dollar and not scare the stock market (at least that's what it appears they want to do, who knows for sure what they think they need to do). By raising rates and hoping the whole yield curve moves up, the dollar can continue stronger. The fore warning they have given to raise rates has given the participants ample time to unwind any problem carry trades but at the same time the yield curve is flattening, to the dismay of the Fed.

The other topic we will continue to mention here is the gold market. Today we finally saw some tightening in the spread of the gold and the HUI. (For more information on this topic, please click on the True Contrarian link.) For the first time in a while gold dropped more than the HUI and the HUI actually moved up into the close. This marks the first whiff of a buying opportunity in the mining stocks like PAAS. We still are going to wait but as we always say, you are the captain of your financial ship.

AIG was up today on news that the company seems to want to become more transparent and will shed about $3 billion in net worth. The market needed to be assured that something was being done to shore up confidence in the stock. Now what???

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