Promises Promises

There are several items in the news today, Bush’s speech on New Orleans tonight, CPI this morning, jobless claims among others. Which of these deserves some attention in a market blog? Well, the CPI, being up 0.5% or about 6% on an annual basis, is swept under the rug by referring to the “core” rate at 0.1% which was below expectations of 0.2%. The CPI was not lost on the bond market, however, as it dropped enough to notice even in this boring market. The jobless claims out this morning were well above expectations but that was discounted because the increase was due to Katrina.

That leaves us with the Bush speech tonight. I don’t really want to discuss what we should or should not do for New Orleans. I just listen to numbers like $200 billion and think it’s a big number. The market needs to assess how that kind of aid will affect the future direction it may take.

In this country we already have a sea of debt so I suppose another $200 billion can’t hurt too much but I think the market might not think that way. The catalyst to drive this market down could be something that is just enough to push it over, the proverbial straw that broke the camel’s back. The weight of borrowing this much money to pay for the relief effort in New Orleans is certainly something the bond market was not counting on just three weeks ago.

If the bond market falters during this “financing” period, or call it credit expansion, we will see the scenario mentioned in these pages many times. Interest rates go up and housing prices finally turn down. We have already seen the housing market kind of flatten out and we have been watching that high in the bond market set the first week of June. That high is still standing as a barrier to lower interest rates.

We can’t help but think about the big Fed meeting next week and what might be deliberated there. Would they consider pausing in their rate hikes due to the speech tonight and the incredible amount of money that will need to be borrowed to pay for the rebuilding of New Orleans? The inflection point may be upon us.

There are so many things falling into place for a drop in the stock market. Yesterday we saw the break in the NASDAQ up trend line. We can’t forget to mention Gold tonight since it pushed to a 17 year high during trading today, that on inflation expectations, imagine that. We have been calling for a lower market in October and feel that is almost inevitable with everything going on right now. We hope you are positioning your portfolio to sidestep the coming drop.

Have a great weekend.

Dow Industrials: 10,558.75 +13.85 (let’s see, yes it’s in the 10,500’s again)
BGEIX: 12.78 (nice, now up over 30%)