Monday, June 19, 2006

Fed Talks Tough Again

On Monday the stock market started out with a, well, let’s call it a whimper.  There was really nothing driving the prices at the opening.  About mid-day another Fed President, Atlanta based Guynn, called the long-term track of US budget deficits “unsustainable” implying inflationary pressures and implicating the government, not the Fed, for the problem.  This little speech did seem to put a bit of a dent in the otherwise dull day.  The market fell, with the Dow dropping about 70 points by the end of the day, ending below 11,000 again.  

Tuesday brings the first of several housing reports over the next couple of weeks.  This one is the May housing starts which were down 7.4% last month.  The sentiment on new home builders, measured by the National Association of Home Builders’ index for sales of new, single family homes, fell to a low point in June, the lowest since April, 1995.  The housing starts falling would not be a surprise to very many traders.  Likewise next week’s reports on home sales should be weaker but again these numbers may be baked into the market’s prices.

We find very little new to add after Monday’s trading except that the pattern of lower Monday’s generally is different.  The market seems to be waiting for next week’s news from the Fed.  The Fed seems bound and determined to Talk a tough game but do they have the courage to stay the course on higher rates.  We have said many times that the level of interest rates doesn’t mean the same thing it did twenty years ago.  Back in those days the Fed actually tightened up money to be tough on inflation.  These days, just the cost of money is going up, anyone can get a loan because there is plenty of money to go around.    

Be careful out there…

Dow Industrials:  10,942.11  -72.44
RYVNX:   22.29
RYAIX:  24.25
TLT:  84.19
BEGBX:  13.33

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