Tuesday, November 28, 2006

Big News Day, Slow Market Day

As we indicated in our last post, the news doesn’t matter so much as the market’s reaction to it.  On Tuesday, durable goods were reported Down 8.3% with existing home sales up slightly but prices recorded a record year-over-year drop and inventories were up to a 7.4 months’ supply, and consumer confidence was down after expectations for a small rise.  Durable goods orders were down the most since 2000 and “core” orders of capital goods fell for the first time in six months.  Orders for computers and related products were down a strong 25%.

As far as the housing numbers are concerned, we read the news that the national median home price was down 3.5% from a year ago.  The report said that this is the largest year-over-year drop since records have been kept (1968) and the guess was that it was the largest drop since WW II.  The realtors’ association (National Association of Realtors) said that last month was the first increase in sales in eight months and that sellers were starting to cut prices which, combined with low mortgage rate, was helping to spur sales.

Most analysts were scratching their heads on the consumer confidence figure because the job market is “so good” and the market has been rising.  The best article was from the AP quoting Gary Thayer, chief economist at A.G. Edwards & Sons, Inc.  He said consumers “are not feeling really good now…We are still positive on the consumer sector.  I think it will be a good holiday season.”  Isn’t it amazing?

Meanwhile, the stock market is meandering all day, crude oil is moving up, bond market is moving up (rates are going down) and the dollar continues to slide.  We think the picture is getting clearer for the stock market but there could come some significant clarity if the dollar weakens much more.  The Euro has been steadily advancing on the dollar and interest rates are still moving up in Europe.  Enter Bernanke…

The eminent central banker gave a message to the world today that he thinks the Fed may actually have to raise rates.  When the Fed decided to pause, it was trying to decide whether they had taken rates high enough or whether they needed to be edged higher.  (Sarcasm coming, just thought we’d prepare you.)  The Fed chairman would have us believe he and his band of bankers are going to be tough on inflation.  You don’t think his hawkish comments were meant to curb the dollar’s decline, do you?  We didn’t think so.  Please.  

We have said it before and we will say it again, the Fed is impotent right now.  They have left the party when they said they were going to pause.  Their idle talk is just that and in order to gain some credibility with the world’s markets both currency and stocks, they Have to raise rates.  We both know, and so do the markets, that they Can Not do that.  

The stock market did not give us much information on Tuesday but we expect more on Wednesday.  We would guess that the market would like to try another rally on Wednesday just to show it can but we don’t like its staying power.  

Dow Industrials:  12,136.45  +14.74
VIX: 11.62  (falls hard on a quiet day)
QQQQ:  43.77
RYVNX:   17.26
RYAIX:  21.66
RYCWX:  37.17
TLT:  91.15
BEGBX:  14.26 (dollar still falling)

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