Rumors abounded today that the Fed may be on the verge of tipping its hand by eventually releasing a plan for what conditions would result in a beginning round of tightening. If we have learned anything from the past, Albeit, the Greenspan years, when the Fed embarks on a tightening mission, it does it incrementally, usually a quarter point at a time on the key fed funds rate…We recently heard some rumblings from Paul Volker, a key inflation hawk, about the eventual need to reign in money supply after the recent flood with basically zero interest rates, along with the incredible amount of TARP money which was dispensed over the past 9 months..
Today, we saw what a whiff tightening can mean to the markets.. Higher interest rates equals stronger dollar…If that occurs, that would be bearish for commodity prices in general, but all of the gold bugs harping about 3000 an oz gold will look like a bunch of chicken littles.. All of the AM Talk Show hosts hoofing Gold on their ads will no doubt be doing some spin justifying why, in fact, their strategy to hold gold was and is and soon will be again, the best…
The reality is, however, that a strong dollar will take the wind out of gold and silver’s march to new highs. Period.
If that occurs, it will most likely happen after 2 or more quarters of 3 percent of more growth. Unemployment figures will not be factored in, I am afraid… This could well be a true Jobless Recovery… Where numbers and statistics come back, but industrial productivity, etc. etc, but the jobless rate will sit around 10 percent…
It will be interesting to see what mortgage rates will do, and how it will affect the rumblings of a recovery in real estate… Currently we are seeing more buyers, but the drop in prices has yet to stop. Many of these buyers, quite frankly, are playing the game of trying to catch the “falling knife”…If a house in Las Vegas has dropped from 300 to 180, whose to say that it won’t drop from 180 to 120? Only supply and demand with its invisible hand, will supply us with that all important fact.
Again, only time will tell….
In the mean time, trading opportunities will be there, not matter what happens. Catching these large macro economic moves will be the key to enjoying solid profits…My strategy is to look at the charts and watch the charts only… There are bullish experts and bearish experts, and like broken clocks, they are each right twice daily… I think its more important to catch the meat of the move in these markets, regardless of what your personal emotional opinions are about macro economic factors….
One thing for sure, the markets will be the first to hint at what’s really going on directionally with our economy…
Watch the price/volume action and that will be the best indication of where your market of choice is heading…
For the time being, it looks like we will hover around the 10000 level in the Dow through the end of the year. In November /Dec… we will be winding down the year… Once we have the beginning of holiday’s typically business and volatility goes bye bye.
T
he first of the year, however, in 2010, we should see some real fireworks in all these markets. We will be in the second year of the new Administration, we will have mid term elections, lots of economic data will be coming on line in the Spring… we will see what is the real state of construction and manufacturing in the US as the first 2 quarters unfold in 2010.
For the rest of this year, I would look for sideways to higher chop, and the big story will be the US dollar, and how it affects the price of Crude, indirectly it will affect inflation, and inflation will determine what the Fed will do about interest rates… Its like a giant game of mouse trap… The ball is rolling, we just have to look and see how its going to bounce around and affect the over all game.
Keep asking questions and making comments.
Have a great weekend.
Chris