Posts filed under “Federal Reserve”

The Bull Case

“Know the enemy and know yourself; in a hundred battles you will never be in
peril. When you are ignorant of the enemy, but know yourself, your chances of
winning or losing are equal. If ignorant both of your enemy and yourself, you
are certain in every battle to be in peril.”   — Sun Tzu (Chinese military
strategist, "The Art of War," circa 6th century B.C.)


The Stock Trader’s Almanac laid out the Bull’s case last week:  Jeff and Judd are fairly Bearish into year’s end –they are looking for Dow 8500 — but they like to occassionally switch things up, and change perspectives. Its a good mental exercise, and can often be revealing.

Those in the Bearish camp — I call them (us) realists — need to do a few things prior to putting on their Bull tinted glasses

"Suspend your belief that we are in a bear market. Ignore the fact that we are
in the worst six-months of the most dangerous section of the presidential
election cycle. Discount the inverted yield curve, the fact that we haven’t had
a serious recession in decades and the fed resembles a rudderless ship adrift.
Accept that the housing market is going to have a “soft landing”. Forget about
the missiles flying in Iraq, Israel, Afghanistan and North Korea."

OK, got that?  Now you are good and bullish — and here is why the real Bulls think you ought to stay that way:

1) Corporate earnings have been good and no major company has had significant
earnings warnings so far. As long as the corporate balance sheets remain strong
the markets will push forward.

2) Iraq is not as bad as the media makes it out to be. Oil production is up
and the US has accomplished a lot of good things that don’t get reported. The
Bush doctrine may still prove successful and if it does, stability in the Middle
East will follow.

3) The economy is strong and inflation is in check. Moreover, the
Greenspan/Bernanke measured rate increases may slow the economy perfectly just
as it did in 1994-5.

4) This economy has weathered unbelievable shocks and has come out of it
relatively unfazed. The market has grown callus to hurricanes, war, terrorism,
energy prices and scandal to name but a few. Geopolitics and crisis no longer
impact the market as it has in the past.

5) The US consumer is inexhaustible. If $70+ barrel oil hasn’t changed
spending habits nothing will. Americans are rich and will stay that way.

That is the Bull case. If you agree with these 5 items, you should be long; Hell, you should be leveraged long. For those of you who disagree, you should be neutral at best, short or leveraged short when the time is right.

When should you become Bullish (for real)?  Most likely, according to Jeff & Judd, when we pull our stakes and set up in the Bull camp, (and most likely will be in the
minority again).


Stock Trader’s Almanac
June 20, 3006

Category: Earnings, Economy, Federal Reserve, Investing, Markets, Psychology

NFP: much ado about very little

Category: Employment, Federal Reserve, Real Estate, Wages & Income

Ignore Inverted/Flat Yield Curve at Your Own Risk

Category: Data Analysis, Economy, Federal Reserve, Fixed Income/Interest Rates, Markets

1/4 point, or . . . ?

Category: Federal Reserve

CPI Null Set (via The Economist)

Category: Data Analysis, Federal Reserve, Financial Press, Inflation

Call to ARMs

Category: Federal Reserve, Inflation, Markets, Real Estate

The Return of Abelson

Bol_logo_top_page_05"AS WE WERE SAYING BEFORE WE WERE SO rudely interrupted by a man dressed in a white smock and wielding a scalpel (thank heavens he left his box-cutter at home), the stock market looks a bit worse for the wear."


So says Barron’s Alan Abelson, usually one of Wall Street’s most visible Bears. Just his luck — or was it the Trading Gods having some fun? — that he managed to be out of service for the most bearish period in 3 years. Traders, being a superstitious lot, will soon be begging Abelson to "let us know the next time you go in for a procedure" – so they can get short.

Regardless, whatever the  man dressed in a white smock removed, it wasn’t his arch sense of humor or acid tinged tongue:

"The impact of the massive disturbance was global in every sense: Not only were its terrible tremors felt far beyond the narrow canyon of capitalism in lower Manhattan, but they commanded notice in quarters much loftier than trading floors or commodity pits. We’ve not the slightest doubt, for example, that what prompted the famed cosmologist Stephen Hawking early last week to urge earthlings to create settlements in space was, pure and simple, fear of the effect of crashing markets on the human race."

But the key to Abelson’s return is his clear eyed take on inflation, which comports squarely with our own views:

"FOR OPENERS, OUR HUNCH IS THAT MR. BERNANKE’S concerns about inflation, despite his mucking up the message with all that rubbish about inflationary expectations, have more than a modicum of merit. And our conviction on this score is only strengthened, of course, by the fact that so many pundits pooh-pooh inflation as a problem. Indeed, if anything, we fault the chairman for his evident sympathy with the argument that the fearsome upward spiral in the price of crude, so far, anyway, hasn’t been exerting all that much impact in the economy at large.

Apparently, Mr. Bernanke, like his critics, needs to get out more. Oil is a very sneaky commodity. Our old friend and revered Barron’s contributor, Abe Briloff, likes to describe certain stealth accounting practices as comparable to a bikini: what they reveal is interesting, what they conceal is vital. Oil is something like that: Its uses are readily manifest, but it plays a far bigger and more critical role in our lives than is easily perceived.

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Category: Federal Reserve, Financial Press, Inflation, Investing, Markets, Psychology

Much Ado About Nothing

Category: Economy, Federal Reserve, Inflation, Markets

How the Fed Chief Gains Credibility

Category: Federal Reserve

What Happens if Inflation Is Overstated?

Category: Data Analysis, Economy, Federal Reserve, Inflation, Markets, Real Estate