Posts filed under “Federal Reserve”

The Longest 8th Inning in the History of Baseball

Back on June 1, 2005, Dallas Fed President Richard Fisher told CNBC:

“We are clearly in an 8th inning of a tightening cycle, and we have the ninth inning coming up at the end of June.”

The markets, which had already bounced off of their May lows, gathered themselves together over the next few days, and then made a new leg up. Many people credited that move to Fisher. It only was halted by the late August hurricanes in the Gulf, and the destruction of New Orleans. During the first week of this year, we again had “lift off,” similarly premised on the idea that the Fed tightening cycle was just about over.

This leads me to a question:

How much of the rallies during the past 12 months have been based, at least in part, upon the false premise that the Fed is nearly through tightening?

Long time readers of mine know that I believe markets rarely move in a this happened, so markets did that basis. The complex choreography of capital markets are far more intricate than many folks realize, hardly as efficient as most academics believe, and may be far more attuned to the rules of chaos than those of pure randomness.

Is the Fed “just about done?”  Given the recent jawboning from various Fed officials, I believe that is a premature declaration. Last week, Chicago Federal Reserve Bank President Moskow suggested that rates are “historically low,” that inflation was “creeping into the core” CPI rate. Further, he spooked the markets when he suggested that rates may need to “rise further beyond neutral” to kill inflation.

The consensus is evolving amongst various Fed officials that erring on the side of over-tightening is much preferred to letting inflation accelerate. New Fed head Bernanke may even “brush aside lawmakers’ calls for a pause” and “vow vigilance against inflation.”

Indeed, in a hardly noticed announcement, the FOMC changed the previously planned upcoming FOMC one day meeting into a two day affair. I hardly think the extra time is to welcome helicopter Ben to his new gig. Rather, it is more likely to discuss the increasing signs of inflation of the commodity, wage, and fiscal flavors. (Note, however, that I do not believe there is wage inflation).

It is my suspicion that more than a little of the Bullish optimism we have seen over the past 6 months has been incorrectly attributed to the Fed tightening cycle ending. Even more ironically, this regardless of the data showing that markets tend to slide when tightening cycles end.

To borrow from Dallas Fed President Richard Fisher’s analogy:

it looks like we are about to go into extra innings against inflation – again.

Category: Federal Reserve, Investing, Markets, Psychology

Chart of the Week: S&P500 (12 months), Fed Edition

Category: Federal Reserve, Technical Analysis

Connect the Retail Sales Dots

Category: Data Analysis, Economy, Federal Reserve, Retail

New Column: The Street Gets Inflation Threat Backwards

Category: Employment, Federal Reserve, Inflation, Investing, Markets, Psychology

Sourcing the Greenspan Chatter

This is the article that the Greenspan quote came from that popped the market today; I don’t know how accurate it is (holographic image?) but

Gold price riding high on fear of terrorism, says Greenspan
Leo Lewis, Tokyo
February 09, 2006
http://tinyurl.com/98gdp

Excerpt:

"ALAN Greenspan, who stepped
down last week as chairman of the US Federal Reserve after 18 1/2 years, has
blamed the threat of terrorism for the high gold price, in his first private
sector speech since being let off the leash of officialdom.

According to
members of his audience of international investors – watching a holographic
image in Tokyo as he spoke in New York – Greenspan said the high cost of gold
did not reflect inflation or the strength of commodities, but rather a fear
among investors of a major geopolitical conflict. There were people who believed
that a nuclear weapon could be detonated within five years, the former American
central bank supremo said.

The low probability of such an event occurring would not necessarily avert a
spike in the gold price, he added.

Greenspan went on to discuss a range of topics, including the problems
created by a lack of investment in refining capacity by the oil industry. He
said this failure by the oil majors meant that the era of cheap energy was
almost surely over.

The former Fed chairman is also said to have indulged in a moment of
self-criticism over the central bank’s failure to prevent the market bubble in
the late 1990s.

That may explain Gold’s $20 whackage yesterday, but what about all the rest of the metals and commodities?

Also, if you missed this, you MUST read it:

GREENSPAN SENDS MIXED SIGNALS IN FIRST DAY AT HOME
Former Fed Chief’s Inscrutable Statements Baffle Wife
http://www.borowitzreport.com/archive_rpt.asp?rec=1307&srch=

Its a hoot!

and on the chance the article disappears, I’ll archive it after the jump . . .

Read More

Category: Federal Reserve, Inflation, Investing

The Risk to Equities from Rising Rates

Category: Federal Reserve, Fixed Income/Interest Rates, Investing

Tools for Finding a Mortgage

Category: Federal Reserve, Real Estate

Barrons picks up “Myths of the Greenspan Era”

Category: Federal Reserve, Media

Once Fed Hikes Stop, Markets Fall

Category: Federal Reserve, Inflation, Markets

The Best Writings of Ben S. Bernanke

Category: Federal Reserve