Kb,
<What's interesting is that the Fed can cut 50 BP and have the market head south. That's a shocker to me. When the Fed did a surprise cut in January 2001 the markets skyrocketed.>
Roach has expressed my concerns in his latest column. IMO, one of his best commentaries yet! Link is available from prudentbear.com, or morganstanley.com.
I am not surprised about the market direction after the fed cut. In short, fed can't push a rope up a hill. Macro fundamentals remain weak (I know, you guys are focused on TA). I fail to understand how car sales might increase in a dramatic manner. Further, the big refi wave has already passed and I doubt the recent cut will cause any substantive changes in the macro environment. I fail to see a rationale that would justify many firms from risking a greater CapEx budget. If investments don’t immediately contribute to the bottom line, share prices are slapped hard! Aggregate demand may stabilize or decline, but I doubt it will expand in a dramatic fashion, a necessary condition for an advance of major averages. The failure of Europe to cut rates is also bearish.
Additionally, fiscal condition of most states is bleak. They will tax more and cut expenditures. Our state’s deficit is 3-4 times larger than this year’s shortfall and the tobacco settlement funds are no longer available. The story is not unique. Deficit spending, y-o-y, is not an option. Public and private pension fund stories have yet to unwind. The rate of increase for medical insurance may decline, but there are few signs of stabilization. In sum, the risk/reward for the broad market indices is negative. The challenge is to discover special individual opportunities that are unlikely to be affected by PE compression. It is difficult to swim against the tide.
Cheers,
whitepine |
