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Pastimes : The Philosophical Porch
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From: Rarebird11/6/2006 9:36:52 AM
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Market Fragments:

Friday's Employment Report reveals that the economy is growing faster than its potential and that the Federal Reserve will need to raise interest rates again in the future. But the yield curve is still inverted. It's likely the bond market made a mistake thinking the economy was headed into a recession. The yield curve should now return to a positive slope where long term rates rise faster than short term rates.

One way to profit from rising rates is to buy RRPIX, a mutual fund from Profunds, which gives leveraged exposure to the 30 year bond. "The investment seeks daily investment results that correspond to 125% of the inverse of the daily movement of the most recently issued 30-year U.S. Treasury Bond."

If the 30 year retests its recent highs, it would represent an excellent opportunity to buy RRPIX.

Based on the Employment Report (and previous revisions), the Market can now look forward to no recession in 2007. For the market to rally from these levels, earnings will need to rise faster than interest rates rise. This can happen but not for long. The Russell 2000 and the Nasdaq led the way on Friday as traders engaged in a repricing process. Safe havens are less desireable in this environment.

I'll be watching closely for signs to see strong hands accumulating equities to give a signal that it's time to buy back in. The next big move in stocks is likely up.

Copper stocks like FCX and PD have been rallying lately. That is a great indicator of further economic strength into 2007.
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