FOMC meeting: Long Post - my apologies in advance
I think it was BULL who asked for my put on this, and aftr I found a little time to go over the details, ther were a couple of interesting items. For one, with the mild winter, housing starts are ahead of schedule, although that is perceived as a shifting forward in the year and not seen as continued strength or trend. I'm not sure if I agree with that, as once a housing season starts, the building continues throughout the year until the winter slowdown, and is only tempered by early winters and drastic economic changes. The actual housing numbre may decrease as construction crews shift to commercial/governmental/institutiional jobs, but at that point the employment is still up and the Purchasing Manager's data is still showing growth, so as a leading indicator housing starts becomes less important.
As for the Asian economiccrises, it has either been overstated, or the real effect hasn't reached us yet. The second quarter should be telling. With th influx of European and Asian invstment to the US markets (stock and otherwise), the crises has surfaced more in the terms of stocks being beat up for earnings forecasts, although even that is lessening to some extent now. Even though Japan has been placed on credit watch, we aren't likely to see as cavalier reaction to it as in Indonesia. Still, there is a strong risk of deflation with respect to the asian issues, and that leaves the Fed in an interesting predicament. If the asian crises manifests itself, then the would need to lower intrest rates, but if it doesn't, then they would raise them. Since the Asian Crises started about 9 months ago, there doesn't seem to be much support for lowing them - one member said to lower it in the future, 3 spoke to raising it.
With the earnings up almost 4% we are starting to see some inflationary pressures. If it goes above that they will raise rates. However, we are in a narrow market right now, with a lot of volatility. My guess is that we will travel hoizontally for a bit, allowing earnings increases to provide less of jump and thereby help correct over valuations. Less traded sectors, as well as smaller and mid cap companies will start seeing some volume as the money gets put into less volatile, and less punished equities.
I examined the minor dips in the indices like Feb 27-28 and the one earlier this week and suspect that we will see several more of those in the near future.
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