Pardon me for commenting, but I would be cautious in hedging against a down market if the Fed does raise interest rates. The key to safety is understanding the market's inflationary expectations: if the general opinion expects an increase in the inflation rate then it would welcome an increase -- and bonds might even rally. If it expects no increase in inflation, it would view an interest rate increase as deflationary overkill, i.e. likely to pause profit growth and drive reduce prices of cyclical stocks. You can work out the other patterns of expectations and their effects, but I think expectations are very diverse which accounts for the choppy market. If a fundamental Intel investor, you simply wait it out. If an experienced trader who can use stops and keep watch this is a great market, you can triple your stake in a day. In such a puzzling market, the Fed must watch not only wholesale prices, commodities, and currencies for signs of real inflation, but must also guard against asset inflation that has led to general overpricing of (large company) stocks. If Intel is fairly priced, then the average S&P500 stock (not to mention MSFT) is markedly overpriced, because the S&P 500 lacks the growth expectations of Intel. Greenspan does not want to kill the whole market, only cool the S&P500 (or the DJ30), so he taps the brakes lest the mid- and small caps, which are already suffering, hit the dashboard it. He will do nothing to earn the title of "Father of the Crash of '97" as Baker may have earned from the crash of '87.
2) the "yen carry trade" has everyone who can borrow at 0.5% in Japan borrowing as much as they can in Japan and buying U.S. bills, thus making a 5% spread. A significant rise in the U.S. bill rate would make this even more attractive and drive the $ up and the yen down even more. I doubt it will happen.
3) Intel is cash rich, owes very little, and has difficulty finding profitable uses for its cash. Its earning power is illustrated by its ratio of market to book value (~10), even though the book dramatically understands the value of its patents. If price cutting preserves market share and the long-term frachise w/o destroying competitors (just making them very weary) it is the best long-term use of earning power imaginable. |
