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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (4357)	4/14/2004 6:33:17 PM
From: mishedlo	Read Replies (3) \| Respond to of 116555

First off, I am nearly positive we do not see three hikes. I am not even sure we see one. Let me be firmer. I doubt we see even one. If housing cools, China cools, and consumer confidence cools, we will not see one. That might seem like a lot but is it? Let's take a look at what has caused this treasury selloff. The CPI went up hugely because of oil and fertilizer. All those have to do is stabilize here for them not to be a factor. March consumer spending was up because of two reasons IMO. 1) tax refunds 3) another huge round of refis off that last treasury rally. Was that the last hurrah on refi's? I think so. Corporate tax stimulus has run its course. The fear of a hike combined with the various headwinds of stimulus's running out may cool things off quite a bit. On this latest pullback this month in metals etc (assuming it sticks), what do you think CPI/PPI will look like next month? I say they show a decrease (perhaps not really but probably the way this govt calculates them) Now the biggie. Will we see a repeat 300,000+ jobs next month? If that falls to 120,000 or so and the CPI is tame, I doubt we see a bias change from the FED. Treasuries have a ton of room to fall before we would see any more refis, and if housing slows in the meantime kiss any thoughts of a hike goodbye. Yes that is a lot of IFs, but IMO a lot of likley IFs. I will guess much tamer CPI and PPI next month is an easy bet (but I hope expectations for a another big one get priced in). Jobs are much tougher but personal experience says jobs are not easy to find. ng. I also think all we are doing is creating part time jobs. I would like the FED to clarify they are looking for WAGE growth not just JOB growth as the determining factor. Greenspan and Broaddus both speak this Friday. Greenspan is likely to be as clear as mud but perhaps he or Broaddus will clarify that situation. Consumer confidence is another factor. This is a tough read because CC does not always translate into actual spending... but something sure happened. High oil prices, the war finally getting on peoples nerves? whatever. I would expect at least a slight pullback in spending as a result. Finally lets look at the over-reaction (BOTH WAYS). This is where I blew it. There were warning signs for sure. The market priced in zero% chance of a rate hike this year. That was a warning signal to take it all off the table. I did not pay attention but I will the next time. But let's take a look now.... The futures have priced in 3/4 of a point hike between now and december. With this FED, with all the uncertanties that I mentioned above: Jobs, wages, CPI, PPI, consumer confidence, a FED that has given excuse after excuse for not hiking and is loathe to do so, etc, what is really more likely, 3/4 or 0/4? All of those things add up to no hike, or a very cautious set of hikes starting in August with 1/4. If the market falls to pieces and housing slows off on that (quite liklely IMO) that could be it already. Rememeber this FED does NOT want to repeat the mistake that it thinks japan made: premature hiking thinking it was "safe" and deflation was over. This FED will err on the easy side until it is positive on multiple fronts IMO. If anyone has different ideas let's here em, but that viewpoint has been a winner for quite some time. Just as Bulls got too cocky last summer and again just recently, treasury/eurodollar bears are being setup once again in a situation that has been their undoing many times. Mish