Today's article from the WSJ quotes the FED saying otherwise. I posted the article below.
The clock is ticking. Also the stock was upgraded this morning by two or three brokerages already, as far as I can see, two targets around 93 and one at 100. Not much of a confidence vote when the stock can get there at this pace in 4 days. Despite the upgrades, the stock is down now despite yet lower rates.
I think we are in for a "shocking" ending when rates jump. Not only homebuilders will get hurt, but a slew of other industries. Today many companies that support home improvement industry are fading after being on a tear. The word is that demand is not as robust. So with the largest backlog and only 15% of earnings being booked in Q1, I see TOL as having a decent amount of exposure to an interest rate rise or industry slowdown.
Today the stock is again the strongest in the group. There have got to be a lot of shorts waiting this thing out, which by its nature, is bullish, along with a bullish put/call ratio. This stock will likely flatten out and fade slowly unless there is a systemwide shock, something no one can time.
The following article is from today's WSJ
Fed Official Says Reference
To 'Measured' May Soon Go
By GREG IP
Staff Reporter of THE WALL STREET JOURNAL
February 9, 2005 8:20 a.m.
The Federal Reserve may soon need to drop its references to "measured" interest-rate increases and "accommodative" monetary policy, a Fed policy maker said.
As the Fed lifts interest rates from overly stimulative levels, it will be harder for it to know what its next move will be, said Federal Reserve Bank of Atlanta President Jack Guynn.
"You can imagine not too far down the road where some things in the statement aren't going to be appropriate," Mr. Guynn said in an interview with The Wall Street Journal Tuesday. "And we need to decide how and when to change some of that wording."
Mr. Guynn's comments highlighted an important challenge facing the central bank in coming months: how, if at all, to change its communications about interest-rate actions. Since early 2002, it has described its monetary policy as "accommodative," and since last May, has said that "policy accommodation can be removed at a pace that is likely to be measured." It then raised the target for the federal-funds rate, charged on overnight loans between banks, at each of its next six meetings by a quarter percentage point, from 1% to 2.5% last week.
The Fed felt confident it could use that language for two reasons. First, interest rates were well below "neutral," an undefined level that neither stimulates nor restrains spending, and clearly had to rise. Second, ample spare capacity and rapid productivity growth meant interest rates could rise slowly with little risk of inflation flaring up.
Those things appear to be changing. The funds rate is approaching the 3%-5% range of estimates of neutral, which makes the task of raising rates less urgent. On the other hand, the economy, by some estimates, may soon be back to full strength and productivity growth is slowing so there is less of a buffer against inflation.
Mr. Guynn suggested the federal-funds rate still needs to rise somewhat to fully reverse the easy stance of previous years. "If my expectations about the path of the real economy over the next year or so are [met], we still have got a ways to go," he said. Nonetheless, "If we stay on the path we're on and withdraw some of the accommodation we've had in place … we'll be at a point it's not quite as clear how much more we need to do and how quickly we need to do it." It thus won't be as easy for the Fed to say it will be "measured," or to say "how accommodative we are."
Mr. Guynn will vote at the March 22 meeting of the Federal Open Market Committee as the alternate for the incoming Dallas Fed president. He is not scheduled to vote for the rest of the year.
The Fed began using forward-looking language in 2003 as a way of aligning the market's expectations with its own. Its initial aim was to hold down long-term interest rates at a time of declining employment, pronounced business caution, and concern that low inflation could become deflation. It first said it could keep rates low for a "considerable" period, then that it could be "patient" about raising them, then that it could raise them at a "measured" pace.
Some officials initially worried such language could constrain the Fed 's flexibility if the unexpected occurred. Mr. Guynn said he was at first uncomfortable with forward-looking language. But "in hindsight I'd have to admit the fact we were able in our statements to give some [clue] of where policy was headed has turned out to be helpful … up to this point. It's helped financial markets and others be prepared for, and adjust smoothly, to what we've done so far." He said work by Fed governors Donald Kohn and Ben Bernanke "demonstrates it's probably reduced the volatility in financial markets around the time of our policy actions."
But he added, "the period we've been through has been unusual enough that we knew the direction and that we had some ways to go" on interest rates, "so it was easier to offer that kind of guidance." As the way forward becomes less clear, "sooner or later, and maybe sooner, some of the kinds of phrases we've got in the current post-meeting statement" need to be rethought.
Other officials have also said that at some point the Fed will drop "measured," although Mr. Guynn's comments suggest he'd like it happen relatively soon. The Fed is likely to be careful about doing so. Some investors may interpret it to mean the Fed is switching to half-point rate moves, even if the Fed 's intention is merely to give less guidance on future policy. Investors will scrutinize Fed chairman Alan Greenspan's testimony to Congress next week for hints of any change in communications.
Mr. Guynn said he is pleased with the economy's performance. He said consumers continue to contribute to growth, business spending is solid, unemployment is declining, and "inflation is low and steady. It's the kind of thing central bankers dream of."
He did see scattered signs of inflation pressure that he said are typical when the economy has momentum. Certain professional workers, like auditors, are in scarce supply, and some industries like truckers and railroads are able to raise prices. "That's the very reason that I, for some months now, have been saying, 'Let's be alert to this and get policy recalibrated.' If we do our job right, hopefully we'll never see broad inflationary pressures."
Mr. Guynn said the low level of long-term interest rates may reflect confidence that the Fed will keep inflation low, but may also reflect "enormous liquidity out there." That liquidity, he said, is "causing people to … engage in some speculative kinds of behavior. I see it in some pockets of Florida, clearly speculative activity in real estate. My hunch is it's people who have money that they're not sure what else to do with. … The narrower risk spreads we see in financial markets suggest people are looking hard for return. The most important question to ask is: what if those rates behave differently going forward?"
Write to Greg Ip at greg.ip@wsj.com |
