Midweek Newsletter after FOMC
The FOMC accommodated the expectations of the market with a quarter-point cut in interest rates. The question is; could this be a trick or a treat. As we read the accompanying statement it was obvious that there is some concern about the cost increases seen in the energy market as well as concern about the increased cost of agriculturals. But, as well noted and often quoted, we are within the inflation range that makes the FOMC comfortable. We have not yet figured out how to use our cheap computers as a food or energy source, but should that occur, I am sure that will help with a gallon on milk or a fill-up for you winter’s heating needs.
The market predictably rallied after its initial retreat taking the averages to within eyeshot of the highs. This morning, the sobering news of yesterday’s joy has worn off with continued increases in home foreclosures and increases in bankruptcy filings. We also see draw-downs in crude oil lifting the prices above $96.00. Gold headed higher on the muted concern voiced in the FOMC minutes. Yes, they see inflation, but believe it is contained and that it will moderate. Of course, they live in a cave and don’t have to pay bills like the rest of us do. We continue to see financial institutions write down impaired assets in their quarterly reports. The question remains have we just seen the tip of the iceberg or, is this the belly of the berg. We continue to believe that there is more to be unveiled as we plod on thru many of these mortgage teaser resets.
The FOMC statement was unclear enough to leave us with the feeling that this group might stand back and not tinker with short rates for a while. Additionally, the perception of a possible “no change” for the rest of the year has led to a slight bounce in the US Dollar index. The stock market is just bubbling along fine, thank you. We remain concerned about a market led by a few Generals while the troops are not following. We continue to believe that this is an opportune time for you to reassess your portfolio and remove the pound puppies from your investment portfolio. It is also a good time to concentrate you investments in issues that pay good dividends, have insider ownership, have a reasonable price to earnings ratio, make money and have growth.