Tuesday, April 18, 2006

Fed Minute Impacts

Well, just as I suggested in my Saturday post, it's turning out to be a quite an interesting week. The main issue impacting markets today was the release of minutes from the March 27 & 28 Fed meeting. The info released suggests that the Fed may be very close to ending short-term rate hikes. This news impacted nearly everything:


The US Dollar closed at the lowest level in 7 months against Euro
The DOW soared 195 points
Gold closed at new 25 year high ($623.30)
Silver broke $14oz in the world spot market
Oil Traded above $71


My thoughts:

Once the Fed Rate hikes are stopped (too soon?), I believe we will continue to see significant declines in the US Dollar and overall higher long-term rates (due to lack of dollar buyers). I also believe we are on our way to 80+ dollar oil (based on technical indicators alone) and my previous prediction of $3.00 gas this summer was probably far too low... If we (1) bomb Iran, or (2) experience more hurricane disruptions in the Gulf this year, it's quite possible we'll see $100 + Oil & $4.00 + gas...

With that said, all those Petro Dollars we spend to keep our SUV's humming will (1) pull much needed money from our already strapped consumer pockets--increasing mortgage, auto, credit card and other defaults while reducing US GDP--70% of which is based on consumer spending, (2) will add to our already massive trade deficits and decline of the Dollar's purchasing power, and (3) will add to foreign dollar holdings & subsequently their US purchasing power--allowing them to increase the rate of buying away our country's infrastructure--the slow death of America.

Also, I would like to state in the coming months it's quite possible we'll reach new all-time heights in the DOW, but once the economy begins to sour (before the end of this year), I think we'll see MAJOR corrections take place throughout the markets. This eye opening experience will nip irrational exuberance in the rear and will spark the beginning of the great 2007 + Recession/Stagflation.

I'd really like to spend more time on this, but have other pressing obligations.

Good evening to all
Randy

9 Comments:

At 4/18/2006 8:09 PM, Anonymous Anonymous said...

AS you predicted, interesting events indeed.

I agree with you analysis. Exactly when the US economy really turns sour might depend on how many short term prop up policies the fed implements.

In the long term a much lower dollar will mean far less American purchasing power, hence less imports.

This could spark a world reccession but should lead to a more sustanable American current account. (Imports vs exports)

Is this how economies find their balance?

Andy

Andy

 
At 4/18/2006 9:38 PM, Anonymous Anonymous said...

Great points and its too bad our world as we know it had to come to this. I guess something good will come out of this ? any thoughts, and how long will this fall last and what will be the turning point.

 
At 4/19/2006 6:11 AM, Blogger contrarian2day said...

Andy,

Agree w/your points

Anon--Some of my feeling regarding your questions can be found in one of my previous posts:

http://economicrot.blogspot.com/2006/01/american-wake-up-call.html

 
At 4/19/2006 10:27 AM, Anonymous Cranky German said...

What ever happens I brew my own beer, Party at my house if things get that bad! We all might not have jobs for a while. But we can still have a good time.

 
At 4/19/2006 5:57 PM, Blogger Out at the peak said...

As my portfolio spikes up, its bad news for the overall economy.
*mixed emotions*
Things are happening much faster than I wanted. My gold target was $680 for the year. We are going to hit that in May I'm afraid.

 
At 4/19/2006 9:14 PM, Anonymous Anonymous said...

On CNBC this morning they said gas was 4.50 a gallon in Manhattan. Can anyone confirm this?

 
At 4/20/2006 7:48 AM, Anonymous Anonymous said...

http://www.nydailynews.com/front/story/410113p-346997c.html

"With pump prices rising fast, a gas station under the Brooklyn Bridge took a quantum leap into outrageousness - charging a jaw-dropping $4.50 a gallon!"

 
At 4/20/2006 7:52 AM, Anonymous Anonymous said...

Let me see ... If gallon is 4 litres and one litre of bensin equals 1.31 euros ... And dollar is 1.22 euros. We get a number of 6.39 dollars per gallon, right ?

This is what the pump price is right now in Finland. Life goes on normally.

I've had big cars in the past, but nowadays really enjoy my Smart Roadster, 45+ MPG :)

Take care with your SUVs :)

 
At 4/20/2006 6:10 PM, Blogger mtnrunner2 said...

The Fed's minutes reflect what they knew at the time. If changing data warrants, further rate hikes are in order. This data supports further hikes:
1. Foreign CBs raising (we must raise to keep up w/ competition and keep them buying our debt)
2. Inflation. Oil and other commodities keep going up, and higher prices are passed on in goods


So there you have it. I expect them to keep raising, until inflation is contained. With oil continuing to rise, how much tightening will we need?

 

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