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:

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

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.

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

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.

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.

Anonymous said...

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

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!"

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 :)

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?