Interest Rates: Maybe it wasn't such good news after all?
By Adam Lass
In this article
Investors finally seem to have gotten around to mulling over the entire text of the FOMC statement.
Normally, in this circumstance, the Fed would begin to lower rates.
Any further rate cutting would accelerate our progress down this slippery slope.
Interest Rates: Maybe it wasn't such good news after all?
Yesterday's rally was decidedly myopic. The crowd managed to extract a single factoid out of the post-FOMC statement: the Fed seems disinclined to raise rates anytime soon.
Today, investors finally seem to have gotten around to mulling over the entire text of the actual statement. It's sheer laziness that they have taken even this long to do so, as it was so short that it could fit on the back of a cocktail napkin, with room left over for the attractive blond at the end of the bar's phone number.
Simply put, the Fed is not doing anything because it is sanguine to our economic prospects. It is doing nothing because it is more frightened of the consequence of doing anything.
Interest Rates: Recession and Inflation?
The leading indicators are a mess. But even squinting at them with an overly biased eye only produces the prospect of very mild growth. A more jaundiced viewer would suspect that we are already well on the way toward a recession.
Normally, in this circumstance, the Fed would begin to lower rates. Unfortunately, the previous Fed board more or less blew all its powder, as it were, taking rates to just shy of zip and keeping them there for an inordinately long period of time.
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Now inflation is skirting the high end of the Fed's favorite indicator, the price deflator, for personal consumption spending excluding food and energy. Any further rate cutting would accelerate our progress down this slippery slope.
But here's the real shame: A bold Fed might choose a path, tell us to take our medicine, suffer the consequences and see things through to the other side. Either raise the rates and allow for a short recession, knowing that the value of the dollar is secure, or conversely, throw caution to the winds, lower rates and enjoy a rip-roaring economy that might even see the banks rescued and housing values shored up.
But Bernanke's crowd will in all probability do neither, and will most likely “enjoy” a recession, a bank collapse and grinding inflation. Certainly it is no shock that gold is getting another shot in the arm. But you probably should also look to add other key commodity-sensitive stocks to your list. In other words, as I have probably said an awful lot lately, and will most likely say again: go long big oil soon, before the price moves out of reach.
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Adam Lass is the founder and manager of the WaveStrength Group, and is a contributing editor for Taipan Financial News. As the creator of WaveStrength's proprietary analysis system, Adam's expertise has shaped a franchise of successful investment newsletters and services, including WaveStrength Options Weekly and WaveStrength Apex.
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