Observing Today's Market

By Jerry Slusiewicz | June 26, 2008 | 12:48 PM | 3 Comments

I'm looking at the 10 year Treasury today at 4.07% and I ask if everyone thinks the Fed missed the mark yesterday and was too soft on inflation.  Why are these yields down from the 4.32% seen just 10 days ago?  Then I review the Fed statement which basically stated that inflation will get back in control later this year or by next year.  Why or How?  The bond market is huge compared to the stock market!  Are the bond traders missing something?  The yield on the 10 year should be skyrocketing up if the fear is inflation.  But that's not happening.  The overnight lending rate is controlled by the Fed, not the 10 year. 

What is clear to me is housing - most Americans largest investment has been deflating!  And the stock market is also on the same path!  Americans are growing poorer every day.  Job losses are increasing, financial companies are in need of cash so they very little to lend, and the economy as a whole is slowing.  With that said, I disagree with the Fed when they commented that "although downside risks to growth remain, they appear to have diminished somewhat".  Clearly deflation is the biggest current problem facing Americans today.  The stock market could drop below 11,000 very quickly, adversely affecting retirement accounts. As far as real estate goes, do you want to catch a falling chainsaw...?

Economic Lose Lose The Fed has to hope that commodity inflation flattens out or retreats because that is all that they can do. They cannot meaningfully raise rates because our domestic economy is too weakened and fragile and they cannot afford to indirectly slow the BRIC countries down significantly because they are the growth engine of the world economy. I think that they are willing to live with $100+ oil as long as it does not continue to rise much further. The high oil price is doing the work of the central banks because it is causing an economic drag and at the same time stimulating development of alternative sources of energy. Controlling inflation does not necessitate prices going down, it only necessitates a reduction in the YOY growth of prices. Curt R. Stauffer Chief Investment Officer EHD Advisory Services email: crstauffer@ehdadvisory.com Submitted by crstauffer on Thu, 2008/06/26 - 3:00pm » reply |

The Few doesn't have much The Few doesn't have much experience in the position they could soon be in: fighting stagflation. This is all the more complicated by current global issues. They're in quite a bind... Submitted by CFous on Thu, 2008/06/26 - 1:57pm » reply |

Agreed The Fed is in a bind. They feel that risks to growth have deteriorated? Not sure what data they are looking at. With a FFR @ 2% they can't really cut too much more. I think they stay pat for awhile and hope that their aggressive rate cutting finds some footing. Submitted by Jim Slagle on Thu, 2008/06/26 - 1:42pm » reply |