Zeev, nice trades ! You nailed that HANS move...
Barrington Research Associates, Inc.
Good is Great for at Least One Day (Smart guys in denial IMTO)
For a good part of the year, depending on their inflation outlook, investors have had trouble deciding whether positive economic news was good or bad. Between the June and August Fed meetings, the view went from the Fed is too easy to maybe it should ease back on its tightening schedule. The difference was the so-called soft patch in the second quarter economy that many believed marked only the start of an extended period of deteriorating economic growth. So, despite the continuing concerns of terrorism, Iraq, oil prices and the elections, the focus shifted back to economic growth and, as we mentioned last week, good has become good again as far as economic reports are concerned.
That is the backdrop by which to judge the effects of yesterday's Fed announcement, which was essentially-economic growth did slow, largely because of oil, but it is ready to accelerate again; monetary policy remains accommodating; and low inflation will allow the Fed to continue its measured approach to tightening monetary policy toward a more inflation-neutral interest rate level. The key comment, however, was the Fed's confirmation that the soft patch was temporary.
So, for one day at least, the world was right again-stocks rallied strongly on good economic news, bonds fell, the dollar rallied and gold fell. The one problem was that there was still not a substantial pickup in trading volume on the rally and the formerly leading technology sector is still under pressure, reacting negatively to any disappointing utterance from individual companies. Of course, the concerns about terrorism, Iraq, the elections and oil prices have not disappeared. Many analysts don't believe the Fed regarding a reacceleration in economic growth. We just read a report from a significant economic source that indicated that the economy has demonstrated no signs of an upturn so far in the second half, primarily citing the July job report. However, just about every other economic report covering July activity, including more than a half-dozen relating to the manufacturing sector, have indicated an acceleration in July from June. Similarly, the coming retail sales report should also show a good acceleration from June.
Moreover, the disappointing payroll job number was significantly out of step with just about every other employment-related indicator. Enough already about jobs! The way to increase the nation's standard of living is to produce more goods and services with less work. That is exactly what business is doing, as evidenced by the continuing good productivity growth, and 94.5% of the workforce is working.
Meanwhile, while stocks and economic news were in sync yesterday, the market is still being dominated by traders and, until rallies include a significant and sustained upturn in volume, it will be difficult to bring the billions of dollars of sidelined investment money back into the market. Encouragingly, however, the underlying fundamentals are supportive of an eventual second leg in the market and, at least according to the Fed, they are not going away any time soon.
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