Hey Mr. Hand, what's wrong with a little pizza on OUR time?
In a continuing effort to make our community as interactive as possible, I wanted to pass along some thoughts from a highly respected fellow Minyans. This is one of many notes I received in response to this morning's first post and thought you might enjoy it. Remember, please, the views expressed in this letter (or anything read on Minyanville) are offered with educational intentions and NOT intended as advice.
I thought I'd pen a short, quick piece expressing my "gut" opinion on what will happen at the next FOMC meeting on June 25. I think the Fed is only going to cut rates by 25bps. not 50. Here's why:
1) In 9 weeks, the yield on the 30-year has dropped from roughly 5.40% to 4.20% by simply "jawboning" the market. This, thereby produced one of the largest bond market rallies in history in such a short period of time. Also, even if yields were to back up a full point over the next several months (equivalent of 10 handles on the long bond), the housing & lending markets (commercial / retail) would still be in good shape with little harm done.
2) If they cut 50bps. and took the fed funds down to .75%, while the "official" inflation rate is at 1.00%, technically, the Fed, along with every newspaper in the world would claim that the U.S. if now in a "deflationary economy" -- and that is NOT what the Fed wants the headlines to read (i.e. investor psychology).
3) In this same period, the Dow has rallied from 7300 to 9200. Even if the Dow were to sell off 1000-1200 points back down to 8000-8200 on Fed disappointment of only a 25bp cut, the market would become so oversold that all the Pension, Insurance, and Mutual Funds (plus the mom & pops or retail market) would vigorously buy back in, and lift prices back up to 8800-9000 again (mindset: stock bargains). So again, the Fed has indeed bought themselves both "time & price."
Here's my read. The Fed has successfully "orchestrated or manipulated" the market via massive amounts of liquidity injection (both foreign & domestic) into the financial system in order to "buy the market time & price." OK, you say, so where do we go from here ? I think up to June 25th we stay in a range. After June 25th, I think the market goes where it should go (lower) and the Fed steps aside for a couple of months to review the economic data as well as the market action and reaction. I think they'll back off, which will leave the markets to trade on their own (read: no more intervention or jawboning for awhile = at least for a couple of months).
Name withheld upon request
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter