As if investors didn’t have enough to worry about with the slowing economy, this week provided evidence of why the Federal Reserve is even more worried about inflation than it is about the economy.
It seems like ancient history now, but the Fed just stopped raising interest rates last June, nine months ago. Prior to that, it had raised rates an unusual 17 times in a row. The goal of the rate hikes was to cool off the economy, in an effort to ward off inflation. Perhaps the Fed halted the rate hikes in June because it thought it had inflation under control. Perhaps it was because it feared the stock market decline that had begun in May was the beginning of something worse. Perhaps it feared it had already gone too far, and the higher rates would eventually slow the economy too much. In any event, it halted the rate hikes.
Almost immediately, Wall Street and investors began anticipating the Fed would completely reverse course, and start cutting rates. The stock market ended the correction that was underway. June turned out to be the market low for 2006. The market rallied off that low and continued higher through the fall and winter in an unusually one-sided move, without even minor pullbacks or corrections, such was the enthusiasm. That bullishness was in spite of the bursting real estate bubble, rising oil prices, and increasingly negative economic reports.
The driving force was primarily a conviction that the Fed would soon save the situation by cutting interest rates. Investors, guided by Wall Street’s spin, even began to perversely take negative economic reports as good news, likely to force the Fed to ignore its inflation worries and start cutting rates.
The Fed was not at all encouraging in that regard. At each of its FOMC meetings since last June it has given pretty much the same guidance, that while not raising rates, it was not considering a cut in rates, still more concerned about inflationary pressures than about the economy.
But investors would not give up hope.
The Fed’s next FOMC meeting takes place next Tuesday and Wednesday. This week’s further inflation data makes it virtually a sure thing that the Fed will not cut rates then, or any time soon.
Two weeks ago the Labor Department revised fourth quarter “Unit Labor Costs”, a gauge of wage push inflation, up to an eye-popping 6.6% annual rate of increase, from the previously reported benign 1.7% rate.
And this week it reported that overall inflation at the wholesale level jumped a big 1.3% in February, double what economists had forecast. The main culprit was a large and unexpected surge in food prices. The ‘core rate’, which has food and energy costs stripped out, jumped 0.4%, also double what economists had forecast.
The Consumer Price Index (CPI) reported on Friday, provided little comfort. Although the severity of inflation at the wholesale level had not yet filtered down to the consumer level, the CPI rose 0.4% in February. That’s an annualized rate of 4.8%, considerably higher than the Fed’s reported ‘comfort level’ of 1.5%. And the core CPI rate, with the cost of food and energy removed, rose 0.24%, an annualized rate of almost 3%.
Those latest inflation numbers make it virtually a guarantee that the Fed will hold rates unchanged at next week’s meeting, and will reiterate the warning that it is still more worried about inflation than about the slowing economy.
Meanwhile, and unfortunately, the string of worsening economic news that had investors hoping for a rate cut, continued this week.
On Monday the retail sales reports for February came in worse than expected. On Friday, it was reported that the closely watched University of Michigan ’s consumer sentiment index fell to 88.8 this month, from 91.3 in February. That does not bode well for retail sales going forward, especially when the unexpected increases in food and energy prices are factored in. And consumer spending, including for houses and autos, accounts for 66% of the economy. The real estate sector and autos are already in the tank. More general retail spending seems to be next in line.
The problems with the economy and inflation had already caught consumers’ attention, resulting in the decline of consumer spending and confidence. In recent weeks the problems have finally been noticed by investors, perhaps now believing what the Fed has been telling them all along, that it is not considering riding to the rescue with rate cuts any time soon.
I said in last week’s column that in spite of the rally last week I expected the market’s swift plunge a couple of weeks ago was only the first leg down of an overdue 10% to 15% market correction. Nothing in this week’s events disabused me of that expectation.
20.03.2007. (00:06)
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U ovakvom marketu, gdje je prilično jasno kuda smo krenuli, čak i sa ovakvim slabašnim rally-jem opcijski traderi bivaju pojedeni ako su u qqqq ili spy putevima !!! Opcije naglo gube na vrijednosti!
20.03.2007. (00:10)
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contreso
"pomogni ako znaš kako da mi ovdje prorade java skripte", nazalost van mog domasaja, sorry.
nego vec kad volis QQQQ pogledaj ovaj link, ETF Traders.com.. Tip trejda samo QQQQ i ima vrlo dooooobre rezultate. Annual Totals 2007 5.10% ytd 2006 35.15% 2005 41.66% 2004 51.69% 2003 71.22%
Gubitci mu nisu cesti, a i relativno su maleni. Nikako nemogu skuzit sto mu daje signal za trejd, imas li ti ideju? Sve se nesto mislim kako bi sve to izgledalo sa deep ITM opcijama na QQQQ? Sve sto je ispod 0.5% je vjerovatno gubitak zbog malog time valuea. Umjesto da trejdamo dionice pretpostavimo da kupimo deep ITM opcije. Mozda 50% vise od broja dionica (npr. ako kupujemo 1000 dionica kupimo 15 opcijskih ugovora). Najveci gubitak bi tada bio oko -5%, ali pogledajmo ukupne rezultate. Uspjesnost mu je 86.20%. Od 2003. do danas, on je od $100 napravio $500. Ono sto me muci je tendencija, u opadanju je. Copy/paste je OK, ipak sto ti o svemu mislis. Koja su tvoja razmisljanja, analize, nedoumice...? Dobar je Sy, ali ovo je tvoj blog.:-))
20.03.2007. (04:33)
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@Contreso: Hvala ti i na ovom novom linku, tvoja pomoć mi je neprocjenjiva! Što se tiče copy-paste, cijeli unos sam jučer obavio za 15 min. Bolje i ovakav unos nego nikakav. Unos služi meni za evidenciju, a prijateljima za pročitati. Sy Hardinga pratim godinama i dobro poznajem njegov STS sustav (sezonski timing). I dalje ću u komentarima slati njegova razmišljanja, čisto da ga ljudi (moji prijatelji ali i slučajni posjetioci pročitaju). Kada ovladam materijom u dovoljnoj mjeri i ako budem imao dovoljno vremena, sve više ću pisati "svoje" postove, iako to će uvijek biti nekakva mješavina tuđih.
Znači, namjeravam dalje nastaviti sa copy-paste iz jednostavnog razloga što je bolji i takav unos nego nikakav. Ako stignem i ako imam svoje mišljenje, dodat ću i njega. Tvoj doprinos je zbilja veliki i nadam se da će posjetioci ovoga bloga imati koristi od toga.
20.03.2007. (10:32)
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Zašto qqqq-si i općenito ETF-ovi? Jer jednostavno ne stignem pratiti individualne dionice, a niti još ne vladam tehnikama da zaradim na njihovom trejdanju. Sve ovo je za sada experiment, ali sa stvarnim novcem, samo što su iznosi manji (mislim na trgovanje opcijama). No glavni cilj je pokupiti neko znanje, od kojega neću imati koristi samo sada, već cijeli život, bilo da sam investitor (vjerojatnije) ili da sam trader (zbog slobodnog vremena- manje vjerojatno, no ako se povremeno upustim - barem da znam otprilike što radim :))
20.03.2007. (10:38)
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@Contreso: redovito sam počeo pratiti linkove koje si poslao i koje sam stavio sa strane. Zbilja, ovaj za qqqq trading ne piše ništa o metodologiji koju koristi.
21.03.2007. (10:06)
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Bundy
Sy Harding:
MORE CORRECTION TO COME! March 16, 2007.
As if investors didn’t have enough to worry about with the slowing economy, this week provided evidence of why the Federal Reserve is even more worried about inflation than it is about the economy.
It seems like ancient history now, but the Fed just stopped raising interest rates last June, nine months ago. Prior to that, it had raised rates an unusual 17 times in a row. The goal of the rate hikes was to cool off the economy, in an effort to ward off inflation. Perhaps the Fed halted the rate hikes in June because it thought it had inflation under control. Perhaps it was because it feared the stock market decline that had begun in May was the beginning of something worse. Perhaps it feared it had already gone too far, and the higher rates would eventually slow the economy too much. In any event, it halted the rate hikes.
Almost immediately, Wall Street and investors began anticipating the Fed would completely reverse course, and start cutting rates. The stock market ended the correction that was underway. June turned out to be the market low for 2006. The market rallied off that low and continued higher through the fall and winter in an unusually one-sided move, without even minor pullbacks or corrections, such was the enthusiasm. That bullishness was in spite of the bursting real estate bubble, rising oil prices, and increasingly negative economic reports.
The driving force was primarily a conviction that the Fed would soon save the situation by cutting interest rates. Investors, guided by Wall Street’s spin, even began to perversely take negative economic reports as good news, likely to force the Fed to ignore its inflation worries and start cutting rates.
The Fed was not at all encouraging in that regard. At each of its FOMC meetings since last June it has given pretty much the same guidance, that while not raising rates, it was not considering a cut in rates, still more concerned about inflationary pressures than about the economy.
But investors would not give up hope.
The Fed’s next FOMC meeting takes place next Tuesday and Wednesday. This week’s further inflation data makes it virtually a sure thing that the Fed will not cut rates then, or any time soon.
Two weeks ago the Labor Department revised fourth quarter “Unit Labor Costs”, a gauge of wage push inflation, up to an eye-popping 6.6% annual rate of increase, from the previously reported benign 1.7% rate.
And this week it reported that overall inflation at the wholesale level jumped a big 1.3% in February, double what economists had forecast. The main culprit was a large and unexpected surge in food prices. The ‘core rate’, which has food and energy costs stripped out, jumped 0.4%, also double what economists had forecast.
The Consumer Price Index (CPI) reported on Friday, provided little comfort. Although the severity of inflation at the wholesale level had not yet filtered down to the consumer level, the CPI rose 0.4% in February. That’s an annualized rate of 4.8%, considerably higher than the Fed’s reported ‘comfort level’ of 1.5%. And the core CPI rate, with the cost of food and energy removed, rose 0.24%, an annualized rate of almost 3%.
Those latest inflation numbers make it virtually a guarantee that the Fed will hold rates unchanged at next week’s meeting, and will reiterate the warning that it is still more worried about inflation than about the slowing economy.
Meanwhile, and unfortunately, the string of worsening economic news that had investors hoping for a rate cut, continued this week.
On Monday the retail sales reports for February came in worse than expected. On Friday, it was reported that the closely watched University of Michigan ’s consumer sentiment index fell to 88.8 this month, from 91.3 in February. That does not bode well for retail sales going forward, especially when the unexpected increases in food and energy prices are factored in. And consumer spending, including for houses and autos, accounts for 66% of the economy. The real estate sector and autos are already in the tank. More general retail spending seems to be next in line.
The problems with the economy and inflation had already caught consumers’ attention, resulting in the decline of consumer spending and confidence. In recent weeks the problems have finally been noticed by investors, perhaps now believing what the Fed has been telling them all along, that it is not considering riding to the rescue with rate cuts any time soon.
I said in last week’s column that in spite of the rally last week I expected the market’s swift plunge a couple of weeks ago was only the first leg down of an overdue 10% to 15% market correction. Nothing in this week’s events disabused me of that expectation.
20.03.2007. (00:06) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
U ovakvom marketu, gdje je prilično jasno kuda smo krenuli, čak i sa ovakvim slabašnim rally-jem opcijski traderi bivaju pojedeni ako su u qqqq ili spy putevima !!!
Opcije naglo gube na vrijednosti!
20.03.2007. (00:10) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
contreso
"pomogni ako znaš kako da mi ovdje prorade java skripte", nazalost van mog domasaja, sorry.
nego vec kad volis QQQQ pogledaj ovaj link, ETF Traders.com.. Tip trejda samo QQQQ i ima vrlo dooooobre rezultate.
Annual Totals
2007 5.10% ytd
2006 35.15%
2005 41.66%
2004 51.69%
2003 71.22%
Gubitci mu nisu cesti, a i relativno su maleni. Nikako nemogu skuzit sto mu daje signal za trejd, imas li ti ideju?
Sve se nesto mislim kako bi sve to izgledalo sa deep ITM opcijama na QQQQ? Sve sto je ispod 0.5% je vjerovatno gubitak zbog malog time valuea. Umjesto da trejdamo dionice pretpostavimo da kupimo deep ITM opcije. Mozda 50% vise od broja dionica (npr. ako kupujemo 1000 dionica kupimo 15 opcijskih ugovora). Najveci gubitak bi tada bio oko -5%, ali pogledajmo ukupne rezultate. Uspjesnost mu je 86.20%. Od 2003. do danas, on je od $100 napravio $500. Ono sto me muci je tendencija, u opadanju je.
Copy/paste je OK, ipak sto ti o svemu mislis. Koja su tvoja razmisljanja, analize, nedoumice...? Dobar je Sy, ali ovo je tvoj blog.:-))
20.03.2007. (04:33) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
@Contreso: Hvala ti i na ovom novom linku, tvoja pomoć mi je neprocjenjiva!
Što se tiče copy-paste, cijeli unos sam jučer obavio za 15 min. Bolje i ovakav unos nego nikakav. Unos služi meni za evidenciju, a prijateljima za pročitati. Sy Hardinga pratim godinama i dobro poznajem njegov STS sustav (sezonski timing). I dalje ću u komentarima slati njegova razmišljanja, čisto da ga ljudi (moji prijatelji ali i slučajni posjetioci pročitaju).
Kada ovladam materijom u dovoljnoj mjeri i ako budem imao dovoljno vremena, sve više ću pisati "svoje" postove, iako to će uvijek biti nekakva mješavina tuđih.
Znači, namjeravam dalje nastaviti sa copy-paste iz jednostavnog razloga što je bolji i takav unos nego nikakav. Ako stignem i ako imam svoje mišljenje, dodat ću i njega.
Tvoj doprinos je zbilja veliki i nadam se da će posjetioci ovoga bloga imati koristi od toga.
20.03.2007. (10:32) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
Zašto qqqq-si i općenito ETF-ovi? Jer jednostavno ne stignem pratiti individualne dionice, a niti još ne vladam tehnikama da zaradim na njihovom trejdanju. Sve ovo je za sada experiment, ali sa stvarnim novcem, samo što su iznosi manji (mislim na trgovanje opcijama).
No glavni cilj je pokupiti neko znanje, od kojega neću imati koristi samo sada, već cijeli život, bilo da sam investitor (vjerojatnije) ili da sam trader (zbog slobodnog vremena- manje vjerojatno, no ako se povremeno upustim - barem da znam otprilike što radim :))
20.03.2007. (10:38) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...
Bundy
@Contreso: redovito sam počeo pratiti linkove koje si poslao i koje sam stavio sa strane. Zbilja, ovaj za qqqq trading ne piše ništa o metodologiji koju koristi.
21.03.2007. (10:06) - - - - - promjene spremljene- uredi komentar - obriši komentar - prijavi ovaj komentar kao spam - zabrani komentiranje autoru ovog komentara- učitavam...