Another Rollercoaster
Issue: 8/29/07
Another rollercoaster day. This time the market went up 247 points. Why?? Well, the investors just FELT like the Fed would be nice to them in September, and reduce the Fed Funds rate. Feelings are nice. They move markets. But, they’re not fundamentals!!!!!
U.S. Federal Reserve policymakers continued to see inflation as the top policy concern amid the rising cost of credit at their Aug. 7 meeting, according to minutes of the session released Tuesday. The Fed’s policy-setting Federal Open Market Committee meeting took place 10 days before the central bank had to lower its discount rate to check growing credit fears stemming from the subprime mortgage collapse. “Policymakers would need to watch the situation carefully,” the minutes said. “For the present, however, given expectations that the most likely outcome for the economy was continued moderate growth, the upside risks to inflation remained the most significant policy concern.”
Okay, there it is. This is the official Fed thinking. They are clearly saying that the risk of inflation is a worse threat than a recession caused by illiquidity. And while they acknowledge that illiquidity could cause some dislocations in the market, they are also willing to act strongly to provide liquidity (something that never happened during the 1930’s Depression)
Strategists pointed to several pieces of negative news that pushed bond prices higher, and stocks lower, including a report the Boston Globe posted on its Web site Tuesday that State Street Corp.’s Limited Duration Bond Fund, which managed $1.4 billion for institutional clients, lost about 37 percent of its value in the first three weeks of August. Wow, I sure wish I had the ability to lose $500M in a 3 week period. The fallout of the sub-prime mortgage fiasco continues.
Treasurys gains have “basically just been a resumption of the safe haven bid,” said John Canavan, market analyst at Stone & McCarthy, adding that T-bills have been particularly sensitive to such moves. “Any type of safe haven bid gets the bill sector prepared for more,” Canavan said. I left this ho-hum statement in here to introduce you to the term “safe haven”. US Bonds, Bills and Notes are safe havens, but so is gold. US Bonds, Bills and Notes may lose this honor if inflation really hits the dollar. Depending on the market, some currencies could be considered a safe haven. In fact, to show how stupid some people are, during the past few weeks, the US dollar had a very small run up because some people thought it was a “safe haven.” That really makes me laugh.
Altria Group plans to spin off its Philip Morris International cigarette unit, its board announced Wednesday. The decision to fully separate the operations of Altria’s domestic and international tobacco companies, makers of the popular Marlboro cigarette brand, frees them to pursue profit more aggressively on their own, and clears PMI from the legal and regulatory constraints of its U.S. counterpart, Philip Morris USA. This is a perfect example of how international big companies are. When the
Here are Today’s closing details:
DJ30 – 13,289 (up 1.9%). We didn’t get that test of 13,000 – just a roller coaster.
10 year US Treasury Bond – 4.55% (Up .02)US Dollar – $1.3649/Euro. (Up .0044) The dollar lost ground across all currencies today.Gold closed at $675 per ounce. (Up $1)
Oil Closed at $73.51 (Up 1.78) A big move up for Oil.
Gasoline is $1.91
