Greenie
Raises Rates, and All Is Well
By Duru
December
15, 2004
Is anyone else
amazed by the absolute contrary movements in the markets in response to the
steady hike in short-term rates? Back in November
of 2003, I suspected that just as the market did not move according to
historical patterns when the Fed first began lowering rates, the market would
behave differently from history as the Fed began to hike rates. But the current
contrary moves are getting out of hand…aren't they? As expected, the Fed raised
short-term rates another quarter point at yesterday's meeting. There was also
no material change in the economic outlook. But after the dust settled on the
day after, we find ourselves with a weaker dollar, a strong housing index, and lower
long-term interest rates! I have posted the charts of this amazing
combo below.
What gives?
Well, I know a series of homebuilders, like HOV and LEN, have reported excellent earnings and even
better guidance. Analysts have also been singing lovely songs about the sector. That news alone is enough to get the
housing bears growling and re-inflate the supposed housing bubble. The dollar
is under-going a secular decline, so any decrease in the dollar is consistent
with the prevailing trend. No surprise there. The recent brief pop in the
dollar was certainly a reaction bounce in anticipation of the well-anticipated
Fed move. But I am truly confounded by the decrease in long-term rates. I
suppose the bond market is waiting for the Fed to declare a robust recovery has
finally begun and inflation must be battled now. Without such language, I
suppose the bond players remain skeptical about the long-term health of this
economic recovery. These lower long-term rates of course continue to help buoy
the housing markets.
And the sum of
all this seems to be that the market continues to remain comfortable with its
current lofty levels. The NASDAQ finally made some new 52-week highs and is now
poised for another quick spurt to either end this year or begin the new year. I
will not show charts here, but all other indices seem poised for greatness. It
is collectively an incredible sight.
I will close
with two charts. If you are still one of the doubters that are hating on the
American consumer, the important stock charts of Nike (NKE) and Best Buy (BBY)
demonstrate that the market, at least, is quite confident in the general health
of the American consumer. Nike has finally
broken free from an EIGHT year
trading range. This trading range was certainly wide, but a range nonetheless.
The current break-out speaks volumes about the market's expectations. Best Buy
is
*Note well that Nike will be
announcing earnings on Dec 16th!
All in all, it
seems to still be all systems go for the market. I will continue to look to the
Presidential Inauguration as the next real pivot point for the markets.
In the
meantime, be careful out there!