Back in the Saddle

Fed move:
I'm happy that Ben Bernanke reads my blog to get a daily dose of reality [ hehe joke ;-) ]. Here's the clue from the FOMC statement: "The Committee will continue to assess the effects of [the credit crunch] on economic growth prospects and will act as needed to foster price stability and sustainable economic growth." [my emphasis]. That's right out of their statutory mandate and it's about time that was recognized - it's been missing since May 2006.

This 50 bps cut corrects for two past Fed mistakes, viz., the 25 bps increase caused by Ben's tryst with Maria, and the error in August standing pat. So the Fed is playing catchup ball, BUT is still 25 bps behind. They need to cut 25 bps in October, too, to get the overnight rate to 4.5%. With core PCE inflation under 2%, an overnight rate over 4.5% is not justified and is still tight monetary policy.

Stocks:
The inverse H&S bottom pattern in the cash S&P that I've discussed awhile here is confirmed now with yesterday's volume move up through the flatish neckline around 1490. The Nazz comp shows a pattern of higher lows and higher highs. Ditto the Nazz 100. The Russell 2000 shows a volume break up out of an ascending triangle pattern.

The XLE shows an all time high print close. The XLF shows a break up on volume out of a ragged "W" or triangle consolidation pattern.

In all these cases, we really need today's close to confirm these patterns for two reasons. First, since beefer short covering might have caused the breaks and volume. Second, since the day after a Fed decision shows decisive big money actions most of the time.

Commodities:
Gold and oil are moving well. Oil's move is just recognition that the world economy is doing fine and oil supply is limited, so slow demand rationing is necessary. Gold is moving for two reasons: (a) beefers playing the dollar weakness, and (b) real long term physical demand and lower mining supply. I prefer playing oil with the stocks since the the commodity carrying costs can be substantial. Ditto gold, but for now I do have some long gold futures to lock in the price of the physical gold I'm planning to buy with new money in October.

The World:
European press shows a bit of a panic over the "subprime" business. They put on pictures of homes for sale in FL and thinks that's representative of the whole US. I think they are a bit surprised, though, that some of their banks buy US mortgage securities in big amounts. That's a reasonable concern.

Scotland:
We had a very enjoyable trip. I'll write more later. But the fried eggs I had in Scotland were the best that I've every had anywhere - super flavor. And the Aberdeen Angus beef was just wonderful, too.

PS: Nothing was mentioned in the FOMC statement about the dollar - the Fed has no statutory authority to consider the dollar. All those talking heads saying the Fed will or won't do something because of the dollar are just delusional eisegetes or are "talking their book".

PPS: The August CPI comes out this morning. A flat number or downtick in the year-over-year core CPI is good. An uptick will give the bears ammo to hit this move.

P^3S: Incredible. Babblevision puts on that fool Peter Beutel who was recently talking about oil collapsing, and now he's talking about higher prices. What a knave!

P^4S: Year-over-year core CPI was 2.1%, a downtick from 2.2% last month. Good news. Inflation is on life support for awhile. Good for the forces of light and goodness; bad for the dark side and the beefer bears.

P^5S: LIBOR fixed under 5% today - more good news. The world economic trajectory is on a fine path. It's a bull market.