The Beginning of the End

That is how one must understand the Fed's decision yesterday afternoon after the markets closed to raise the discount rate 0.25% to 0.75%. That rate is now 50 bps over the target fed funds range of 0% to 0.25%, which a more normal level. Before this, the Fed's actions were more passive, simply letting announced special lending programs to lapse. Those expirations were the end of the middle phase of the emergency Federal Reserve programs. There's a bit of overlap as the Fed programs to buy mortgage securities has a few weeks to run. To me, that overlap is the surprise of this discount rate rise. Why now and not in April ?

Yesterday's unemployment claims number stunk again. Wal-Mart showed a sales decline and a larger comparable store sales decline. The PPI inflation numbers were poor, but the PPI is a really poor clue for inflation. There just is no apparent reason to raise the discount rate now.

Unless they perceive that rate's low prior level as a temporary funding measure like the other lending programs. Perhaps. If so, they are trying hard to get all the emergency programs ended by the end of March. Then they will have flexibility to start withdrawing liquidity and raise rates.

My guess is a small rate rise sometime in Q3.

I see no good reason to be bullish at these levels. Jobs are poor. A fed rate rise looms later this year. The stimulus spending was wasted and generated no follow-thru due its poor structure. Horrible tax hikes for sole proprietors loom. Obama is trying to generate bandwagon for more tax hikes. He's not doing anything to cut spending - so much of Federal spending is wasted. States and municipalities must cut spending, especially on employee pay, benefits and yes, retiree benefits. Why should any municipal worker get to retire early ? If the private sector requires retirement at age 65, then the public sector should, too.

All this is going to cause social unrest as those now lying in feathered nests will have to get used to a plain bed, the same as the common man sees. This election in November is going to bring much of that into the glaring light.

Obama

He continues to play the mountebank. "Tell' em what they want to hear". He's truly a man of no principles or independent thought or vision. A speech. That's what the pre-election book said about him and its being proven true. Sighhhhhh. The public chose badly.

Markets

I bought quite a few puts on SPY yesterday. [SPY is an ETF that tracks the S&P 500 - its puts are rather liquid, even for long strikes and in the money strikes.] I saw the recent decline as an "A" wave - a five wave Elliot Wave down pulse and the ensuing rally as a "B" reaction wave. That means another "C" wave down - a significant five wave move down. My target area is S&P 1000. The puts were bought in my 1-2-3 Fund - that's what I call my speculative accounts.

I'm checking for Krypto Fund for re-allocations. It's run by the numbers by my dog, Krypto, using a computer spreadsheet.

Word of the Day

"Loth" - verb [$10]
Loth means disinclined, reluctant, unwilling. A spelling variant is "loath". Both are pronounced the same, with a short 'o'. The 'th' can be a normal 'th' like moth or the 'th' in loathe, which is bit extended as in 'the'.
Sentence: I am loth to have any long exposure to equities beyond the Krypto Fund target allocations, as I envision a few months of market pain to find a level for growth into 2011 IF some issues get resolved, principally, a cut in government spending.

Lincoln used this word in the final paragraph of his first inaugural address, which is how it came to be added to my card file.

Btw, please keep this word of the day distinct from "loathe". Loth is pronounced with a short 'o'. 'Loathe' has a long 'o' and extended 'th' as in 'the'.