FOMC relief rally a flash in the pan

Wednesday, April 13, 2005

Thanks to macroblog I was finally able to locate the latest FOMC minutes after not being able to access them on the Fed's page until 10 AM CET. Believe me, when I woke up during the night, my wife was not happy to see me googling for FOMC minutes and calling up the Fed website over and over.
Now, after having read them, I pity myself for my impatience that got aroused by the "relief rally" on Wall Street but didn't make it any further than Hongkong, a market I consider equal to the casinos in Macau, where card counters could make money too. European markets didn't follow up on the euphoria Wall Street encountered. That's maybe because the old continent had a little more time to dive into the if-and-when-but-let's-not forget... Fed talk and also remembered that all the economic indicators of the recent past didn't really point to an ongoing expansion.

There are a lot of hopes in the latest statement of the high priests of ever expanding debt who don't want to spoil the market's party by closing the gap between interest rates and the ongoing devaluation of the greenback via inflation.
The Fed's optimism about the consumer underpinning economic expansion is contradicted in the FOMC minutes itself as follows. "Although home sales declined somewhat, demand continued to be supported by low mortgage rates", doesn't sound too confident when followed by the statement that there was evidence of speculative activity in the housing market that should lead to a slowdown of house price inflation in the coming quarters - an elegant way to describe the expectation of falling house prices.
They added that inventories rose at nearly twice the pace than in the preceding quarter and threw in the notion that car sales slowed down sharply. Nevertheless the FOMC pins its hopes on a retreat of energy prices, only to concede that drilling for oil and gas picked up, were it not for a scarcity of both rig hands and key products. Being only a small punter and not a highly paid Fed member, I may assume that you only start drilling when you expect energy prices to remain at the high levels that we are experiencing lately - twinkle twinkle.
What is amazing though is the shift of discussion in the markets. With all economic indicators showing everything else than an economic upturn around the corner all the recent Fed talk managed to push the focus on the speed of future rate increases when the slow growth picture actually gives them less leeway for such maneuvers. Wishful thinking alone will not help to overcome the structural deficits that are based on a shift from making profits through production to a preference of capital investments. The little money US car manufacturers are making comes mostly from the investment side and not from an improvement in their products - SUV's are based on truck designs dating back to the last century with a level of gasoline efficiency that puts non-American car buyers at the imminent risk of a heart attack right in the showroom. Unless you believe into the oil producing countries willingness to achieve lower income from their primary source for money that enables them to order ever more Ferraris for every princeling in their sheikhdoms that are protected by Bush's drive for freedom and democracy. That promise is as empty as Wal-Marts commitment to treat workers fairly while rather closing giga-stores in order to prevent a possible representation of their staff through unions that could lead to some sort of bargaining power.


Wikinvest Wire