MARKET COMMENT
October 25, 2006
Tough inflation fighting talk from the Fed but the only
action from them lately is to keep the money supply growing. There are some enterprising and naturally
cynical folks who have reconstructed the discontinued and now hidden M-3 money
supply statistics.
Courtesy: Shadow Government Statistics.
Courtesy: Now and Futures.
Even if the above graphs are correct, and they probably are,
the only thing that matters is what dominant investors (read: hedge funds and
trading desks) accept and act on.
Currently they like the excess liquidity being added by the Fed and that
interest rates are still moderate historically.
The bond market vigilantes usually have things right; but,
now they seem a little confused. They
like the tough inflation fighting rhetoric but certainly aren’t getting too
bullish either.
One of the Fed’s challenges is to provide a soft-landing
cushion for the beleaguered homebuilders.
The Fed can’t buy excess housing inventory, but they believe in their
power to instill confidence in both consumers and speculators.
Let’s look at a broad range of equity market sectors to
assess current conditions.
Elsewhere around the planet, financial markets may be even
stronger than in the US.
Okay enough already!
You get the picture—markets are rallying globally and the breadth is
healthy.
Now you’re probably thinking; why the cynicism? Because some of us don’t like markets being
manipulated with data changed or withheld from investors. But, the bottom line is Mr. Market and the
bulls are in charge. Even if we don’t
like the rules of the game, it’s not our job to fight the Fed or the tape. However, with markets this overbought and
investor enthusiasm running like its 1999, chart postings could get ugly
fast. Perhaps the GDP number on Friday
will be upsetting or possibly some post election blues. Usually a correction from levels such as
these come from unexpected sources.
Disclaimer: The ETF
Digest maintains positions in: IEF, GLD,
SPY, DVY, XLU, IYR, PZJ, PZI, XLB, SWH, HHH, FDN, IEV, EWP, ILF, EWW, IFN and
FXI.