New Column up at Real Money (11/2/05): Restrained Rally Slowly Emerging


I have a new column up at Real Money: It is loosely based on a few prior commentaries: Bottoming Process Continues, and Katrina Lowers Year End Expectations.

I go into the technical underpinnings of the present rally, as well as my expectations for where it could go.

But don’t think I have crossed over to join cheerleading squad. Here’s an excerpt from the realistic tail of the column:

"There’s an old saying: I cannot hear what you are saying, because what
you are doing is speaking so loudly. That’s my take on the Federal
: If it really believes inflation is so "contained" and "transitory,"
then why is it hell-bent on tightening rates for the rest of our natural lives
or until the next recession, whichever comes first?

The answer, in case you haven’t been paying attention, is the robust
inflation coursing everywhere through our economy, save for wages and personal

Indeed, real wages are actually down 2.3% for the third quarter. Total
compensation costs (wages paid plus benefits) are down 1.5% on an
inflation-adjusted basis. That does not bode well for consumer spending into
2006. This comes when the consumer is running increasingly low on dry powder. As
we noted previously, the consumer is nearly — but not quite — shopped out.

Meanwhile, actual growth — and not the estimated, preliminary Commerce
Department’s GDP data — remains modest.

This helps explain why my bullish posture is short term in nature, and
measured at that."

I requested this gets moved to the free side of . . .

Restrained Rally Slowly Emerging, 11/2/2005 11:35 AM EST

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What's been said:

Discussions found on the web:
  1. Dave Singer commented on Nov 2

    What may be the reason for the following:

    Since Jun 04 Fed Funds is up 300 bps…

    The major US Stock indices are essentially flat…

    12 Straight quarter point raises and overall, the market has not gone down…

    Any theories????

  2. spencer commented on Nov 2

    Since June 04 the S&P 500 PE on trailing operating earnings has fallen from about 19 to 17, a change that is not out of line with the change in interest rates and inflation over that period. Monetary policyand rates impact the market through the PE side of the equation. So, roughly the 200 basis point drop in the PE has been offset by the rise in earnings, generating an unchanged market.

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