Fed Minutes

The Minutes of the FOMC meeting of March 27-28, 2006  were just released. The money quotes show up towards the end (about 4th to last para):

For the "One and Done" crowd:

"Most members thought that the end of the tightening process was likely to be
near, and some expressed concerns about the dangers of tightening too much,
given the lags in the effects of policy." 

For the "More tightening to come" crowd:

"However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation."

The Fed Minutes note that:

-economic activity was expanding strongly in the first quarter;
-Consumer spending was on track to rise at a robust pace;
-business purchases of equipment and software picked up appreciably;
-Warm weather boosted housing construction in January and February;
-Private payrolls advanced solidly;
-Headline consumer price inflation jumped in January but moderated in
February as energy prices moved down.
-Core inflation remained
-sales of new homes dropped;
-house prices decelerated slightly
-Labor demand continued to increase;
-employment growth was especially brisk in the construction;
-the average workweek edged down in February;
-aggregate hours for production and nonsupervisory workers were above Q4 avg;
-unemployment rate continued to decline and averaged 4¬ĺ percent;
-Consumer spending appeared to have rebounded strongly in Q1;
-consumption spending was robust, supported by advances in wage and salary income;
-Consumer confidence remained consistent with moderate increases in consumer spending;
-Housing activity moderated somewhat;
-Sales of new homes fell in the first two months of the year;
-Inventory of homes for sale was elevated compared with its range of the last several years.
-Mortgage applications continued to decline;
-rising mortgage rates damped demand;

Conclusion: The equity market has clearly focused on the phrase: "Most members thought that the end of the tightening process was likely to be

We remain as data dependent as ever . . .


Minutes of the Federal Open Market Committee
Federal Reserve, March 27-28, 2006

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What's been said:

Discussions found on the web:
  1. emd commented on Apr 18

    the bullishness in this market is absolutely amazing to me. $70 oil, geopolitical risk, rising rates, it’s all good.

  2. Bob Radcliffe commented on Apr 18

    Can’t wait to see Bulls And Lessbullish on Sat. I predict a lovefest.

  3. Detroit Dan commented on Apr 18

    The predicted volatility increase is finally upon us? This obsession with short term interest rates to the exclusion of all other economic news is bordering on a mania…

  4. emd commented on Apr 18

    on the same day you hit record oil prices you have the dow up 200pts. i just feel stupid i’m not aLONG for the ride.

  5. GRL commented on Apr 18

    My NDE, TUP and WRE are all up 4-5% today.
    Could this be the blow-off top?

  6. B commented on Apr 18

    What a ride! BOOYAAH! LOL! I’ll be so disappointed if we don’t finish up 200 on the Dow. Needless to say this is a VERY technical bounce off of a few very oversold readings. The Generals spared no expense. Today, they brought out the best Benelli shotgun and sprayed it at everything that moved. 10 to 1 upside volume. Yea, that’s sustainable. It appears the home building index will win the best percentage gain today. Of course, some of the metals stocks that are up 20% IN FOUR DAYS did quite well individually.

    My new delirious prediction is that iron ore will soon sell for $628 an ounce surpassing gold as the new precious metal. Soon, we’ll be wearing iron ore and copper necklaces as fashion statements of the rich and wealthy. The good news is we can get to the new Iron Ore Standard for our currency at a much more reasonable $300 an ounce or what the hell ever it is trading at today. I need to break out my Popeil’s Pocket Fisherman and an Old Milwaukee because it just doesn’t get any better than this.

  7. emd commented on Apr 18

    a 2.7% pop in the Russell is a “technical bounce”???

  8. Mark commented on Apr 18


    I think B is being sarcastic. I am not 100% sure on this, but I have noticed in his prior posts just a TINY sarcastic streak.

  9. ndk commented on Apr 18

    Bought a handful of long dated out of the money RUT index puts for the first time in my life at the close. I feel a little nauseous from the 8th frat boy “One and Done!” rally we’ve had in the last 6 months.

  10. Greg commented on Apr 18

    “Surprise, surprise, surprise!” – Gomer Pyle

    Hopin’ someone can ‘splain how the rocket had already jettisoned its first stage today PRIOR to the Fed minut-ias.

  11. B commented on Apr 18

    Sarcastic? Are you kidding? :)

    Actually, I was damn near sarcastic on everything except this was a high probability bounce day. I actually put it out as bait on here yesterday without any rationale behind it. And yes, high percentage gainer days can be bounces if you are extremely oversold. And, we were extremely oversold on the McClellan Oscillator, the Mamis-Meisler Oscillator and a few other doodads I watch. Today was purely a technical bounce. Those are days when certain conditions are met and everything under the sun ends positive because of balls to the wall program trading. Every index under the sun was positive today. Now, can they follow through? Highly unlikely it will go far because of options pinning this week.

    I don’t want to say today was predetermined but today was predetermined as much as predetermined can be. You see, billions and billions of dollars wait for days like today to drive the market hard in high probability trade days. It’s a self fulfilling prophecy because we/they are all watching the same thing. Ditto with the home building index, HGX, and the REITs. It was semi-telegraphed by a few things that happened after 2 PM yesterday. That’s as many secrets as I’ll share because they are generally available. The Extra Crispy Recipe stays in the family under lock and key.

  12. vfoster commented on Apr 18

    “However, members also recognized that in current circumstances, checking upside risks to inflation was important to sustaining good economic performance. The need for further policy firming would be determined by the implications of incoming information for future activity and inflation.”

    since the meeting just a couple of weeks ago:
    gold + 11.5%
    oil + 16%
    crb + 6.5%

    i don’t know about you guys but i didn’t read anything in the minutes to suggest a pause after 5%. the headlines took the one and only sentence in the minutes that seemed dovish but the whole text suggested the economy was robust (they even noted strong housing prices supporting consumption) and they needed to watch inflation expectations.
    it sounds like they aren’t sure what to do.
    keep an eye on the dollar, which weakened today and the yield curve, which widened today…. Bernanke is skating on some thin ice and has little room for error.

  13. Dagny commented on Apr 18

    “My new delirious prediction is that iron ore will soon sell for $628 an ounce surpassing gold as the new precious metal. Soon, we’ll be wearing iron ore and copper necklaces as fashion statements of the rich and wealthy.”

    I’ve already got a cool bracelt made from Reardon Steel. It’s pretty awesome.

  14. todd commented on Apr 18

    I’m glad I wasn’t short TravelZoo… did anyone catch that action today? Holy cow!

  15. rob commented on Apr 18

    if you include gold, oil, industrial metals, stocks,grains,real estate as assets then the current easy money induced bubble must far exceed what we saw in the 90’s. I saw a floor trader today speak of a new paradign, global economic expansion, everything has a price tag, oceans of money. maybe crazy but its woikin.

  16. B commented on Apr 18

    You may be right. Anyone look at the XAU charts lately? Hesus! I mean really long term. Like thirty years. What the hell is going on here? I hate to be a pig but it’s time gold correct significantly or I’m going to have to start believing this blather about gold going to $1000.

  17. Alaskan Pete commented on Apr 18

    Long term miner indexes (i.e. HUI) show a huge decade long cup-handle with a breakout. A truly stunning, absolutely textbook chart. Buy the dips boys, buy the dips.

  18. Mike commented on Apr 18


    This is a blow off rally. Buy the puts while they
    are cheap.


  19. drey commented on Apr 19

    Barry you made a very prescient call on gold 2-3 months ago when you said it was ripe for a correction and indeed it did.
    Is it similarly overbought now or is this thing going to the moon?

    Also interested to hear from any of you guys who have thoughts on whether/when there might be a disconnect between stocks and precious metals. Interesting to me the way they seem to have risen in tandem over the last few months. Will they tank together in near future or will gold continue to climb on inflation fears when stocks finally crater?

    Just trying to learn something here…

  20. dave commented on Apr 19

    fed is treating the market like a frog and slowly turning up the temp. i don’t see anything in the statement that suggests this is the eighth inning. We’ve been hearing the ratehikesarealmostdone for about one year now.

    Indeed, the end of the rate-hikes is ‘near’ but that’s kind of like the word ‘contained’ Contained usually shows up in the same sentance as the word ‘core.’

  21. Idaho_Spud commented on Apr 19

    It’s pretty clear that *somebody’s* making the wrong bet.

    It’s difficult to understand how equities and precious metals can *both* pop due to a (potential) pause in interest rate hikes. Equities are even more puzzling with light crude topping $71/bbl.

    Either the inflation we all face every day is *real* and the FED will need to raise interest rates a lot more to get it under control (crushing equities long before they crush gold), or inflation expectations and dollar devaluation expectations are under control and gold will take a dive, and the equities markets are correct.

    Realistically though, I’d feel *a lot* more comfortable shorting QQQQ than XAU right now…

  22. Mark commented on Apr 19

    I agree with Alaskan Pete. This is a generational bull market in gold. It is going higher. Buy on any pullback. I sold this move WAY too soon but I called the November and March bottoms using my “tell” which is about as secret as the one “B” apparently uses for technical bounces.

    Yes it should correct hereabouts. It is overbought on the weekly and daily charts. Can it move higher here? Yes. Bulls like this do that. But soon it will correct. Perhaps on an intermediate term basis which would take a significant amount off the top. A lot of the retail trade in gold is technical. However, since early March the funds and hedgies have gotten in.

    EVERYONE should have some gold in their portfolios at this point. Even Grandmas. Even “B”.

    As for a disconnect between stocks and precious metals, yes there is one. These deep cyclicals are not a good sign for what is around the corner for equities. However, no one said we were going to inflate, inflate, inflate either. So all asset classes are balloooning up. “These things end badly”-AG

  23. Barry Ritholtz commented on Apr 19

    Have I got a gold chart for you later!

  24. B commented on Apr 19

    Of course it’s a blow off rally. But, I wouldn’t be buying any puts till I had confirmation of a trend reversal. Tis better to be a trend follower than a trend maker. The euphoria over metals is stupid. It’s as fever pitched as the Naz in 2000. And if used anecdotally, Elliott Wave analysis shows all of these pigs are lining up for the slaughter. Transports, metals, Broker/Dealers, The pigs forget the basic laws of economics. Pax Metalia. Jim Cramer sounds just like he sounded in 2000 except this time it’s “minerals” or so he said on his show a few days ago. The only difference is some “stuff” stocks and commodities have blown much higher than the Nikkei or Naz did. Ok, so, is that worrisome in the larger scope?

    Gold stock PEs are averaging like 70. This is after their earnings reflect gold appreciating to $600. BUT, but, but is gold different than the other metals? Historically, gold has acted no different than any other metal. That is, after we no longer tied our currency to gold. If you believe the charts, the XAU is at the biggest inflection point in 30 years. I mean right now. Are we going to see an asset bubble pop that will lead to deflationary pressures? Is that what gold is telling us? Or, will it pop as well? So, does it crater this time or does it keep going? We’ll know soon enough. If it keeps going, what does that mean? More inflation? Deflation? Stagflation? I wouldn’t touch anything at this point until some dust settles…………We don’t even have any dust to settle yet.

    As for buying gold? I wouldn’t touch it with a ten foot pole. It has no intrinsic value. It cannot be traded for dollars or any other currency as it once was. That is why all it is is an inflationary hedge just like iron ore or copper. Or, I guess deflationary if we see an asset bust. We managed those before without the end of the world but it is unnerving right now. But, those statements apply only to me. Gold might be a great investment for others. But, I sure as hell would stick to the ETF because otherwise someone will get hit hard buying something so illiquid. You know, the people who crow that this is part of the 17, 15, 18 year cycle or whatever have alot of merit. BUT, you could kiss your ass good bye buying gold at the wrong time in those cycles. This time into the last asset cycle, gold fell 50%!!!!!!!!!!!!!!!!!!!!!! That’s right 50%. Smart money can time major moves in equities off of intermediate term bottoms without using their brain. It’s safe, it’s easy and it’s very rewarding. Anyone care to tell me how to time gold other than the start of an inflationary cycle? It can be done esoterically but crude technical analysis but that’s it. It doesn’t run off of supply/demand characteristics and has a mind of its own at times. I just wonder if something is different this time. If history is used as a metric, the answer is no. Gold’s run likely will not be done but it will get crushed before it head higher. So, I could see $1000, but IMO the party will end long before then and shake everyone out.

    I can’t wait to see this gold chart Barry is talking about.

  25. Mark commented on Apr 19


    A correction down to a major MA line is certainly possible. Anyone who is trading this stuff and is not watching his/her trendlines for breakdowns has had too much to drink. Air is very rarified right now. Some will run out of oxygen.

  26. Alaskan_Pete commented on Apr 19

    B, you can’t view prescious metals as an “investment”. They are wealth stores, an alternate form of “money”. But they also have an element of base metal behavior because there are industrial applications, particularly for silver and plat/pallad and the S/D fundamentals in both gold and silver support higher prices going forward (I don’t mean to suggest we are not currenly overbought, I have taken profits and continue to do so at intervals, waiting for the next pullback to put more cash to work)

    PCU and BBL have been very good to me over the last year.

  27. B commented on Apr 19

    I respect your opinion but I disagree. Precious metals have no intrinsic value with a global fiat currency system. There was a time gold was accepted in lieu of money. That was when the Federal government had a contract to buy gold at a predetermined price. There was literally a hard floor under the price of gold when our money was backed with hard assets. Gold & silver then gold. Or for thousands of years before when gold was a form of currency. Today, gold longer has that intrinsic value. It is no more money than copper, iron ore or otherwise. It is an inflationary hedge. I could have accomplished the same thing buying copper or iron ore or land or oil or shorting the dollar.

    If gold was a wealth store, it wouldn’t languish at pathetic levels for ten to twenty year periods only to rise from the ashes in very inflationary times.

    Your investments may have been good to you but so were homebuilders, nondollar denominated investments, global equities, etc. It is the cycle’s hehavior not the intrinsic value of gold. And, these investments are deep cyclicals that always out perform at the end of a cycle. Go back to other cycles at this point and tell me copper, platinum, paladium, gold and the sorts and show me where they performed well into a market correction. To the contrary, they led the market correction. The next phase of global growth will likely not be what you are holding today for reasons I don’t prefer to discuss………..So, enjoy your ride while it lasts. It will not last through a 15 year cycle without dropping below your purchase price first. There is zero historical precedence for it.

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