The Patient’s Improving, For Now

March 24, 2007 9:26am by

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Kopin Tan has taken over the weekly Trader column duties from Mike Santoli:

"THE PROGRESSION OF ILLNESS FOLLOWS a typical arc: Symptoms surface. A diagnosis is rendered. Then comes a prescribed remedy and, possibly, recovery.

But for investors who had been fretting about the
contagious spread of mortgage delinquencies, a benign economic
prognosis from the Federal Reserve last week was all it took to feel
sprightlier — and drive up stocks prices. In holding interest rates
steady at 5.25%, the Fed also dispensed with a customary threat to
tighten monetary policy as needed. The famous phrase’s conspicuous
absence was interpreted, rightly or wrongly, as a willingness to begin
cutting interest rates soon.

That mere whiff of a possible prescription was
enough to send this patient into recovery. Stocks raced to their
biggest one-day gain this year once the Fed statement hit the tape. The
broad rally lifted all sectors, with financial stocks leading the way.
Cash flow into U.S. mutual funds eventually topped $2.2 billion on the
week — the first time since July 2005, according to Banc of America
Securities, that domestic-equity funds hauled in more cash than their
overseas counterparts."

I had a few choice words in the column:

Whether the market’s
suddenly improved sense of well-being is warranted remains to be seen.
Barry Ritholtz, chief market strategist at Ritholtz Research &
Analytics, likens investors’ clamor for a possible rate cut to "praying
for chemotherapy."

"The Fed begins cutting rates for two possible
reasons — when it’s apparent that inflation is no longer a problem,
which isn’t the case here, or when economic growth slows dangerously,"
he says. Steady inflation gauges and firm commodity prices — crude oil
is at a three-month high, and copper prices are up 12% this month —
suggest inflation remains a threat. So was Dr. Bernanke more concerned
about the economy than he lets on?

You know what I think on this already . . .

>

Source:
The Patient’s Improving, For Now
Kopin Tan
Barron’s THE TRADER, March 26, 2007      
http://online.barrons.com/article/SB117469219342447411.html

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What's been said:

Discussions found on the web:
  1. randy commented on Mar 24

    excuse me,this may sound like a dumb question.if excessive debt/credit is one of the major problems facing our economy, how will more debt/credit help? you would almost think that the fed and our gov. were trying to run this country in the ground.

  2. Winston Munn commented on Mar 24

    Curious number – what is driving up the price of copper? It certainly is not demand from U.S. construction.

  3. Lauriston commented on Mar 24

    We should all agree that there is no agreement or even understanding about what the Fed said. And since they didn’t actually do anything e.g. raise or lower rates, maybe we can just ignore the Fed statement and focus on the market trend itself? Daytraders must have had a great week!

  5. Shrek commented on Mar 26

    The fed needs to realize the HF community is ready and waiting to profit off the next ease. That will only cause all the problems to come back again.

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