The Feds could trigger a sell-off
5-8-07: Tomorrow (5/9/07) should be interesting as the Feds will release their decision on short term interest rates. We expect the Feds to keep interest at 5.25% since there does not appear to be ample evidence to move in either direction. While economic data suggest the economy is showing more signs of a slow down such as lower than expected hiring, uninspiring home sales, this would not be enough to warrant a hike or reduction of short term rates.
As always, the statement the Feds release will be the key. If there is any hint the Feds believe inflation is getting out of control, this bull market will end tomorrow. We plan to take a very cautious approach and sell some positions that have had quite a run. You might want to do the same and lock in some of that profit.
What do you think will happen tomorrow?
Comments
If there is a slowing of the economy as many analyst beleive, wouldnt this reduce inflation as prices must come down as demand declines? Suggesting that a rate hike is unlikely?
Just wondering if my thought process is correct. I agree that these are dangerous waters to be in at this point in time.
Posted by: Farzad | May 9, 2007 05:27 AM
Hi Farzad,
Your thought process is correct in the context that the overall economy is slowing.
What is concerning to us in this current situation is high energy prices could cause inflation since everything seem to be tied to energy prices. The hope is the slowing of the overall economy will be offset by the rise in energy prices.
Posted by: ibooyah | May 9, 2007 11:14 AM