Fed Minutes: Much Ado About Nothing

As we mentioned earlier today, yesterday’s release of the minutes from the May 10th Federal Reserve Meeting raised investor fears of continued Fed rate increases. Yet we think there is one important aspect of the Fed minutes that investors completely ignored- the meeting was on May 10th!

Let’s take a look back at what the Fed was seeing on May 10th. The first chart posted below is our economic indicator A/D line. Basically, it shows the cumulative net total of economic indicators that have exceeded expectations over the last 25 days. As of May 10th, the indicator had rallied from “-12” in March to a level of “+6” on May 10th. Clearly, the economy was showing signs of life.  As of yesterday, the economic A/D line had fallen back to “-2”.

In terms of the market, on May 10th, the DJIA posted its third highest close in history, and was up 8.6% for the year, or an annualized gain of over 24%. As of yesterday, the DJIA was up a more muted 4.2% for the year.

As of May 10th, commodities were also in the midst of a strong rally. Copper was up over 75% YTD, while Gold was up over 35%. Since then the two metals have corrected by 6% and 11%, respectively.

So there you have it, as of May 10th, the date yesterday’s release of the Federal Reserve minutes was based on, the Fed was looking at an economy firing on all cylinders, a stock market on pace to post returns of nearly 25% for the year, and commodities that were parabolic. Since then the economy has softened, equities have corrected, and commodities have certainly paused (anyone notice copper halted today for hitting its daily maximum range to the downside?). Something tells us that if the Minutes that were released yesterday were from a meeting that actually took place yesterday, the tone would have been considerably different.

Comments

[ss]

Brilliant observation....the simplest ones usually are!

Also overlooked by the (frightened) masses is the fact that the leading economic indicators, like the FIG (Future Inflation Gauge) has been DECLINING since February. I think people are underestimating Bernanke. He may be happy to have us think he sees inflation, and the need for higher rates...and just let the bond vigilantes do his bidding. I believe they'll be cutting rates by year end.

[x]

Cutting rates by year end? I thought you were bullish SS? Btw, so you think we'll be cutting rates? And, that means more inflation and commodities likely re-engaging their parabolic rise while the dollar drops a bigger bomb dropping further and collapsing global trade while disproportionately hurting the Asian nations and commodity driven export nations. Hmmm....can you say stagflation or worse?

The Fed is in a box and if you think cutting rates will make the party better, you might want to reconsider your very bullish outcome in your investments style.

[ss]

I believe they'll cut rates ONLY if they listen to Moskow's idiotic statement that he wants 1-2% growth rates. If they chill out here, pass the Goldilocks (not Gold).

[x]

Oh come on! You still believe in fairy tales? Do you also believe in the Big Bad Wolf or the Three Bears? Goldilocks looks mighty appetizing here. But, just a minor snack for either. lol.

You obviously have more faith in human nature than I do. I hope you are right but I'm quite confident you'll owe me a dinner at Ruth's Chris. Kansas City bone in Strip cooked medium rare on their salamander broilers to a crispy crust. Yummy.

[ss]

That same pablum was puked by the perma bears at the Duct Tape bottom, and after 9/11....$$ is collapsing...rates to the moon...5000 Dow. Right.

Personal attacks toward me do not strengthen your arguement.

Peace.

[x]

Now if I had any idea you still believed in Goldilocks I never would have made that joke. I do have a heart. That is what you are referring to isn't it? As that is the only thing I can think of as an attack. I am so sorry. Maybe I can get you an appointment with Santa so you can sit on his lap and ask for another bull market here.

You must have me confused with the Big Bad Wolf or the Three Bears because I'm neither. I was fully invested and never took my money out the entire 90s. And, within two weeks after 9/11, I was given a buy signal. Likely driven by the Feds significant liquidity injection. One that I eventually outed because we went 40% below that peak to lower lows.

[ss]

So you're bitter because you have missed the huge run from the Duct Tape bottom (3/'03). That make sense. Here's something to check out:

http://tinyurl.com/zd7og

[x]

LOL,
No, I was back in in 2002, then out again till April 2003.

I appreciate all of those brilliant people telling me that the future is so bright. Your link has me convinced I should put everything I own in stocks because that person is obviously brilliant. So, if the PE has been falling for three years, what does that tell you? It's going to start expanding? Uh...ok. Sure. Ever heard of what free advice is worth?

I do my own research, have developed my own trading models and don't listen to such silliness that either supports or doesn't support my position. It's all just noise. Should a miracle occur and we head significantly higher, the good news for me is I can benefit. ie, I learned long ago what you might yet learn. Most others don't know squat. Especially those with free web sites.

You keep posting your supporting cast of fools. I'm sure they'll be right. Just be sure to keep stopping back here over time so we can compare notes.

[ss]

Nice. So it's a miracle when you're wrong. Anything that doesn't support your "models" is silliness and noise.

Got it.

[x]

Did I say that? Just like did I actually personally attack you?

You should take your meds. Oh, and be sure to stay long. Enough of this thread for me. Be sure to keep stopping back. You are quite confident you are right and you can heckle me if so.