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Dallas, TX
February 19, 2010, 08:00 EST |
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Dr. Joe Duarte's Market I.Q. |
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The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
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Federal Reserve May Have Changed Everything
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What's Hot Today: |
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U.S. stock index futures could be in for a volatile day
on Thursday as the Federal Reserve raised interest rates after the market
closed on Thursday.
Today's Economic Calendar:
- Consumer Price Index 8:30 AM ET
News For Thought
Report: Syria preparing for regional war. Syria is preparing for a U.S.
and or Israeli attack on Iran. And although such an attack may never happen,
it's important to consider that at least Syria is preparing, in case that it
does.
The report came from intelligence web site Stratfor.com, citing Syrian sources,
and noting: "STRATFOR sources in the Levant say that concern is growing in Damascus
over a potential U.S. or Israeli strike against Iran, and that the Syrian regime
is quietly taking measures to prepare for a regional war. The sources said that
the Syrian government has begun to purchase gold and major foreign currencies
from the local market, and has begun construction of concrete trenches and barriers
around government buildings within Damascus and beyond."
Furthermore, the report notes: "Syrian authorities have issued orders to metal
workshops against manufacturing moulds that can be used in rocket construction,
and have limited the amount of money merchants can withdraw from banks, in order
to avoid a bank run. Electricity cutoffs have increased as a way for the government
to conserve power supplies, and the regime has begun issuing gas masks to officials,
police and gas station operators. While Damascus has no interest in getting pulled
into a war on Iran’s behalf, it would be affected by any retaliatory action Iran
could take through Hezbollah, its proxy in Lebanon, and is also concerned that
the Syrian domestic opposition may use a military conflict with Iran as an opportunity
to stage attacks of its own."
Angola embezzlement scheme uncovered. It's not one of those e-mail messages
that purports to make available millions to those who respond. This was an honest
to goodness theft ring inside the Angolan central bank. According to Stratfor.com: "Eighteen
low-level employees of Angola’s central bank and Finance Ministry were arrested
under suspicion of embezzling up to $137 million, in a scheme in which the money
was transferred out of the Banco Nacional de Angola between September and November
2009, AFP reported Feb. 18. Prosecutor Joao Maria de Sousa said almost $100 million
has been retrieved and luxury cars have been seized. De Sousa added that more
arrests could be made in the case."
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Federal Reserve May Have Changed Everything
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Why Is The Fed Going Through Great Pains To Minimize Discount Rate Hike?
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The Federal Reserve raised interest rates on 2-18 after the
market closed and everything may have changed. The real question is why? Yeah,
they told us they would. And yes, at some point they have to raise rates. But
why on 2-18? And why after the market closed?
To be sure, the Fed had told the markets over the last few weeks that they were
going to raise interest rates. They also told the markets that the Discount Rate
and the Fed Funds rate were going to be relegated and that new tools were going
to be used. More important, the Fed, after they raised rates has gone to great
lengths to tell the markets that the Discount rate hike isn't all that important.
But, that's like telling somebody that you'll only stab them a little.
So, the real question is whether everything has changed. And to us it seems that
it has, and that more problems may be on their way. Sure, the market may shake
this rate hike in a couple of days. But, that will likely embolden the central
bank to do it some more.
The timing of the rate hike is also interesting, given that the Producer Price
Index, released on 2-18, before the market opened, was a little hotter than usual.
Yet, at the same time jobless claims rose more than expected. The bond market
got spooked and yields moved higher on the U.S. Ten Year note.
The Fed's move also came as the White House is trying to look fiscally responsible,
on one side by talking about correcting budget deficits, while it spends money
like crazy with its other hand. Also worth considering is the decreasing amount
of treasuries being bought by the Chinese.
What is the major change? For one the Fed has made the Discount rate an overnight
rate, shortening the term of the emergency loans to banks from 28 days. This
is meant to encourage banks to borrow from the markets instead of from the Fed,
and actually makes sense, as it's part of what is clearly a necessary weaning
process. For another, the borrowing from the Discount window has dropped significantly,
from $100 billion at the apex of the crisis to $15 billion in the latest set
of figures released by the Fed.
The other change, and this one will be better understood in the next few days
is what the market will actually make of this change by the Fed. Overnight, the
dollar rallied, bonds sold off raising yields, and stock index futures fell.
As time passed overnight, most of the initial moves were pared down, but not
the trends.
Time is the market's friend right now. But clearly things have begun to change.
Conclusion
The Federal Reserve has to increase interest rates. Not only has it been telling
the markets that it was going to start doing so, but now it has begun to do so.
This first move is seen as something "technical" bringing things back to "normal" in
the Fed's own words.
Yet, it's happened, and it seems to us that it will be the first of many moves
by the central bank. The key to what happens in the markets is how the Fed goes
about its business of tightening. And we would expect the pace to be very, very
slow.
The markets will likely adjust over the next several days. A positive close on
Friday would be a good sign.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
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Market Moves - Stock Of The Day
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Oil Service HOLDRS Trust (NYSE: OIH) Could Move On Merger Developments
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Halliburton
(NYSE: HAL) is reportedly seeking to buy Smith International
(NYSE: SII). If this is the start of an M & A wave
for oil service, it could be a positive for the Oil Service
HOLDRS Trust (NYSE: OIH).
Chart Courtesy of StockCharts.com
Oil service stocks are the bellwether for the oil markets. When these shares
move up or down, the price of crude often follows. Lately, oil service and crude
oil prices have been rebounding, despite a strong dollar.
Some of the rise has been from expectations of some kind of economic stabilization
and some expectations for increased demand for crude. Yet, news of the potential
merger of Halliburton and Smith International may have had a positive effect
on OIH.
The key for investors is to make sure that if OIH rallies, crude follows. If
there is no such coupling between the two, then the OIH rally, if it develops
will be on expectations of more mergers in the sector.
The current economy is the type in which companies that have strategic similarities
and interests do look to merge. Ususually, they are looking for savings and increasing
their market share.
For OIH, a good move above 125 would be a signal that more gains could develop.
This would likely be more pronounced if other merger news appears within the
next few days to weeks. Dr. Duarte owns shares in OIH.
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