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Welcome, Data…we’ve been expecting you!

Author: Bob Lang (info)
Website: http://trade-mentor.com
Posted: December 1st, 2006 at 10:33 am EST
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I’ve posted for weeks about evidence of a slowing economy.  This was finally validated Thursday with the PMI data and confirmed today with the ISM data.  Look no further than the bond market to see the evidence.  Bonds are continuing their fantastic rally that started when rates peaked in June at 5.25% (ten year).  The Fed lags the market by well over four months…and while this is considered a ‘new’ Fed under Bernanke, it really is the ‘old’ Fed.  The inaction of the last few months was appropriate, but the Fed should start cutting rates NOW to get ahead of the curve.  The inflation-fighting talk is nonsense at this time…the vigilance should turn to protecting the economy from a severe recession that could last throughout 2007.  The Fed won’t do this, of course…bringing fear to the markets…just look at the VIX this week…a sharp rise on Monday is now accompanied by another sharp rise today.  What’s the sudden fear all about?  That the Fed will NOT save the economy before a recession is in place.  Meanwhile, the ten year yield has plunged below 4.5%.  The yield curve is severely inverted!  The bond market is always right! 

What’s it all mean?  It’s all in the hands of the Fed.  If they choose to ’save’ the economy from a slowdown…read the tea leaves, then it looks good.  Maybe some jawboning about easing would be a good thing.  The good part is, rate hikes are DONE….and when in an easing mode, the markets simply fly!

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