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The FOMC Party
Author: Ravi Prakash (info)
Website: http://www.optionstradinglessons.com/
Posted: October 29th, 2007 at 1:42 pm EST
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The Market has been waiting for this next meeting for the last couple of weeks. The latest data shows a 70% chance of a 0.25% cut in interest rates. I suspect we will see the Market get their desired cut. The odds also favor the Market indices getting a lift from that event. The Feds want to avoid a recession without letting inflation get out of hand. A tricky act to accomplish.
A couple of note-worthy events this week were MER announcing the loss of over $8 billion in the latest quarter. It takes over 31 years to count to 1 billion at 1 number per second. We are so used to reading about billions that we often forget how huge this really is. I bet the board members and investors of MER are upset now. Do they not have internal auditors who check to make sure things do not get out of hand? Then we had MSFT come out with great earnings. Then they go and spend $240 million to get slightly over 1% in FaceBook. Maybe it will pay off. Finally the one that astonishes me the most is CountryWide. They had a huge loss and still the stock price shot up over 32% because the CEO said the worst is over and that they will turn a profit in the next quarter and for 2008. (Enron deja vu, anyone?) The housing market is not showing any concrete signs of recovering. Late payments and foreclosures are picking up speed, so what information does he have that the general public does not?
Finally we had Oil hit $92 a barrel. Fundamentals dictate that Oil prices should not be so high, but the technical indicators (charts) show strength with the potential for more highs. Sentiment definitely supports higher prices. Turkey decided to attack the Kurds across the border. Then the US passed a new set of sanctions against Iran. These events had a lot to do with the upsurge in Oil prices. For the very near future we are going to see more of these highs.
In the face of all this the Markets continue to show strength. I fear that the Markets are placing a lot of hope in a rate cut. The chances of no rate cut are pretty slim. Earnings will soon wind down, what will keep the Market going? The holiday shopping? It will be interesting to see what consumers spend their money on this season. I spend my disposable income on travel and am going on a much needed vacation for a couple of weeks in late December.
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