Economic strength ultimately causes the Fed to raise short term rates. In this 2006 instance, the Fed is raising rates until the "economic strength" of the housing market slows. But the interest rate increases have other effects ie corporate profits. Lower corporite profits is a lower stock market.
A stock market top right here?
- Thread starter thorn
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Economic strength ultimately causes the Fed to raise short term rates. In this 2006 instance, the Fed is raising rates until the "economic strength" of the housing market slows. But the interest rate increases have other effects ie corporate profits. Lower corporite profits is a lower stock market.
Wall of worry. Yes, markets climb a wall of worry. Right now it looks like bonds are climbing a wall of inflation worries. I suspect bond futures bottomed out on Sunday, April 9, but we'll have to wait to see whether they have really bottomed or are just taking a rest before journeying lower. In any case, bonds were up yesterday and are up today, which is pretty impressive in the face of extreme bearish sentiment.
But look at how much bonds sold off before starting to climb the wall of worry. The sequence goes like this:
1) New worry appears
2) Market sells off
3) Eventually sell-off is overdone, and market starts to climb "the wall of worry"
When you see a new worry, you shouldn't be thinking about stage 3 to start with. Think: sell-off, then rebound.
The Iran situation is not something new. But what is new is that it is starting to get people's attention and is driving oil prices higher. The market basically forgot about Iran for awhile. But these three things are making people sit up and pay attention:
1) The New Yorker article
2) The return of UN inspectors to Iran
3) The UN Security Council's end of April deadline
Eventually, the current sell-off will become overdone and then stocks will be ready to climb the wall of worry.
But I don't think this is going to happen, in a long-term sense, until the Iran problem is resolved. We'll have a little rally here and there, but it's probably not going to come back in a big way until the uncertainty surrounding Iran is resolved. The market would like to see a diplomatic solution in which Iran gives in and abandon its nuclear program, perhaps in return for some kind of aid package. But my guess is that what we'll see instead is either
a) the U.S. backs down and Iran eventually develops nuclear weapons. And I don't think the Iranians are ever going to see the U.S. as anything other than the Great Satan no matter how nice we are to them. Even if we deliver Salman Rushdie's head on a platter to them, it's not going to make them love us.
b) The U.S. doesn't back down and neither does Iran. I won't elaborate on what happens next.
yeah, i see the causality you have in mind. i would just contend that high prices in the housing market don't represent 'economic strength' in the context of dollar weakness, but it's a nebulous term to begin with
pardon my rudeness, but what the f**k do you know?
Do you have any sizable positions on to capitilize on your prediction?
I don't know for sure, but this does look pretty obvious:
<b>Thorn=Rubberbird</b>
<b>Thorn=Rubberbird</b>