Place Your Bets

Ahead of tomorrow's Federal Reserve meeting the Dow had it's biggest daily gain in four years. What does this mean? Maybe investors are hoping the Fed will get back out of the way of the ongoing U.S. prosperity and cut rates to a more "market" rate level. My guess is the Fed will acknowledge more of the slowing its lagging monetary tightening has produced, but still keep rates unchanged and remain "vigilant" on inflation.

I've been saying ad nauseam this year that the Fed should let prosperity run and cut rates.

Here are a few of my recent posting links:

Inflation Calm Link Here

Memo To Bernanke to Cut Link Here

And Merrill Lynch Agrees............

"Still, there were some who did expect movement from the Fed, if not now, soon. Merrill Lynch put out a report predicting that the Fed funds rate would be at 4.50% by the end of the year, from 5.25% now. "Not only do we see the Fed cutting rates sooner than the consensus and markets currently expect, but we see the cuts being deeper, with the Fed eventually lowering the funds rate to 3.75% by mid-year 2008," they wrote."-courtesy WSJ.

With the core rate nicely in the Fed's "comfort" zone and decelerating it will be only stubborness and flexing of inflation fighting Bernanke manhood muscle that will allow him to beat the vigilance drum. Soon the beat will tire and cooler heads will prevail.

Q2 Much Stronger than Most Expected

This Business Outlook is from the latest issue of Businessweek and contains a well depicted synopsis of the recent sources of strength in the U.S. economy and a detail of the rebound in the second quarter. If it all pans out to be true, then we had a soft landing and goldilocks lives on. One thing, though, is I disagree with the author's headline and premise; that the good news entails the next Fed move is a rate hike; in fact the next move should be a cut, even inf the face of last weeks bond market activity and the 10 year treasury yield rising t0 5.15, the 9o day t-bill still signifies a cut. Anyhow, enjoy.........

U.S.: Stop Thinking Rate Cut, Start Thinking Rate Hike With economic growth rebounding, it's time to revise expectations

After a long and pleasant dream about the Federal Reserve cutting interest rates, the financial markets are beginning to wake up to reality. That is, maybe the Fed's next move will be not to lower rates but to raise them. We won't see action anytime soon, but market expectations are starting to turn 180 degrees from where they were only a month or two ago.

Most Wall Street Fed watchers who had been predicting the central bank would cut rates are already either pushing those forecasts further into the future or abandoning them altogether. And options trading in federal funds futures, which can offer a reading on what the market expects the Fed's rate will be, implies a 43% chance that policymakers will lift rates by their Dec. 11 meeting.......

......What has changed? Economic reports are making it increasingly apparent that the slowdown in the economy is over, with little if any progress on either loosening up the labor markets or bringing inflation permanently back into the Fed's comfort zone

.......ALTHOUGH WASHINGTON revised first-quarter growth in real gross domestic product down to a puny 0.6% from its original estimate of 1.3%, the overall implication for future economic growth, based on the details of the report, was clearly encouraging. The GDP numbers showed that demand from U.S. consumers and businesses grew 2.5% during the quarter, a faster annual rate than first estimated. That pace was a speedup from 1.8% during the previous three quarters and the fastest in a year..........

For rest of story link here

Mainstream Media Love Tech Again

As I've noted in a number of posts, tech is back, big time. I believe this tech 2.0 cycle is in the early innings of a nine inning game. Gradually over the last year, wall street and the main stream media seem to have caught on. Touting tech is no longer taboo as the wounds of the dot com era have been mostly healed or forgotten. The silicon valley companies of today are better run, more tangible, and vastly more profitable than their fallen brethren of the past.

In Fierce Competition, Google Finds Novel Ways to Feed Hiring Machine

MOUNTAIN VIEW, Calif. — On a spring Saturday, about 90 students from Stanford and as many from the University of California, Berkeley, converged on Google’s corporate campus for a day of spirited team competition over mind-bending puzzles, Lego building problems and video games.

It was called the Google Games, a convivial way for the mostly computer science and engineering students to renew the Stanford-Berkeley rivalry. But behind the fun was a serious corporate recruiting event that underscores a rivalry no less intense: the tug of war for talent between Google and its competitors.

As much of the high-tech industry is enjoying a renewed boom, the competition for top recruits in engineering and other fields is as intense as ever. Companies like Google, Microsoft and Yahoo frequently find themselves going after the same candidates or recruiting in one another’s backyards. At the same time, they are running up against a myriad of start-up companies across Silicon Valley that have been pumped up with venture capital in recent years.............

Excerpts from NY Times

For Full Story Follow Link Here Link Here

London Home Prices on Fire

Despite recent interest rate increases in the UK, home escalation continues proving that the fundamentals of income growth and supply and demand are the key factors..........

London Homeowners Reap $150,000 as U.K. Prices Jump (Update3)

"April 16 (Bloomberg) -- London homeowners gained an average 76,000 pounds ($150,000) on the value of their property in the past year, triple the median salary, as U.K. house prices rose the most since 2004, the country's biggest property Web site said.

Asking prices for a home in the British capital reached an average 379,846 pounds in the four weeks through April 7, up 25 percent from a year earlier, Rightmove Plc said today. The cost of an average house in the U.K. rose 3.6 percent on the month and 15 percent from the previous year, the most in almost three years.

Three interest-rate increases since the start of August have failed to contain a housing boom that has driven up the price of a parking space in the London borough of Kensington and Chelsea to equal that of a home in the Midlands. Soaring property values are stretching mortgages to six times salary and prompting young people to live at home with their parents for longer. ........"

By Jennifer Ryan - Bloomberg

Story Link Here

The Market Calms Down - Bernanke Helps

The correction in yesterday's stock market is a reminder that markets don't move up forever in lockstep with low volatility and complacenty, and that some retrenchment is always necessary and healthy. After the settling out today it was a good wake up call that risk does exist, but also that long term fundamentals are in tact for sound U.S. economic growth.

Fed Chairman Says Markets Working Well - Associated Press - February 28,2007

Bernanke Says Markets Appear to Be Working Well With No Big Change in Economic Outlook

"WASHINGTON (AP) -- Federal Reserve Chairman Ben Bernanke told Congress on Wednesday that the administration and federal regulators are closely monitoring financial markets in the wake of the biggest sell-off in stock prices in more than five years but so far the markets appear to be "working well.".....

....In what might have been a reference to Greenspan, Bernanke testified at one point that there did not appear to be a "single trigger" to Tuesday's sharp sell-off, which saw the Dow Jones industrial average fall by 416.02 points.

Some analysts believe that Greenspan's comments over the weekend that there was a possibility of a recession by the end of the year along with a sharp drop in China's Shanghai stock market contributed to Tuesday's big drop on Wall Street, which saw the Dow Jones industrial average fall by 416.02 points.

But Bernanke let members of the House Budget Committee know that he didn't intend to assign blame.
"There didn't seem to be any single trigger of the market correction we saw yesterday," he said in response to a question. "I don't think it would be useful for me to try to parse the movement into the components associated with different pieces of news or pieces of information."

On Wall Street, investors seemed to take comfort from Bernanke's comments that there was no single trigger to the big selloff. At midday, the Dow Jones average was up 42 points after having been up by more than 100 points earlier in the session......

....He said there had been "no material change in our expectations for the U.S. economy since I last reported to Congress" when he delivered the Fed's latest economic outlook two weeks ago.

"We are looking for moderate growth in the U.S. economy going forward," Bernanke said. He said that if current corrections under way in housing and the amount of inventories being held by business stabilize in coming months, the economy should begin to rebound from its current slowdown by the end of the year....

Some key points in Bernake's testimony today. He stated that he didn't see the isolated subrime mortgage market issues spreading into a bigger problem , also there was a chance that if housing stabilizes the first half of the year (fedspeak for it's stabilizing - similar to what Alan Greenspan has said a number of times that housing has stabilized) that the U.S. economy could strenthen at mid year. He also reiterated that liquidity is not a problem in the credit markets, so that should put a lot of fears to rest about a credit run or anything resembling an S&L type situation.