“Investors are kind of ignoring the economic news …”

Speaking of truer words never having been spoken..

For investors, the possibility for lower rates seemed more compelling than persistent concerns about a slowdown economic growth. The Fed has already reduced rates at its last two meetings, and continues to inject billions of dollars into the financial system through repurchase agreements to help calm the shaky markets. The central bank will hold its final rate-setting meeting of the year on Dec. 11.

“Everything we’re seeing in the market is revolving about credit and encouragement that the Fed is going to bail us out again,” said Alexander Paris, economist and market analyst for Chicago-based Barrington Research. “Investors are kind of ignoring the economic news like housing and durable orders that were all weaker than expected.”

… signs that the Fed will reduce rates to keep cash flowing freely helped overshadow reports showing that in October, sales of existing homes fell for the eighth consecutive month and orders for big-ticket manufactured goods fell for the third straight month.

Plunging oil and gold prices also lifted investors’ hopes for a rate cut _ if inflation is in control, policy makers have less reason to keep rates high.

That last bit doesn’t make a hell of a lot of sense (at least to me). Oil really hasn’t fallen nearly enough for inflationary pressure to have diminished – and with the US still running well below 5-year averages for refined oil (i.e. the gasoline that – so far – we’ve kept from appreciating by burning through reserves), coupled with the depreciating US dollar – depreciation that one ought to expect to continue, following a third rate cut – I wouldn’t expect the US economy to benefit much, at all, from any easing. Besides, oil is oil – does it matter if prices “ease” for a few days or weeks?

Gold – I guess. I have always been given to believe that silver would be more relevant to watch for the purposes of inflation. Gold is like T-bills: we watch them to see the extent to which people blow for quality reserves for holding their wealth.

This repeated behaviour, though, of ecstasy over mere things like rate cuts, opening up, evermore, the windows used by assholes to spin bad paper away from them (or through them, long enough to make some money) is just idiotic. People won’t keep spending (hell, they haven’t been since August). I’ve seen more rationality in heroin addicts.

In the famous words of Mos Def, “I heard ’em say it was all about the Benjamins: I don’t believe it now; didn’t believe it then.” One wonders just how far the pool of ‘core’ investors will shrink.


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