March 25 2006 at 2006-04-04 01:40:35 I thought it would be interesting to see where real interest rates were at the Fed's last rate hike during the previous three tightening campaigns. I'm using the Fed funds rate less headline CPI as the real rate. In May of 2000, real interest rates were about 3.15%. The prior tightening campaign had ended in February of 1995 with real rates around 3.05%. When the Fed finished tightening in February of 1989, real rates were around 4.7%.
Based on current data, with the Fed funds rate at 4.5%, and the yoy change in CPI at 3.6, the real rate is still less than 1%.
What if we use the core rate of inflation, instead of the headline number? Well, the results are little changed for 1989, 1995 and 2000, but not so for the current period. The current "core" real rate is 2.43%.
I think the conclusion from this is that, given current rates of inflation, it would be well within historical precedent for the Fed to hike to 5.25%.
March 26 2006 at 2006-04-04 01:40:35 As the 1st quarter winds down, I'm reminded of former NY mayor Ed Koch's catch-phrase, "How'm I doin'?" Well, your humble pajama clad blogger is up about 6.5% ytd, which isn't that impressive considering the lumbering S&P 500 is up 4.4% ytd, the NYSE Composite is up about 6.4%, and the Russell 2000 Index is up 11.9%. The drag on performance resulted in large part from premature exits in SKS, VMC, AKS, NTO, CDE, and GRMN.
GRMN was my worst loss of the quarter as I took a position after it gave every indication of a classic multi-month base breakout following a very good earnings report on February 22. No sooner did GRMN break out than tremendous selling pressure came in and the stock went from a high of 70.96 to a low of 63.66 before closing at 65.13 on record volume. Having got stopped out once during the session, I re-entered only to get stopped out again near the close as it dipped into the 64s shortly before the end of trading. It has since worked its way above 80.
Some New Links at 2006-04-04 01:40:35 I added some new links over the past few days:
Market Related Google Finance Enter a ticker symbol to get a feel for things. It's in Beta right now, but it looks great to me.
Magic Formula Investing This is a sight that lets you screen for stocks according to the "magic formula" from Joel Greenblatt's "The Little Book That Beats the Market". The site is free, but you do need to register.
Max-Pain The idea is that since the vast majority of options expire worthless, the price at which the maximum number of options would expire worthless will often serve as a kind of magnet for a stock or index as option expiry approaches. This site provides the Max-Pain point for the OEX, SPX, QQQQ, and about 20 of the more heavily traded stocks.
This little phrase from the latest FOMC statement has thus far not gone over very well with the stock or bond markets, even though Fed fund futures have priced in another 1/4 point hike in May. I guess "some" could imply more than 1 more rate hike could be in the cards and this the markets are not ready for. So much for all the wise-asses with their "helicopter Ben" remarks. Who knew? Well, the Fed usually hikes until the rates start to bite, and to think that they will act differently this time might be a costly mistake.
To follow up on a topic mentioned in a recent post, Senators Schumer and Graham have dropped plans for a bill that could have imposed stiff tariffs on Chinese goods if China did not let its currency rise against the dollar.
Meanwhile, today is shaping up as another "Yeeehaaa!" day with great market breadth and up volume currently swamping down volume. Since the middle of last week I've been scaling back into the energy sector (PXD, ARD, FDG, IO, BPT) and as of right now, I'm glad I did so.
