All Things in Moderation

Vital Statistics:

Futures are higher this morning on strength in Europe and the Fed’s comments.  To be honest, I found yesterday’s language in the FOMC statement to be equity-bearish. They committed to lower interest rates until late 2014, took down GDP estimates, and made scant mention of the recent signs of an accelerating economy.  The Fed looks at economic indicators that are not made public, so we can’t know exactly what they are seeing.  Perhaps their models are telling them that these recent strong data points have been spurious.

I like to listen to conference calls from companies reporting earnings.  And while it is tough to quantify and model body language, it does give a view of the economy going forward.  Apple’s report certainly speaks of a stronger consumer.  The homebuilders have been increasing backlog and activity. United Rentals reported last night a 27% increase in revenues in Q4 and a utilization rate of 69% for FY11, a company record.  While you can object that URI’s numbers are coming from a weak base, you can’t dispute the direction.

One thing is for sure, the Fed wants you out of Treasuries.  They are giving you a good bid to exit the long end of the curve.  They are telling you (through an explicit inflation target) that they intend for you to make a 0% real rate of return on the 10 year bond.  They are paying you nothing to sit in short term paper.  The Fed wants you buying real estate.  They want you buying stocks.  There is an old saw in the market – “don’t fight the fed.” And that may explain yesterday’s equity rally as much as anything.  Heard on the Street this morning this morning interpreted the statement as “We won’t raise rates until the economy is really going.”  And supposedly that gave equity investors a little comfort to put more money to work.

I guess it is time to figure out where the next bubble is going to be.  6 years of rock-bottom interest rates should be a good base for one.  Farmland. Commodities.  You could make the argument that long term govvies are in bubble territory already.  If we start seeing levered Treasury strategy ETFs and structured notes, you’ll know we have crossed the rubicon.

In economic data this morning, durable goods orders were higher than expected at 3%.  Initial Jobless Claims came in at 377k.  EURIBOR / OIS continues to tighten, down to 78.5 basis points.  20 basis points could be considered “normalcy” in the European banking sector.  Still, it has come in over 21 basis points in 6 weeks.

Filed under: Earnings Announcements, Economic data, Economy, Federal Reserve | 130 Comments »