Everywhere you look there are signs of Inflation (gas prices are up, milk, paper, lumber, etc…), but the Fed said deflation is now under control and producers are starting to gain pricing power (the fuzzy language from Greenie which simply means Inflation maybe peaking up).
On the contrary, I see deflation coming. The appreciations of the big ticket items are over. We are now seeing depreciations on them: commodities, stock markets, auto and real estates. The Fed is extremely late on seeing the inflation in the raw materials (the commodities); stock markets are topping out as you can see from my previous postings; we are seeing more rebates from auto dealers as the inventories are fully stuffed; and real estate can’t go any higher because this massive debt bubble has already topped the credit limits. Sure the recent campaign on 0% down might sustain the demand for a while, but I just don’t see how real estates can appreciate anymore than the current outrageous level during this summer hot season. As matter of fact, we are seeing a drop in real estate in Dallas, in addition to a drop of mortgage requests to January level.
I am thinking the Fed, led by the elusive Green Giant, will miss the real deflation, just as it missed the real inflation in 2003; thus, before the Fed can gradually raise the rates 100 basis points to fight off the “late-call” inflation, it will make a quick U turn, sometimes in 2005-6, dropping the rates below the current 1% level to fight the deflation that zoom by the “sneak eye” Greenie. Sounds impossible?
Here is another thought. Rising oil price may keep rate low [read].
On a separate note: since Fibonacci said short-term low was met on May 12, we should see a short term rally. Unfortunately, we are witnessing a very weak rally taking place. Today, for example, DJIA was up most of the day, as high as 10,093, but it closed down at 9,937. Although I don’t do short term trades (this finicky market is increasingly hard to predict), I won’t be surprise that 10,093 is the mark of a short-term high. But then again, this is the option expiration week, and since the general market consensus is still overly optimistic (not as strong as before), DJIA trade above 10,100. Only time will tell. I don’t mean to contradict myself, but pinpointing high and low is as hard as predicting the total points scored on a basketball playoff game.
One thing to keep in mind is DJIA will most likely fall to a 9,850-9,650 trading range for a while before hitting the 9,353 bottom.
posted by jason @ 7:10 PM
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