Wednesday, April 30, 2008

What the Fed Meant

The Fed cut rates again, but this time said "uncertainty about the inflation outlook remains high." That is how the Fed fights inflation today. Not by holding or raising rates, but cutting them and saying "we'll keep an eye on inflation." I'm beginning to wonder if these guys ever get out into the real world and experience what has happened to the cost of things people actually buy.

One of the reasons they keep cutting is to try and get mortgage rates lower to encourage people to buy houses and refinance out of bad loans. But the banks aren't are tightening the strings. Mortgage rates have actually gone up in recent weeks.

As for stocks, there aren't a lot of positive catalysts for them to rise. Consumer sentiment is very low, and the generality of "the worst is probably over and the second half of 08 should be good" are the biggest factors right now. We've moved plenty off of oversold levels. The "stronger dollar" play will probably be very short lived, and will probably be a good entry point for agricultural and oil stocks.

I'm looking at Arcellor Mittal(MT) and Companhia Vale do Rio Doce (RIO). RIO just signed a 10 year partner ship to provide iron ore to Arcellor for steal. This is a positive for both companies. I was close to pulling the trigger on RIO just under 37, but wanted to wait until after the Fed, but S&P upgraded Brazil to investment grade, and Brazilian ADR's all surged. Anyway, both are good long-term stocks to own.

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