Cold Markets and Warming Rates
June 6, 2007 4:15 pm
The thought of a a rate increase has sent a chill through the markets today. For some time, we have been high on a pedestal trying to shout out the fact that the FED is stuck in a corner with their back to a wall. Remember, there are several factors that have been discussed in podcasts and posts by us over the past month. Then, problems stemmed from the EU increasing rates in an attempt to slow that economy.
In his recent comments, Bernanke was leaning in the direction of a higher rate posture. Once again it seems that the need to cool the markets and give a lift to the dollar is paramount. The biggest problems will been seen in many of the sectors that are interest rate sensitive as well as the high-flyers.
Be careful here as there is a real possibility that the markets will move down aggressively towards their support levels. Remember, the recent run up in the markets did so in a rather short time period. In fact, only a few months ago the markets were flat. Even the best scuba diver needs to come up for air eventually. It is time for these markets to correct back towards more appropriate levels. Once there, they can look towards an upward trend if earning and economics look good.