Summary
First it was a "considerable period." Then it was (and remains)
"patient." Will the post-meeting statement the FOMC issues today find a clever, new
way to captivate Wall Street bulls? If so, will it help the flagging stock
market?
Today's FOMC Meeting
There's very, very, very little chance (as in virtually none) the Federal
Open Market Committee will change the Fed's administered interest rates at
today's policy meeting. Thus, market excitement the meeting will generate, if
any, will come from the wording of the committee's post-meeting statement, due
out at approximately 2:15 PM (ET).
Greenspan has a problem. It's a problem that comes when an independent
central bank isn't any longer very independent.
In attempting to schmooze the financial markets, the Fed cannot be too
tough in flogging the economy as a justification. The White House would not like
that at all, a White House that at least at the moment is probably not
feeling great about a few items of import.
Greenspan has succeeded in wringing out of expectations any serious
concern about a rate hike in the near future. The following table clearly shows
this phenomenon.
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FEDERAL FUNDS FUTURES -- 03/15 VS. 01/28
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03/15 01/28 BP Scheduled
Contract Close Close* Chg. FOMC Meetings
----------------------------- -------------s
Mar. '04 1.01% 1.01% 0 Mar. 16
Apr. '04 1.00% 1.02% -2 No Meeting
May '04 1.01% 1.07% -6 May 4
June '04 1.01% 1.10% -9 June 29-30
July '04 1.04% 1.18% -14 No Meeting
Aug. '04 1.07% 1.27% -20 Aug. 10
Sep. '04 1.10% 1.35% -25 Sep. 21
Oct. '04 1.15% -- -- No Meeting
Nov. '04 1.23% -- -- Nov. 10
Dec. '04 1.32 -- -- Dec. 14
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*Date of last FOMC meeting.
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So what do you do for an encore? If the FOMC sticks with "patient," I
strongly suspect it will engender little further enthusiasm. And some
additional enthusiasm is something the stock market in particular needs badly at the
moment.
Stock Update
From the missive dated 3/3 ("Stocks: The Topping Formations Continue")"
"I think something worse -- perhaps significantly worse -- than a mere
'healthy correction' is lurking out in the future ... The question of great and
growing import now is could the 'future' be closer at hand than almost all
strategists, analysts, etc. believe it could be?"
On 3/5, three of the seven measures comprising my stock tracking group
closed at 52-week highs, albeit very marginal ones. The three "winners" were
the NYSE Composite, the Value Line (geometric) and the Wilshire 5000. On the
5th, the DJIA and the S&P 500 left intact the highs they had set on 2/11. As
for the NASDAQ 100 and the Russell 2000, their highs dating back to 1/26
remained in place.
As of yesterday's close, measured from the respective highs mentioned
above, the tracking group was down an average 5.9%. All components were in the
red, with losses running in a range of 4.6% for the Wilshire 5000, to a hefty
9.9% for the NASDAQ 100. This is a decent drubbing, particularly considering
that the three measures hitting highs on 3/5, the NYSE Composite, the Value
Line and the Wilshire, were down 4.9%, 5.2% and 4.6%, respectively.
As I write this, futures are firm, although a strong opening today brings
the peril that early session strength segues into weakness by the close. In
turn, this is a pattern that brings with it further damage to market
psychology.
Friday's options/futures expiration makes more weakness in the next day
or so increasingly dicey, since even now, the folks in Chicago face possible
expiration levels that are materially different (as in "lower") than the ones
contemplated not too long ago. In turn, this creates the risk that any major
attempt to hedge against further downside actually becomes a force to drive
prices lower.
Because of Greenspan's exceptional subservience to the stock market, it
is highly likely he will try to throw stock bulls a bone or two in today's FOMC
statement. If such an attempt fails at creating at least some temporary
happiness, the next few days could be quite interesting -- and ugly!
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