Fed Rate Cut ??

[upsadvisor]

The popular opinion seems to point to a rate cut by the Federal Reserve on Wednesday by at least 1/4 point.

What does this mean ?

Stock are moving today in advance of any action so today and tomorrow represent an opportunity to take some profits in your inestments if possible.

The market will in all likely hood slip down after the move if any by the fed.

The bottom line is that the earnings for corp America ( and the world ) are just not good enough yet to sustain this rally that started in October ( Oct Dow was up 10% ) and you will get plenty of chances to buy good companies at better prices but you may not get many opportunities to take some money off the table.

Always take what the market gives you.

John

 

[michael]

advisor..

Interesting point of view. I'm not sure what will happen if the Fed cuts the interest rate point. I have been hearing how the retail stores are having a rough time, but when I went to a popular shopping mall over the weekend I saw something completely different.

This is a difficult time to try and predict anything.

Stocks could be moving in advance of that but Im not so sure they will not keep going after that. I do agree with you as far as the corporate earnings but I would limit it to some corporations. There are still a few strong ones out there..

 

[moreluck]

If past history is of any use, October is a notoriously bad month and the last 2 months of the year are usually OK. I hope that is true for this market.

 

[charlie]

Michael,

I noticed the same thing in California this weekend. My wife and I took a friend to lunch and we were surprised at how crowded the parking lot was. At 1:30 in the afternoon we still had to wait for our seats. While waiting I took a walk around and the stores in the area were packed and the registers had lines. It's being projected to be a weak year-end, but so far things are looking strong. The consumer may come through once again, however I'm still expecting at least one more "bottom" before we see the market stabilize and settle into some steady growth.
Regards......Charlie

UPS Advisor......It's good to see you back! Always appreciate your opinion.
Charlie

 

[mountaingoat]

"OCTOBER: This is one of the peculiarly dangerous months to speculate in stocks in. The other are July, January, September, April, November, May, March, June, December, August, and February."

-Mark Twain

 

[traveler]

Charlie,

Seems better in the Orlando area too. They just opened an upscale mall (Macy, Nordstrom, Bloomies and a host of smaller "boutique" type shops. Opening day (Friday) and that weekend, traffic was overflowing onto Interstate 4 and the side roads were a mess. My wife and I went a week after and the stores were still as busy as I would hope for. Call me an optimist but it looks better in this area too.

 

[wkmac]

I think one of the bigger concerns is the level of debt here in America especially with the consumer. If the consumer is maxed out then it leaves no room for growth but a drop in the Fed rate could help. Although 25 basis points won't drop that credit interest much for the consumer it could represent a much larger savings for Corp debt and future debt of company reinvestment and upgrade.

When we finally do see a turn, many Corp. have sat on investment upgrades to their company will finally cut loose with upgrades in computers, facilites, etc. and this more than anything IMO is what UPS needs to see. This type of growth goes deep in the core of the economy and tends to compound upon itself.

I still believe 2Q of 2003' is the make or break quarter for UPS. JMO.

 

[michael]

mac
Good point, the level of debt is a big concern. Is it possible that the consumer is starting to pull out of debt a little bit? From what is being seen coast to coast it would seem that way. One could be mistaken a little though. Perhaps the consumer is spending again because the retailers are slashing prices, and the level of debt has not changed at all. It almost seems like its any ones best guess as to which way the economy is going and why its going that way.

 

[moreluck]

Here on the west coast, people are spending plenty on early Xmas gifts because of all the rumors that the stores will be running out of merchandise due to the ports being closed and the work slow down now at the ports. Rumor or not, I am totally finished Xmas shopping.....I have never finished this early before!!

 

[upsadvisor]

As far as consumer debt goes the balance sheet actually looks pretty good.

Consumer debt is about 5% of the avg houshold net and low mortgage rates have continued to allow househlds to raise fund and real wages are up about 2.5% vs a core inflation rate of about 1%

What does all this mean ... consumers still have room to propel the eonomy the problem is that as long as the perception persists that the economy is weaker than it really is the more consumers may decide to hold off on taking on more debt.

So the proble is really not that consumers have too much debt but that they may not want to take on any more. ( wait and see mentality ).

I would have to agree that the stores do seem to be bustling the problem is that the merchandise is being sold at prices designed to maintain market share not profits.

Christmas will tell the story for retailing as always.

One last comment.. the last time I checked GDP was predicted to grow at 2.5% that seems like an OK number we just have to get used to this more realstic growth as opposed to the 5% growth of the 90's and some of that it seems was due to some shenanigans any way.

John

 

[upsadvisor]

Well, the Fed cut rates by 1/2 pt let see what happens.

If you are still holding corporate bonds with any gains I would consider taking them and moving to Muni as they are yielding 95% tax equivalent of bonds and with out the risk.

If any of you own bond funds be warned they are going to trade below their Net Asset Value for a long time to come.

As the higher yld bonds come due the fund will have to replace those bonds with the current lower yld bonds.

This means less income and lower value.

This is very similar to what hapened in 1994, before that bond funds were sold as a safe haven and income investments but people who though they owned bonds found out they did not and lost alot of money.

Just and FYI

John

 

[tieguy]

This economy has basically been stagnate for about two years. you would think the credits cards and loans would be paid down. When did you ever think you would see car dealers offer no money down, no interest and no payment until 2003 deals just to get you to buy a car.

 

[upsadvisor]

Read the fine print on those 0% deals.
The terms result in higher monthly payments and only those with the best credit can get the deal.

Also it is cheaper for the auto co's to offer zero % financing than rebates, both hurt the bottom line but with the 0% the car co's have actually raised the prices of the cars and you cant negotiate on price its take the MSRP or leave it if you want 0%.

Consumer reports has a great web site for any one looking at cars check it.

John