June 30, 2008, Richard
Suttmeier’s Fearless Market Prediction
The FOMC missed the boat last week by leaving the federal
funds rate at 2.00% ignoring prior warnings that inflation was a concern. As a result Nymex crude oil
speculation bubbled to a new all time high at $142.99, and the Dow crumbled ending the week at a new 52-week
low of 11,347.
I call it “The Fed’s Missed Opportunity.”
The Fed Statement read, “Recent information indicates
that overall economic activity continues to expand, partly reflecting some firming in household spending.”
My response: With consumer sentiment readings at multi-year lows with expectations at an all time low,
household spending is more likely to take a hit in the second half of the year.
The Fed Statement read, “Labor markets have softened
further and financial markets remain under considerable stress.” “Tight
credit conditions, the ongoing housing contraction, and the rise in energy prices are likely to weigh
on economic growth over the next few quarters.” My response: The economy is headed
for Recession in 2008 and 2009, which is the Fed’s real concern.
The Fed Statement read, “The Committee expects inflation
to moderate later this year and next year.” My response” Based upon what?
The bursting of the parabolic bubble in crude oil?
The Fed Statement read, “In light of the continued
increases in the prices of energy and some other commodities and the elevated state of some indicators
of inflation expectations, uncertainty about the inflation outlook remains high.”
My response: The Fed had a window of opportunity to nip inflation expectations in the bud by raising the
federal funds rate well before the election and they blew it!
The Fed Statement read, “The substantial easing of monetary policy to date, combined
with ongoing measures to foster market liquidity, should help to promote moderate growth over time.”
My response: Cutting the federal funds rate from 5.25% to 2.00% between September and April did not make
bad loans solvent, did not bring mortgage rates low, and licensed commodity speculation.
The Fed Statement read, “Although downside risks to
growth remain, they appear to have diminished somewhat, and the upside risks to inflation and inflation
expectations have increased.”
“The Committee will continue to monitor economic and
financial developments and will act as needed to promote sustainable economic growth and price stability.”
This week’s economic data should continue the weakening
trend
·
Monday - Chicago PMI should remain below 50 in June.
·
Tuesday – ISM should also be below 50 in June, and Construction Spending
should decline in May.
·
Wednesday –Factory Orders should show a rise of 0.6% in May.
·
Thursday – Initial Jobless Claims should continue to trend above
350,000 with a reading of 385,000. Nonfarm payrolls are expected to decline by 100,000 jobs, with the
unemployment rate should remain at 5.5%. Nonmfg ISM should skirt 50 in June.
·
Friday – Happy Independence Day.
My fearless prediction for the week – Last week
I said that the FOMC would wimp out and leave the federal funds rate at 2.00%, which they did with the
statement described above.
This week’s fearless prediction is that the rebound
in Comex Gold will be limited to my weekly resistance at $950.9.
Chart Courtesy of Thomson / Reuters
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