Today's Key News - Sometimes a Hungry Market Finds Reasons to Rise

Good morning. U.S. equities have opened mostly higher today, still drunk from yesterday's jump on the Fed policy statement. We pose the argument that it was not the statement that started the rise, but a desperate hunger within the market for a positive catalyst. We find it difficult to believe the market did not already expect the Fed would avoid hiking interest rates in the near future, considering the faltering economy. Also, within its statement, the Fed reiterated its belief that economic expansion could ensue, which does not indicate a Fed cut is near. However, as weak a driver as it may be, beware standing before a charging bull. He would not know or care if he was right or wrong while running you over. In the medium term, we expect the Fed will break some hearts as economic data falters, and it resists cutting rates. Eventually, we expect the Fed will move to ease, but not before serious cause in light of the inflationary environment that persists.

Asia:
Hang Seng Index +0.89%; Shanghai/Shenzhen 300 +0.32%; NIKKEI 225 +1.49%; Taiwan TAIEX +0.86%; BSE SENSEX 30 +2.8%; KRX 100 +0.44%; Ho Chi Minh -1.06%

U.K., Europe & Middle East:
DJ STOXX 50 Index +1.58%; FTSE 100 +0.75%; CAC 40 +1.53%; DAX +2.04%; Russian RTS Index +2.43%

Key Headline News:

• *** The Fed kept rates steady, and the policy statement lost a line that the market interpreted as a shift in bias, away from tightening. Wow, the market reaction was surprising to us, only because we thought everybody knew the Fed was not likely to tighten. We got ahead of ourselves. We believe the market reaction was not on the Fed's decision, but that it was spurred by a hungry investment community that was starving for a reason or catalyst for markets to rise. Otherwise, it would have noticed this paragraph from the statement: "In these circumstances, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information." That said, here's another Kaminisism for you to take note of, "Do not stand in front of a charging bull, no matter how much smarter you are than it." Down the road, after likely further suspect economic data (we get leading indicators today), we expect the Fed will break the market's heart a few times, before finally cutting rates. Thus, we think a rally is likely here in the short-term, before a few more disappointing drops. Eventually, as we flirt with recession and stagflation, we expect the Fed will act, and at that time, the true sustainable rally could begin, in our view. However, that's a bit down the road yet to be excited about.
• *** Well, there was no sign of recession in the weekly jobless claims report. Claims declined during the week, and were 7,000 short of economists' consensus, as surveyed by Bloomberg. However, plenty of mortgage brokers, real estate agents and carpenters have plenty of time to file in the future. This, with credit concerns, threatens retail spending, which could drive your favorite store checkout counter to file in a second wave.
• *** A dollar short and a day late, as usual, Congress is looking to protect borrowers from predatory lending tactics and more. The risk facing lenders and brokers now is increasingly going to be from regulators, and it is almost surely going to be harder to borrow as these operators shiver in fear of the jail cell. What does all this mean for you, regulation too late, tighter credit and more pressure on the housing and financial sectors.
• *** Even so, KB Home reported results today that were not too scary, relatively speaking, though their CEO issued caution. The cancellation rate decreased to 31%, which still "sucks," but was at least better than last quarter.
• *** Motorola warned its first quarter would not meet its previous expectations as its CFO steps down (usually a bad sign), while General Mills exceeded estimates.

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