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Golden Sextant''s tribute to Ferdinand Lips
Fed Preps For More Bloodletting
By John Dobosz
Forbes.com
Monday, October 10, 2005
http://www.forbes.com/investmentnewsletters/2005/10/10/clorox-
goodyear-fedex-cz_jd_1010watch_inl.html
"When future historians look back on our way of curing inflation,
they'll probably compare it to bloodletting in the Middle Ages." --
Lee A. Iacocca (1988)
Lee Iacocca, the man who saved Chrysler 25 years ago, now plays golf
with Snoop Dogg in a Chrysler commercial. Federal Reserve Chairman
Alan Greenspan probably wishes he could be sippin' on gin and juice,
laid-back like Iacocca and Dogg, but he's got his mind on money and
money on his mind until Jan. 31, 2006, when his 18-year reign as
chief inflation- (and briefly deflation-) fighter comes to a close.
Judging by the scathing tone of several investment newsletter
editors over the past week, the next 3 1/2 months can't pass quickly
enough. For all of the Maestro's talk of "measured" interest rate
hikes and his professed lack of worry about inflation as energy
costs zoomed higher over the past year, it sounds as if his fellow
Fed officials are preparing to launching a massive frontal assault
on inflation through a more aggressive campaign of rate hikes. With
this message being promulgated last week, it's fair to say that
these possibilities freaked out investors about inflation.
"According to research by Harry Clark of Clark Capital Management,
over the past 80 years, the Fed has embarked on a series of at least
three rate increases on 14 different occasions, which led to 12
recessions and 11 bear markets," writes Steve Todd of Todd Market
Forecast. "Yet these Soviet-style central planners continue to be
treated like gods who see things not apparent to mere mortals."
Todd, for one, believes that inflation will continue to kick around
at benign levels but that the real worry is what the Fed does. "If
these pencil-pushing bureaucrats had ever been right about inflation
or anything else, it would be easier to accept, but we haven't had
any inflation to speak of since 1990, over 15 years ago. Of course,
that hasn't kept them from constantly seeing it right around the
corner," says Todd, who despite his Fed-directed diatribe advised
his short-term trader readers to buy the SPDRs and the Nasdaq 100
Trust at the close on Friday, Oct. 7, due to the bounce in stocks
off oversold levels on Wednesday and Thursday.
"It was interesting that inflation worries finally created fear in
the market [last] week, a week when crude oil and gasoline prices
declined significantly from their post-Rita peaks," writes Sy
Harding of Street Smart Report, who, unlike his fellow market-timer
Todd, sees abundant signs of inflation. He cites announced price
hikes last week from major tire companies such as Goodyear Tire &
Rubber, Bridgestone/Firestone, and Cooper, as well as Clorox, La-Z-
Boy, and FedEx.
Harding suspects that the tough talk from the Fed is preparing the
market for a half-point hike at its next meeting in November, or
that the Fed might even jump in and do an interim rate hike before
then. "As I have all summer, I'm still expecting a significant
market selloff to a low in the October/November time frame, but with
that selloff to be followed by a significant rally to at least the
end of the year," Harding writes. "It's not a bad thing for the
market to have a correction now and then. They correct the
overpricing and investor complacency that builds up, creating good
buying opportunities from which the market can rise in a sustained
manner."
Mark Leibovit, editor of VRTrader.com, takes a different view on
inflation but agrees with Harding that markets could be heading much
lower very soon. "The market is telling us that the economy is
slowing, which perversely is coming at a time when the Federal
Reserve has decided to erroneously tighten interest rates," he says.
"This action could lead to a stock market crash, so we would be very
careful in taking positions for the 'long haul' [while] thinking you
will be bailed out by the trend," Leibovit cautions. The only bright
spot where he would consider a long-haul trade is in gold, which is
bumping up against new 18-year highs.
"Many of the CNBC crowd (Lawrence Kudlow in particular) and others
on Planet Wall Street are bemoaning the fact that the Fed is finally
telling the truth to the American public regarding inflation,"
writes Bill Murphy, aka Midas, at the gold lovers' site
LeMetropoleCafe.com. "They are right this onslaught of hawkish
inflation talk by all the Fed governors is a stark contrast to the
served-up pabulum Planet Wall Street is used to. Thus it is much fun
to watch the same robots squirm/moan and groan in their reactions to
the new Fed talk. They are like a bunch of spoiled brat kids who
don't like the new, stricter parental tone."
Murphy and his crew at the Gold Anti-Trust Action Committee contend
that the Fed, in collusion with other central banks, has been
keeping gold prices artificially low for about the past 15 years
through manipulation of global reserves. Murphy says the Fed
is "losing control" of the price of gold as "the smartest, biggest
money in the world has entered the buy side, making it nearly
impossible for the 'gold cartel' to turn the market down for any
length of time."
Murphy is less than fond of the legacy Sir Alan will leave behind.
"Greenspan will do down in history as someone who betrayed the
American people and his principles," he says. "The rigging of this
gold price is coming to an end. The price will go berserk and have a
profound effect on U.S. financial markets, which are likely to
plunge. The American public will not know what hit them."
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