Fed meeting tomorrow

Monday, September 17, 2007

ECONOMIC DATA / NEWS

If you thought Alan Greenspan was confusing when he was Fed Chairman, try figuring him out now.  He went from the complicated Greenspeak, as it became known, to the outright double talk he’s giving us now.  His comment in a recent interview was pure comedy.  He is quoted as saying, “People just weren’t listening to what I was saying.  I went through testimony after testimony with glassy-eyed congressmen and senators out there.”  He has obviously forgotten that it wasn’t just politicians who couldn’t understand what he was saying.  Some of the top financial analysts had difficulty interpreting what he was really saying.  But that was the brilliance of his reign as Chairman.  He would disclose everything, and still no one had a clue what he was going to do.

Now, he has switched to plain talk, which has stirred up a lot more controversy.  Then, he is constantly having to go back and explain that he didn’t mean it to sound the way that it sounded.  However, this year he has not only been going back and clarifying what he meant, but he has gotten to the point of flat out flip-flopping his previous comments.  It almost seems like he is feeling some political pressure to be more supportive of current Fed Chief Ben Bernanke, as well as the President.  He has gone from saying that the economy is probably headed for a recession to saying there is really only a one-in-three chance to saying that the economy looks like it will probably withstand current pressures and avoid a recession.  Greenspan’s opinions have made major impact on the markets, even more than a year after leaving his post.  But as he continues to contradict himself, people will listen to his assertions less and less.

The one piece of economic data today was the Empire State Index for September.  It was nearly chopped in half from 25.1 to 14.7.  The new orders index was down from 22.2 to 13.6, and shipments fell from 28.8 to 5.1.  Employment was surprisingly stronger, but those jobs may not last long if things keep getting slower.  Every time we get another bit of weakening economic data, it gives that much more credibility to recession forecasts.

TECHNICAL ANALYSIS

The FNMA 30-year 6.0% is off 6bp, but prices are still 10bp above the 200-day moving average, which is currently at 100.12.  Prices should not drop below this level.  If they do, they could fall another 50bp, but support looks pretty strong right now.

The 10-year Treasury yield popped up to 4.48%, and this is the second day in a row that it is holding above the support turned resistance at 4.45%.  This level becomes a support once again, but a weak one at most.  Overbought conditions have worked themselves out, so there is plenty of room for the yield to drop again.  We expect another downward trend to take shape after the Fed rate decision tomorrow.

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