By Ted Olshansky
Publish Date: May 1, 2008
For readers of the column, the recent rise of the market should come as no surprise. In our March letter we advised our readers not to react to the news of today as the bad news had already caused a 2000 point drop in the DOW. By the time the good news begins to appear, the market will have already made a substantial rise and we will begin to take some money off the table.
Let’s just say that the market is taking it’s strength from better than expected earnings from the non financials. IBM, Google, Johnson & Johnson and Caterpillar were among the more than 50% of reporting companies who beat estimates. Granted the financials are very important but as we said above, the financials were what led us down from October to March. Also giving investors some optimism was the feeling that the credit crisis, while very severe, may have already passed through it’s worst period. This was seen by the recent rise in Treasury yields.
This advisor doesn’t usually editorialize. However, it is imperative to make a statement regarding the Fed and it’s mandate. With the problems the economy has experienced in the last year, the Federal Reserve has chosen to infuse liquidity into the system through timely rate cuts and even lending directly to investment banks. These undoubtedly were necessary. But remember, we keep on hearing that inflation is not a problem once you take out oil, energy and food. But we can’t ignore the fact that these are key items in the total inflation picture. Inflation should now take the forefront in the Fed’s priorities.
As for the market, remember, "The trend is your friend." As for now, the trend is up. Enjoy the ride.