I have no idea myself, I’m asking you… The market showed it’s displeasure yesterday with a "not enough to make Cramer happy" quarter-point rate cut and, other than a brief bounce from 13,500 to 13,566, the market sold straight down to 13,432, more than a 300-point drop from our pre-Fed level.
Unfortunately, the Fed cut was enough to tank the dollar in overnight trading and oil rocketed back over $90. The October Trade Deficit was $57.8Bn while the cost of imports is up 11.8% for the year, which is the inflation the Fed can no longer ignore just to keep the financials happy. Import prices for October alone were up 2.7% vs. September’s 1.4% increase so we are in an accelerating inflationary spiral that is beginning to have a noicable impact on consumers.
The WSJ titled the market’s reaction "A Snub for the Fed’s Gift" and I discussed last night how I think it’s a good thing that the Fed realizes they are effectively dealing with cheap money addicts, who lack the ability to help themselves and the only solution is to cut them off. Although we had a big sell-off yesterday, the global markets seemed to take it in stride. While the Hang Seng gave up their usual 705 points, the Nikkei came back sharply after lunch, gaining back all but 112 of the 350 points they dropped at the open.
Inflation is also accelerating in China and it’s now getting to the point where people can’t afford to live with staples like cooking oil up 35% for the year and pork up 56% this year leading food inflation alone 18.2% higher. "The government has kind of hinted that this [inflation] would be temporary, and sent out [mixed] messages," says Hong Liang, China economist for Goldman Sachs in Hong Kong. Beijing "has already missed some of the critical times in the third quarter to get this under control….Once you get inflation in the 5% to 10% range, it’s a much more serious problem." Oil prices are so out of control in Japan that the government has announced an oil-price relief package to help people get through the winter but, with $7.2T in debt of their own, the world’s second silliest economy will have a hard time keeping it going.
Something’s gotta give folks!