The Federal Reserve cut its overnight lending rate by one-half percent. The ‘surprise’ was that the FED cut the rate twice its usual move of a quarter point. But as always, the FED follows, not sets the actual market rate. The Three-month Treasury Bill has fallen to 5% while the FED overnight rate was 5.5%. The pressure was on to correct an overly tight rate. Did lowering the rate to 5% align the overnight rate with the market? In a word, no. While the FED was dillying and dallying the three-month T Bill rate fell to 4.6% Friday from its July high of 5.2%. The market rate is still under the FED rate.
Our view that stock prices are unrealistically high is apparently wrong. The Industrials soared 522 points the day following the rate cut. That same index actually declined Wednesday after the announcement. We now have an apparent Dow Theory buy signal. The transportation Index has accompanied the Industrials to a new high as well. Its creator, Charles Dow, held that the companies which moved goods should validate a move by the companies producing goods. The fall seasonal weakness in stocks has yet to emerge.
Our call on gold and silver is correct. Gold jumped $28.20 to a new high at $2,642.80 Friday. December silver is trading up 27 cents to $31.70. The world is awash in debt fueled by massive issues of paper money. U.S. Treasury debt now exceeds the Gross Domestic Product (GDP). As William DeVane puts it in the TV ad, this only happened once before and then we were fighting WWII. Neither candidate is talking monetary moderation.
October crude oil has risen from $66 to $71.49. The momentum measures have not crossed to the upside just yet. This prevents us from saying the downtrend has been reversed. This market needs a weekly close over $72. Bell weather Apache (APA) pretty well matches the crude oil chart. Apache touched $23 and then reversed, rising to $25.36. This stock needs a weekly close over $26 to assure more confidence of higher prices.
