Perhaps the FED has over shot.....

March 29,2006
Hello,
There they go again; the FED raises rates for the 15th time in the last 2 years. Many pendants were surprised by the fact that the new FED chair continued the policy of the old with little or no change .I ask simply why? Why are you surprised? The new boss is the same as the old boss? Has something changed the last few months? I guess it was just a slow news day yesterday. Anyway there is still continued talk that the FED maybe finished .In the past the FED always seems to go a bit too far in either direction. In past when we neared the end of a FED tightening the market started to make its move in advance.

Prospects continue to point to a stock market that is much undervalued. The next big move appears to be just an accident waiting to happen. A student of the market will notice many similarities to the early 1980’s before the last big 20 year bull market started. FED tightening reversed, mergers, acquisitions and buy outs abounded. Commodities prices had rallied for quite some time .Overseas markets had out performed US markets. The preceding couple of years had produced uninspiring equity returns and had left mountains of cash on the sidelines. Real-estate had significantly out performed equity investments. If you add the enormous productivity growth rates we have experienced the last couple of years we have recipe for equities to move to much higher levels. Mind you higher valuations usually involve higher levels of volatility so the short term risk levels will increase along with better opportunities to make money.

With over 500,000 people protesting new proposed Immigration rule changes as contrast to the prior weeks meager turn out for antiwar rallies proved there is clearly one job American workers wont do and that is join antiwar protests. The immigration protest also made it clear that it is not the1960’s and seems no one is interested in peace and love, just jobs and money.

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James