Views on the U.S. Stock Market July 6, 2006

Insight's view is that the stock market is believing now in a goldilocks, soft landing. If the economy strengthens too much, it's not good because the Fed raises rates; if it weakens too much there will be worry about recession. What is the probability that the Fed can pull off a soft landing? Their history is not great. And because of the lag effect of their raising rates, the economic numbers should be weaker going forward. And even if the Fed does stop rasing rates, historically the market has been down months after the stoppage, presumably because of a weaker economy. So though Wall Street is rallying because of its belief that the Fed will pause, historically this has not been a plus for the market. Paradoxically a weaker housing market is going to make the inflation numbers look worse because of the rise in demand for rentals and thus higher rents, so the Fed may have trouble pausing even if the economy weakens. The only thing that's really changed over the past few weeks is the belief that the Fed will not let the economy go down the drain (if it can help it) , and will not be focusing solely on inflation but on the health of the economy as well. Insight believes in this environment it is prudent to be maintaining shorts in a professionally managed portfolio.

Philip Frank, PhD
President and Portfolio Manager
Insight Asset Management LLC
e-mail: insight-asset@earthlink.net



Web Counters