Do you expect a market correction soon?

[insider]

Yeh LOL but who are you? :
THis guy is a top trader, or so he says.

Dont worry, All you need to tell chicks is about your 5k to 50k.............

Dam Straight I wanna get into the Herald sun Stocktipping comp that they do... you know the one with I think there's 5 different people and an imaginary $10,000 cash each... That would be sweet

 

[kgee]

Straw Man Argument.

forgive my ignorance but whats a straw man arguement.... or should I just wikipaedia it?

 

[kgee]

A straw mans arguement .I like it.
But maybe not strictly correct. As I wasn't really refuting his arguement...I just thought it was a c##p article with just a lot of blah blah blah and little substance.So I was merely refuting the person...a bit harsh without knowing the guy but I had had a couple of wines...
As for market correction I had my finger on the sell button after the 2nd consecutive night that the dow lost 80 points (see post on the 8th) .Was friday a dead cats bounce?Well I spose tonights trading will tell.
Any bets?

 

[drillinto]

[Note: Brian Wesbury is the foremost inflation hawk]

One on One with Brian Wesbury, Chief Economist of First Trust Advisors
NBR-PBS/USA
Monday, June 11, 2007


SUSIE GHARIB: Our guest tonight says the U.S. economy is in good shape and that any sell off in the markets is a buying opportunity for investors. Joining us now to explain, Brian Wesbury, chief economist of First Trust Advisors. Hi, Brian.

BRIAN WESBURY, CHIEF ECONOMIST, FIRST TRUST ADVISORS: Hi, Susie.

GHARIB: So you're saying the economy is strong. Give us your analysis.

WESBURY: Well, I think that the housing sector has dragged down the economy. It kind of came at a time when people were waiting for the economy in a sense to roll over. I don't think many people had bought into the rally that we've seen in the last few years in the strong economy. If you take out housing from GDP, we continue to grow over 3 percent and housing is about 5 percent of the economy. So the rest of the economy was very strong. Now that housing is diminishing in terms of its negative impact, that growth is beginning to reassert itself and economic profits are rising. The economy is going to grow much faster in the second quarter. That's why all of a sudden last week people realized that the Fed wasn't going to cut rates any time soon.

GHARIB: As you know, there are a number of key economic reports that are coming out this week. The producer price index, inflation on the wholesale level, the consumer price index and retail sales. What will these reports tell us about the economy?

WESBURY: I think the retail sales report will be a nice, strong report after last month's weak report. And clearly energy prices are going to lift the overall levels of inflation that we see. Once we take out energy, we're going to have some subdued inflation, but we're still over 2 percent. With the economy coming back and inflation staying elevated at least above the Fed's comfort zone, I think it's only a matter of time before the Fed does come in and hike interest rates. Lots of people worry about that, Susie, but with discount models that I use, I've already incorporated higher interest rates and I still show the stock market 20 percent undervalued today. That means it's a great buying opportunity.

GHARIB: We'll come back to that in a minute. I want to follow up on what you're saying about what the Federal Reserve will do because the meeting is coming up at the end of this month, a two-day meeting that wraps up on June 28. With the economy doing as well as you're talking about, does that mean that the Fed will raise rates at that June meeting or perhaps at the August meeting?

WESBURY: I think the Fed still is on hold. They're data dependent. That's an old phrase that we used about six months ago but it's still true today and they're going to have to see six months or so, four months or so of really strong economic data and some rising inflation before they come back and raise interest rates. The battle on the Fed right now is whether to stand pat or potentially raise rates. There's very few members of the Fed making an argument for rate cuts and that's what's really been interesting about this market. The Fed's been very clear in my view we're holding or we're raising and yet the market has continually expected a raise cut. It's kind of fascinating when the data finally turned, all of a sudden the market said oops and that was the correction that we saw last week.

GHARIB: So how high do you think that the Fed will go on the rates?

WESBURY: Right. I would argue that a perfect or a neutral real Federal funds rate is probably somewhere around 3 percent. With inflation now running in the 2.5-3 percent area, I think that puts us about 6 percent Federal funds rate. Today we're at 5.25. So if they were to raise a quarter of a point at a time that would be three more rate hikes. Our models right now show a rate hike in the fourth quarter of this year and then two more next year. Then the Fed can stop. That's a perfect monetary policy. It's not too hot. It's not too cold. It won't hurt the economy and it won't cause inflation to pick up. So that's a good place to be.

GHARIB: That's not how investors see it. As you said a moment ago that investors get very concerned when interest rates go up and they think the market rally is over. Why do you think that that's not the case?

WESBURY: Well, there's a couple of things. Number one the Fed started hiking rates in June of 2004. They raised them 17 times between then and June of 2006. The stock market, the S&P 500 had a 16 percent gain during that period. So the market went up while the Fed was hiking rates. The other point is that in the late 1990s, interest rates were a lot higher than they are today. The 10-year Treasury, for example, between 1995 and 1999 averaged 6 percent. Today it's only 5.15 percent. So these are very low interest rates today. We've had much stronger stock markets with higher interest rates and I think this will prove to be the same thing.

GHARIB: Unfortunately we're going to have to leave it there. Brian, a lot of good information. Thank you so much for coming on the program.

WESBURY: Thank you, Susie.