gabe borenstein

Tuesday Outlook: Commodities, Emerging Markets

Yesterday was simply another outburst of the mass hysteria.
Any problems that the FRE and the FNM may have , have been discussed for months.Both agencies have been addressing the market concerns.They will continue to provide liquidity to the mortgage markets as originally defined by the Congress.
Time for concern was at least two years ago ,and I have expressed those concerns then-now it is a matter of a bit more time.
Commodity prices will continue the downward spiral as the evidence of the global deceleration become increasingly pronounced.
The decline in the commodity prices (fuelled by the record speculation not the final demand),will allow the FED to continue(accelerate?) with more accomodative monetary policy.
The U.S economy/marketsare consolidating .Even the questionable housing market is receiving an investment focus from some "mega funds".
It is the ECB that is behind the curve with its high rates policy ignoring the signs of a major deceleration in Europe which is heading for recession.This will enhance the flows into dollar denominated assets.
The events in Georgia which show that being too close to Russia(geographically) may not be good for your health will further increase demand for the dollar assets(flight to quality).The ultimate beneficiaries of these inflows will be housing sector and the stock market(two assets with the most relative value).
The dollar spike will continue,the stock will move sharply higher ,the real estate market will stabilize shortly and the home prices should be higher by the early 2009(10% higher mean aaverage price).In the meantime the volatily and the paranoia willcontinue.

Tuesday Outlook: Commodities, Emerging Markets

At this stage of the market "consolidation",the FED should refrain from implying higher rates in the period ahead.The FED should recognize that the radical spike in the commodity prices ,as the global economies are decelerating,are signs of a massive leveraged speculation. In fact the FED should be easing in order to assist in the market consolidation process and to minimize any unpredictable shocks that could derail the rebound in the period ahead.
By now all of the investors realize ,that financial. sector will not be allowed to fail.The recent losses by the hedge funds do reflect a mega short positions in the financial sector.Based on the fundamentals(there are still outstanding issues),I would expect that sector to outperform the market based on the the shortcovering alone.
Emerging markets economies?-will implode as their economies(mostly) are dependant on high commodity prices.
I would not worry about today's FED's meeting as the recent actions reflect that the FED,Congress and the Administration comprehend the risks.
Record stock market rally is in the making.