Sunday, September 17, 2006

Weekly preview

August and September are typically very bad months for the market. This year has been better, and stock markets are bumping against 6.5 year highs and multi-month peaks. Declining oil prices and tepid inflation reports have put investors into a comfortable zone of belief in the “Goldilocks” economy (not too hot, not too cold). This scenario hopes for continued growth but low enough inflation that the Federal Reserve doesn’t feel the need to raise interest rates and apply brakes to the economy.

The Federal Reserve Board, meeting Wednesday, is widely expected to keep short-term interest rates unchanged at 5.25 percent. The big numbers people will be watching this week to indicate economic velocity will be the leading indicators and building permits. Both are expected to be restrained, which will probably be positive news for the Fed-watching crowd.

The recent negative numbers on the leading indicators, however, suggest that the economy may very well be slowing down. The question at this point is how soon and how bad. If we start to see overloaded inventory or spikes in corporate borrowing it will be time to pare back and prepare for stormy markets.

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