Institute for Supply Management

Source: Briefing.com

The numbers speak for themselves, but if you look at the chart you will see a fairly disturbing trend. The ISM survey broke the 50 barier which is considered a neutral read. This is the first time we have seen a reading below 50 since early 2003. Foreign demand for U.S. goods remained strong at 56.9 and as the dollar continues to nosedive, (EUR/USD breached $1.33 on the news) I expect U.S. exports to benefit.

However, stocks turned down finishing a lack-luster week that started with a big drop on Monday and treaded water Tuesday through Thursday. Fidary saw a sharp drop on the ISM news, but a 100 point rally in the Dow in the last hour and a half left the down down only 27 points on the day. But more interesting to me is what is going on in the bond market. The 10-year yield is now holding well below 4.5% leaving the inversion on the curve at nearly 80 basis points.

So the Fed's job just got harder. Expectations for a rate cut are increasing, but inflation is not showing any signs of going away. Oil is creaping back up, holding above $63 a barrel, which means that inflation pressures remain. Borrowers with adjustable rate mortgages might be wise to lock in these low mortgage rates now (but don't come to me if it doesn't work out: I am not a professional), because the Fed is still unlikely to reduce rates anytime soon. Eventually, the bond market will have to recognize this and adjust.

It seems unlikely that the Fed will cut rates for an even simpler reason than inflation expectations and that is the fact that there is probably more liquidity in this market than in any market in the world....ever. This is what leading economists have said anyway.

So those of you who think that low interest rates and tax cuts which provide liquidity are the dual holy grails for a strong economy are about to find out if you are right or not.

I still say it is a house of cards.