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  • datamatters2003 datamatters2003 Dec 26, 2008 2:24 PM Flag

    Wells Fargo economist's impications for IWM and TWM

    Three interesting notes for IWM and its ultra short counterpart, TWM, for the next 12 months or so:

    1. Now that TWM has paid its capital gains/etc., a major previously unknown factor is eliminated for TWM investors and traders, at least until many months into 2009 when 2009 year-end capital gain or dividend distributions come into play. This bodes well for TWM to rise, as uncertainty has been eliminated.

    2. From Dr. Scott Anderson, Senior Economist at Wells Fargo, in Wells Fargo's Jan. 2009 monthly economic indicators alert: The title is "Plunging into the New Year," and the theme is more difficult economic times ahead. One specific quote concerns the Obama infrastructure spending stimulus idea: "The downside is that the stimulus will be too concentrated in only one industry, and won’t be an instant panacea for what ails us."

    3. Another pro-TWM factor is Dr. Anderson's forecast about the affect of the Fed's recent interest rate cut: "Another factor working
    against the Fed in 2009 will be the decline in inflation. Even if the Fed is successful
    in reducing long-term market rates for borrowers [[not a given]], a drop in inflation of a similar amount would completely
    offset any improvement in the real interest
    rate, or the rate of interest after adjusting for inflation, which is the 'true' cost of
    borrowing. In other words,a drop in nominal rates may just be a mirage, and borrowers
    could find that their real costs of borrowing
    aren’t really that attractive after all."

    (Bracketed comment inserted for clarity.)

    All told, I bought some more TWM today and am hoping the usual pattern of daily highs after 3 p.m. resumes. If you really believe IWM will be higher in September 2009 than it is today, I guess we just disagree. If you are speculating on daily or monthly swings in IWM, beware the fading of new-president-based hopes as the realities of the difficult economy, military maneuvers like Russia sending a warship through the Panama Canal for the first time in decades (already occurring, perhaps to test Sen. Obama) and terrorist distractions set in. And beware the fact that TWM investors face less uncertainty than they did last week.

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