Rate cuts wont help now. they can actually create a selloff in all the bond markets as inflation expectations increase. A bond selloff means higher mortgage rates, higher credit card rates, higher auto loan rates, etc. If the fed cuts now, Put all your money in Gold because Global inflation will accelarate beyond control.
DH - not sure if all that would happen but you sure hit the nail on the head as far as the risks of cutting...
Hopefully the Fed is not dumb enough to listen to the bleating of some pig auto dealer who got rich off the credit bubble.....hopefully.....wait isn't this the same Fed that encouraged people to take on ARM's with rates at historic lows?????
If you think $100 oil is expensive wait until the fed cuts. The FED knows this, and that's why they will not cut this year. They will wait until next year which is an election year. They will buy some time for now.
the FED won't allow the market( BSC,GS,MER)to control the economy. The Fed is still the world bank and is not sympathetic to the competition(i.e. BSC, MER, GS.)for the world money.
Besides, If the
foriegners want to take their money out of USA and invest in China, How is Lower rates gonna help? It will make things worse.
I agree with DH, a rate cut this year would sink the dollar even further and only lead to more inflation which would lead to higher interest rates. You end up at the same place you would have otherwise, and it will be even worse than if you hadn't lowered.
It almost seems like it would be better at this point if BB raised rates by a quarter point next month to prove that he's serious about shoring up the dollar.
I really don't see a cut happening anytime soon. Things aren't quite bad enough yet, and it could really destabilize the dollar, which is on a nice glide path downward.
So far, no signs on the real economy absent housing - and the ongoing shift away from the FIRE economy to exports is something that is desirable. It's going to be a close run thing, because markets always, always overshoot. So I'm pretty sure we're going to have a credit crunch on our hands. At that point, the Reserve will cut (and we get lots of pushing on a string talk)
FWIW - I have some friends at the Treasury and they say BB is smart, capable, and not nearly as dovish as the popular perception makes him out to be.
TOKYO (Nikkei)--The yen clawed its way to the 119 yen level against the dollar Wednesday for the first time in about two and a half months, but most market participants believe the Japanese currency will soon face depreciation pressure again.
Investors are growing wary about U.S. share price risks amid rising concerns about surging defaults in U.S. subprime mortgages. As a result, hedge funds and bank dealers that had been dumping the yen are now buying back the currency.
If the Fed cuts interest rates a 1/2 a percent this fall it won't be enough to stop the damage that will have already been set in motion. I sometimes wonder if these people have ever heard of inertia. The carnage that will be let loose on the dollar will be a sight to behold.
banker, I started the year expecting a rate cut when the economy eventually slowed. But now, after listening to Bernanke and watching the dollar fall, I think a rate cut is very unlikely this year - barring a severe economic slowdown.
I was actually surprised by the WSJ article, so I checked the Cleveland Fed. This will probably all change tomorrow with a decent GDP report!
I don't understand why we can't have a 30% correction in the stock and housing markets? The Real Estate agents can get back to work and we
get higher long term returns on our portfolios. The Sooner we get the correction the better ( long term.)
Same with interest rate Hikes, the sooner the better.
OT I would like to ask you a favor. I hope that at sometime in the near future you could look into the bond rating of the major homebuilders. I read an article on this topic 6 months ago, but I know things are changing very quickly.
While I tend to agree that a cut might not be the best thing to do, we cannot forget the psychological impact to the consuming public.
And by this fall, a lot of the issues pending today (like what has been talked about on the CR site) will be "resolved"....meaning by then, we will know just how big the crater really is.
Have private business men always publicly offered unsolicited advice to the Federal Reserve?
I've noticed this happening a few times in recent months, but I've only been paying attention to this sort of thing for about a year now. Perhaps it's common practice?
A down day in the market brings out the calls for a rate cut. God forbid if we had a two or more days in a row of selling the FED rate cut stories would be NYT front page.
I wish someone would directly address the impact of rate cuts on the dollar and the ability to sell US debt to FCBs in the context of attempting to stimulate sagging domestic economic performance.
I'm under the impression that a rate cut would decrease the value of the dollar as a, no, as the reserve currency and that the resulting inflation from rising import prices (products, components and raw materials) will send products sales into a tailspin. This includes sagging vehicle sales.
I understand that theoretically US exports will increase, but I remain concerned that US manufacturing (not just assembly and/or marketing of foreign components) capacity isn't up to the task.
The dollar has a long way to fall before US labor is competitive with Brazil, India or China.
Seems like there's one discussion going on internationally and another that pretends you can stimulate the domestic economy as if it was a closed system with no international capital flows.
who cares about the dollar. dropping dollar has not lead to import based inflation. the only things inflating are local products, health, education blahblah.
rate cuts are coming and the best reason why is because you guys as a group dont think they will. oh that and the presidential election coming!
CR can you chart rate cuts and election cycles?
and what do interest rate differentials have to do with anything anyway?
Billy Sold a Ton (Billy's Got a Gun - Def Leppard)
Billy sold a ton, he's on the run
Confusion in his mind, his cash flow's in a bind
Oh, Billy sold a ton, as market's goin' down
He sees evil in the lies, has a reason to despise
There's danger in the air
Can you see why I'm a bear?
Danger! (such a strange emotion)
Can you see why I'm a bear?
Oh he was locked inside a loan without a floor
His greediness he suffered for
In a world of black and white, exotic loans can cause fright
Just found himself a clue, "It's a nightmare come true!"
It's turning oversold to back that danger down
Oh Billy, why you sold that ton?
Never gave him a rate break
Defaulting is the chance he takes
It could be his last mistake (he could be so helpless)
As a bird with a broken wing
Like a sheep in a lion's den
Gonna fall but he won't know when
He called bankers in the night, saw writing on the wall
And the ghastly sound of silence, as the prices start to fall
Bernanke's scream rang out like thunder, but the message was too late
As the rates came down on his leveraged ground
The Depression was too Great
And a crowd of hedge funds came unwound, but Billy couldn't wait
"I don't understand why we can't have a 30% correction in the stock and housing markets? The Real Estate agents can get back to work and we
get higher long term returns on our portfolios. The Sooner we get the correction the better ( long term.)" [DH]
Thank you. The soon the better, as far as I'm concerned, preferably before the 2008 election. There will be a lot of pain. I feel sorry for people who are buying stocks at these high prices on the 401k installment plan. The backlash will be fierce...
The 2 year and 5 year US treasuries auction today had the lowest percentage of indirect bidders in years. The money is leaving the USA. Less money= higher rates.
Gee the entire gang is assembled tomorrow morning. Leazer, Portman, Gutierrez and of coarse, Paulson. Hmmm....do you think they're going to preach their book? I wonder what would've happened if CNBC declined the invitation to interview them. These 4 clowns are going to get out there and say jack of any value. Does anyone with half a neuron actually believe they will admit that containment has been broken, that they've underestimated the affect of mortgage resets, that they were asleep at the wheel while credit was been thrown around like a financial orgy of greed, that regulators are negligent.
Write this down as this will summarize tomorrow morning which btw is at 9:45 am the interview.
Paulson supports a strong dollar but the markets are what have to move currency markets.
Subprime is still in their opinion contained and not spreading to other sectors, particularly not spreading to consumer spending. They will cite strong employment figures to support this...which we all know is BS given the birth death model, but they will still cite the strong employment.
GDP growth, which will be out by then, will show a marked rebound from Q1. Lots of cheerleading about that as sign the economy has bottomed in Q1 and further evidence of no contagion.
Any credit squeeze is temporary
Any credit squeeze is very specific and localized on specific companies, specific transactions.
China must move faster on reforms
The US has is in GREAT fiscal shape evidenced by its improving budget deficit. Forget the fact they leave out anything that will worsen it and dump in hundreds of billions of OAS and Medicare collections.
The US still have the best and most liquid markets so great place to invest
The TIC report showed foreigners still want US assets, so no worries about a weakening dollar.
Not concerned about anything.
Did I say not concerned about anything.
Go out and buy something,it's good for the economy and America.
Trade deficits don't matter.
Deficits in general don't matter as the world still views America as a strong place to invest.
Did I say not concerned about anything.
Raspberry kool aid is the best.
Yada yada...100% fluff, hot air, 0% substance.....
Good lord, give me some Pepto just thinking about it.
y.s.wayne, they aren't all junk? Really, I haven't looked, but I will.
Tom, it's not that unusual. Everyone likes to give advice to the Fed - even me sometimes!
Stuart, I agree ... everyone is gathered because the GDP report is probably going to be pretty good (the headline number), and they want to talk about how great the economy is doing, and how tax cuts are working, etc...
China shying from shaky US mortgage market
By Olivia Chung
HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said.
Of the approximately $7 trillion worth of US mortgage securities, subprime loans currently account for about 15%. Thirteen percent of US mortgage delinquencies in the last quarter of 2006 were from subprime loans and about 30 mortgage companies have gone under in the past few months, Yi said. "There are significant financial losses," he said.
Yi said some bond ratings agencies that advise investors, including Chinese, also purposely played down the MBS risk. "Some ratings agencies slapped investment-grade ratings on mortgage-backed bonds that they knew they were risky," he charged.
Bond-rating agencies this month finally downgraded about $12 billion worth of subprime US mortgage securities, Yi said.
Economist Shi Weigan echoed Yi's comments. "With a possible burst in the housing bubble in the US, it's not the right choice for Beijing to spend foreign-exchange reserve funds on the US mortgage-backed securities," Shi said.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Stuart, you make a couple of good points. First, the credibility of our financial leaders is evaporating fast. Second, the Chinese and others who are getting burned on mortgage backed securities will perhaps be less enamored of investing in U.S. securities in the future.
I don't think the GDP number will be as good as the 3.2% consensus. So the buzz will be that GDP came in less than expected (though the headlines will initially tout the improved growth). Kasriel predicts 2.7%...
Detroit Dan, that's a good point about the GDP. I wondered about that too. Perhaps their round table tomorrow morning is to buffer,or attempt to control the market's perception of a WEAKER GDP figure than expected. Just a thought, but very possible.... Kasriel may be right, and if so, you absolutely want to control the interpretation and market perception of that figure.
who cares about the dollar. dropping dollar has not lead to import based inflation. the only things inflating are local products, health, education blahblah.
rate cuts are coming and the best reason why is because you guys as a group dont think they will. oh that and the presidential election coming!
At some point retail & domestic mfg will have a dilemma when lousy margins margins turn negative: Do we keep our revenues up and lose money, or do we fatten our margins and hope the revenue dip is ain't that bad(besides, the high end of the market is holding up, what's an extra 5% to them?)
Is this the same groupthink that said the mortgage market is gonna be a mess, that it isn't just sub-prime, isn't just altA, could spread to MBS & CDO markets? Do you really like them odds? If you think it's a lead pipe cinch take a 2nd out on your house and be George Soros jr.
I believe the economy is slipping into recession now. Whatever it was that kept growth barely above 0 so far this year (bubble inertia and bubbly financial activity) is gone. When the Fed meets in October, they will most likely know that the economy has moved into recession territory. I don't know what they'll do, but I would guess a modest decrease in interest rates. The market has been thinking this would come sooner, then thinking it may never come. But by October the writing on the wall should be clear enough that they Fed will feel the need to do something...
Ha,HA HA
"HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said. "
So the Chinese are pulling their money too. I wonder How long they can survive with the european business. I guess the chinese are getting greedy too. Greed is a bad thing.
The plunge protection teams prime directive is to maintain investor confidence at all costs, no matter what the fundamentals are. Just by virtue of an appearance by the top guns, tells you something is seriously wrong.
This credit seizure(and resulting equities problems) might be the exogenic shock that causes the drunk to tip over. It just depends on how long it is.
Can they wish it away until after Labor Day? With the volumes in today's equity markets(2+ billion shares in July?), I hardly think so(unless they start hiring a bunch of 5 year olds to "expedite" trades or have that 3:00 freeze last for weeks at a time.)
But if Gazprom can't issue paper, I'm assuming CRE has dried up like a mummy. If CRE can't use OPM to put up another Lowe's in a Zomburb, CRE basically shuts down once current projects are completed.
Once shutdown in CRE occurs, then the damage in the jobs and retail takes place and we're in recessionville.
Both the recession and rate cut will be in October< I just don't see how a rate cut helps. Mortgages aren't moving with the 10 year anymore, their valuations for a bunch of properties may be upside down, They're running out of originators and warehouses, and nobody wants to buy the sausage.
Stuart & Dan - the one fly in the Chinese won't buy US securities ointment is...
"So what the hell they do with the NEW dollars they keep getting from us?"
The US consumer might be shaky but China's still exporting & we're still buyin'. As long as that happens the Chinese HAVE to buy US SOMETHING else the peg unpegs. So if not securites & agency and T's... what do they buy?
And if they stop exporting to us they either have to find a new mega-export partner (receiver) OR stop exporting... and with the mass of folks looking for work over there the latter is 'inoperative'... They aren't even close to a fully closed loop economy sufficiently large enough to continue their job growth without 'issues'.
And issues in China always bigger than anywhere else.
So everyone can make the case why 'rational buyers' in an 'efficient market' should shun dollars... all I can say is tell that to the party apparatchiks and pseudo-entrepreneurs in China. I'll believe they will walk away from the dollar the same day I see them walk away from our export market.
You are thinking of the very similar "Janie's Got a Gun". Maybe it was Billy's sister, lol.
Janie's Sold a Ton
I just don't have it in me to do another one tonight. Here's the Cliff Notes version though.
Janie's sold a ton [just like Billy did].
What did her banker [Bernanke] do?
He jacked rates little bitty baby [steps]. "The man" has got to be insane. Run away, run away from the pain...
banker, care to re-visit your version of the benefits of stock buyback on borrowed money? Sebastian can help since he is fond of them too.
They make as much sense as these razor-thin-margin Tyco-style LBO deals that fall apart on 50bpts. I am willing to go out on a limb and speculate that many of the announced stock buybacks are either withdrawn or simply fade into the fair blue sky unfilled.
Who cares if the LBOs fall apart. Let the investment bankers eat cake like everyone else, for once...
""So what the hell they do with the NEW dollars they keep getting from us?""
Now that is THE question that everyone is wondering about. US Treasuries IMO will always get some bid but less and less over time. No question though credibility and trust in US Assets is crumbling. They're going to have to start turning the vast majority of their increasing holdings inward much more than they are.
Both the recession and rate cut will be in October< I just don't see how a rate cut helps.
One thing a rate cut does is increase the value of all existing bonds & bond funds that were initiated at higher previous rates. So existing bonds & bond funds that are under water now due to a delinquency rate 'X' based on short rates at 5.25% might have enough value at a rate lower than that to have value and get moved off the books at the bank (and the secondary market unfreezes again).
Do enough of that and the credit log jam gets unjammed. Sure its a bit like 'financial dynamite' and if you stand too close a log might fall on you... but that's a risk they'll take to get the logs flowing downstream again.
The point made earlier that it opens us up to becoming a 'carry initiator' is a legitimate worry... in such a case our sick loans don't move when our rates drop... OTHER countries loans move instead.
This is a GREAT moment for companies who are buying back stock and already have borrowed the money to do so. A GREAT moment.
As for being Bearish, I'm not sure what you mean. I look at each new piece of data and try to figure out what it all means.
I thought the junk market issues that began a couple of weeks ago could be a big problem and said so. It is still too soon to know if it will be a big problem.
Both the recession and rate cut will be in October...
To make things especially interesting October could also be a problem for the year over year headline CPI. It has been running hot this year and if we don't get a massive commodity selloff like we did last fall, well, oh oh!
Not ruling out a commodity selloff mind you. I'm sitting in TIPS mostly. TIPS were one of the few things up today (the deflationists did even better though obviously). I'm not so much betting on inflation (since I can't predict where it is headed), but on even lower real yields. You know, bad times.
Maybe if they actually consumed instead of speculated they'd be closer to a closeed loop economy.
The Chinese gov't is trying to squash speculation... but its tough without killing the market altogether.
And in some ways the banks over there aren't helping - the rates they offer for their sterilization bonds are at very low rates... who wouldn't speculate instead?
It wouldn't be a problem if they didn't have 200 to 300 million in central China at subsistence levels who need real jobs... but they do. Its a huge political liability.
Case in point:
I know guys building a factory in China now... When trying to site they went to Shanghai & found the labor rates way too high... about $2000/yr for a highly skilled worker. (LOL).
Never fear they went west about 200 KM to Wuxi or Wuhu... rates there are still 25-35 cents an hour for the same skilled worker.
It's like that all across rural China... until they get the system up and 'cycling' internally to support consumption they will need to rely on export trade.
It could take a generation to reach the level Taiwan is now or Korea - both of them are still 'export dependent' though less so.
I don't see us being able to absorb all this China production... nor Europe. But that doesn't mean the CPC won't try to make it happen - they have too much to lose if it doesn't.
Its a state run economy, creating jobs and industries based on central planning wish list rather then true market demands. The Steel industry has been over producing for quite some time so they begin a ship building industry to absord the excess steel, by 2012 the number of tankers in the world will be doubled.
This is a GREAT moment for companies who are buying back stock and already have borrowed the money to do so. A GREAT moment.
Are they 'committed' to use the money for that? I know its awkward to back away but can they?
I will acknowledge one thing regarding this issue... In my opinion, one thing worse than using additional debt to buy back stock when heading into a recession or is using that debt to buy additional capacity (expansion) instead.
Given the choice of those two going into a very tough period then the buy back looks better than expansion.
Reason: both eat cash that could be the lifeblood of the firm in crisis... but at least a stock buy back doesn't commit the firm to ongoing operational cash flow drain like additional capacity does. If the business isn't there to support the capacity it then becomes a HUGE drain on future resources.
That is one helluva bearish caveat however - if things get that bad they are likely to wish they still had the cash to keep the company solvent.
That's the problem with mercantilist policies, innit?
Yup. And they aren't in any hurry to stop. China especially. Click through this and you get a feel for why. The picture on page two blows me away every time I look at it.
Japan, Korea, Taiwan, etc. - I can't fully grasp why they continue merchantilism - they could 'internalize' their economy without a lot of pain. Hell even Japan's 'lost decade' was pretty painless to the average Japanese... not like trying to find work in Chongqing.
Yep, use perfectly good cash to buy back stock heading into a recession where stocks crater 25%...+ so you lose $$$$ on the "investment" and pay interest on the funds to finance the silly mistake. I am sure the funds haven't been secured for many of the recently announced buybacks.
And dryfly, in a lot of cases, announced buybacks are simply unexercised distant memories that temporarily drove up stock prices and that's it.
ikkei DOWN 2%. Contagion isn't confined to neatly compartementalized pieces of the US debt markets or economy. The container spans the globe. Spillage. So much for the global growth & profits argument.
I don't know if we're headed for a recession, but one thing I can say nearly for sure is we're headed for a crapload of volatility. I might have to swear off finance and personally boycott the blogosphere just to stay sane
My bet is that GDP comes in right at about 3.0%, but most of the growth is sort of below the line if you will. Big inventory accumulation, a bit of help from lower trade defict. Then next month it will be revised down and then revised down a month after that, when all is said and done probably around 2.6% or so.
Part of me wants to think that employment growth is over stated B/D model, falling labor force pareticipation and all that, however, the weekly jobless claims continue to surprise to the downside, and seems like local tax revenues are still holding up pretty well, so at least some of the strength in the labor market is for real. However, with the spread of this credit crunch, I suspect that the second half is going to start looking more like the first quarter than the second.
Oh, and thank god for Boeing, their success seems to be one of the last remaining drivers in the economy (and all the companies feeding into Boeing).
"Do enough of that and the credit log jam gets unjammed"
Might work for the LBO stuff but what about CDO's? Economists always seem to have a hard time understanding financial manias and believe everything can be fixed or tweaked with a rate cut or more liquidity. The problem here is the RE market and psychology. Those assets will be dropping for a long, long time and there is nothing anybody can do about it. The logs will remain jammed.
"The point made earlier that it opens us up to becoming a 'carry initiator' is a legitimate worry... in such a case our sick loans don't move when our rates drop... OTHER countries loans move instead."
Bingo. And like Japan, growth will come to a standstill while we inflate the rest of the world. LOL! This may not work so well considering we have no savings and are huge importers - unlike the Japanese.
After looking at the subprime problem, one simply HAS to conclude that what the US market needs is a huge round of sweeping deregulation. That ought to hold us for another couple of years!
The air craft carrier comment is not so far from the truth, military needs rebuilding the minute they get back.
You guys seem to be pretty antsy about all of this. A 5, 10 or 15% drop only kills you if you are highly leveraged!!
I know guys building a factory in >>China now... When trying to site they >>went to Shanghai & found the labor >>rates way too high... about $2000/yr >>for a highly skilled worker. (LOL).
Never fear they went west about 200 KM >>to Wuxi or Wuhu... rates there are >>still 25-35 cents an hour for the same >>skilled worker.
You can't do this to us ! How can we compare 2000/yr with 25-35 cents/hr ? Gotta keep the units the same, man - or else we'd accuse you of - you know - SPIN !
So I tried to work it as 2000 hr/year ( an US standard in consultancy ) and it works out at $1 / hr versus 25-35 cents /hr. But what's the Chinese standard ?
Moreover, the preliminary offer memo for KKR is full of plans to develop a global capital-markets business that would result in far fewer fees going to Wall Street.
Dryfly, please. The Yee Haw Adventure farm with the Flo Gently Show? Canuck hillbillies? Perfect for team building (whatever that is) and corporate gatherings?
Asian stocks fell the most in four months, extending a rout that wiped out $1.3 trillion of global market value yesterday, as investors shun riskier assets because of a deepening U.S. housing recession.
``If you believe that water flows uphill and fish have wings, then Asian stocks can keep rallying and ignore the expanding housing and credit problems spreading out from the U.S.,'' said Chua Soon Hock, managing director of Asia Genesis Management in Singapore, which manages about $450 million.
At least some people are benefiting from the pain being felt by American homeowners. Word on Wall Street is that the head of one trading desk, after making a lucrative bet against securities backed by mortgages to people with bad credit histories, has had T-shirts made up that cheerfully proclaim: Im short your house.
Maybe a little bounce, looks like s&p could fall another 60 or so points and 700 on the dow to fill the gaps may take awhile but no hurry to buy here. IMHOP
A 50bps rate cut by Oct? Futures market, put down the crack pipe, proceed directly to rehab, please. We've got plenty of coffee and some nice cots, just remember lights out at 10PM.
Absent some huge shock to the economy, we have a better chance of seeing Paris Hilton joining Mensa.
People seem to be losing their heads a bit, we haven't even had a 5 % correction (that would be 700 points down) let alone a decent 10% dow haircut. We need to see quite a few more days like yesterday before we get fed action.
What I really think is that the Bush-bots are in a particularly bad double bind.
If they prop up the market (Knights of Templar, whatever), there will never, ever be a rate cut.
If they let the market soil itself badly...well, two things happen. First, it doesn't make Bush's job any easier. Second, there is absolutely no guarantee of a rate cut.
There are two imponderables:
1) How much borrowed money is in the various markets? If leverage actually is at 90% plus levels, that bodes poorly for markets.
2) Can consumers with negative savings rates go on consuming more and more?
Should we be looking an starting an 'Implodometer' for Hedge funds?
Are there parallels between what's happening now in the credit market and the subsequent effect on hedge funds, to what transpired in the sub-prime lending arena?
How many people are going to want to be long over the weekend?
Europe is down. The yen is staying high. The euro has toileted.
I wonder if this is more than a blip.
And then there's an article in the NYT about Saudi Arabia's influence in Iraq. Saudi Arabia has gotten a collossal "Get Out of Jail Free" card from the US.
a) The great majority of the 9/11 attackers were Saudi's.
b) The Saudi's have been actively backing with money and personel the Sunni contingent in Iraq who have been killing Americans.
It punishes savers. You know, those bad people who refuse to get on the debt-train and live paycheck to paycheck, one "rightsizing" away from being out on the street. How dare you think your money is yours! We can't take all of it, but we can inflate it away!
It helps the housing market "recover" - by that, we mean it helps keep prices unaffordably high so people have to ruin themselves to buy a house.
It keeps our poor, underpaid hedge fund scam artists and executives rolling in the cash. Why, some of them might not even get multi-million dollar bonuses this year on top of their multi-million dollar salaries and multi-million dollar stock options because of the market problems! We can't have that!
Thank the maker:
The U.S. economy resurged in the second quarter. Gross domestic product rose at a 3.4% annual rate. Inflation gauges were mixed. Full article coming soon.
WSJ
I thought Mike Jackson left for Dubai.
Rate cuts wont help now. they can actually create a selloff in all the bond markets as inflation expectations increase. A bond selloff means higher mortgage rates, higher credit card rates, higher auto loan rates, etc. If the fed cuts now, Put all your money in Gold because Global inflation will accelarate beyond control.
DH - not sure if all that would happen but you sure hit the nail on the head as far as the risks of cutting...
Hopefully the Fed is not dumb enough to listen to the bleating of some pig auto dealer who got rich off the credit bubble.....hopefully.....wait isn't this the same Fed that encouraged people to take on ARM's with rates at historic lows?????
We're screwed.
CR,
I get that the market is speaking on a rate cut, but I just can't see it barring some catastrophe, can you?
If you think $100 oil is expensive wait until the fed cuts. The FED knows this, and that's why they will not cut this year. They will wait until next year which is an election year. They will buy some time for now.
the FED won't allow the market( BSC,GS,MER)to control the economy. The Fed is still the world bank and is not sympathetic to the competition(i.e. BSC, MER, GS.)for the world money.
Besides, If the
foriegners want to take their money out of USA and invest in China, How is Lower rates gonna help? It will make things worse.
Say hello to the dollar carry trade - coming in 2008 to a Forex near you.
I agree with DH, a rate cut this year would sink the dollar even further and only lead to more inflation which would lead to higher interest rates. You end up at the same place you would have otherwise, and it will be even worse than if you hadn't lowered.
It almost seems like it would be better at this point if BB raised rates by a quarter point next month to prove that he's serious about shoring up the dollar.
I really don't see a cut happening anytime soon. Things aren't quite bad enough yet, and it could really destabilize the dollar, which is on a nice glide path downward.
So far, no signs on the real economy absent housing - and the ongoing shift away from the FIRE economy to exports is something that is desirable. It's going to be a close run thing, because markets always, always overshoot. So I'm pretty sure we're going to have a credit crunch on our hands. At that point, the Reserve will cut (and we get lots of pushing on a string talk)
FWIW - I have some friends at the Treasury and they say BB is smart, capable, and not nearly as dovish as the popular perception makes him out to be.
OT
TOKYO (Nikkei)--The yen clawed its way to the 119 yen level against the dollar Wednesday for the first time in about two and a half months, but most market participants believe the Japanese currency will soon face depreciation pressure again.
Investors are growing wary about U.S. share price risks amid rising concerns about surging defaults in U.S. subprime mortgages. As a result, hedge funds and bank dealers that had been dumping the yen are now buying back the currency.
That's the kind of argument you'd expect from a car dealer b.. oh wait, never mind.
If the Fed cuts interest rates a 1/2 a percent this fall it won't be enough to stop the damage that will have already been set in motion. I sometimes wonder if these people have ever heard of inertia. The carnage that will be let loose on the dollar will be a sight to behold.
banker, I started the year expecting a rate cut when the economy eventually slowed. But now, after listening to Bernanke and watching the dollar fall, I think a rate cut is very unlikely this year - barring a severe economic slowdown.
I was actually surprised by the WSJ article, so I checked the Cleveland Fed. This will probably all change tomorrow with a decent GDP report!
Best to all. Interesting day.
I don't understand why we can't have a 30% correction in the stock and housing markets? The Real Estate agents can get back to work and we
get higher long term returns on our portfolios. The Sooner we get the correction the better ( long term.)
Same with interest rate Hikes, the sooner the better.
Calculated Risk
OT I would like to ask you a favor. I hope that at sometime in the near future you could look into the bond rating of the major homebuilders. I read an article on this topic 6 months ago, but I know things are changing very quickly.
Thanks
While I tend to agree that a cut might not be the best thing to do, we cannot forget the psychological impact to the consuming public.
And by this fall, a lot of the issues pending today (like what has been talked about on the CR site) will be "resolved"....meaning by then, we will know just how big the crater really is.
Have private business men always publicly offered unsolicited advice to the Federal Reserve?
I've noticed this happening a few times in recent months, but I've only been paying attention to this sort of thing for about a year now. Perhaps it's common practice?
A down day in the market brings out the calls for a rate cut. God forbid if we had a two or more days in a row of selling the FED rate cut stories would be NYT front page.
I wish someone would directly address the impact of rate cuts on the dollar and the ability to sell US debt to FCBs in the context of attempting to stimulate sagging domestic economic performance.
I'm under the impression that a rate cut would decrease the value of the dollar as a, no, as the reserve currency and that the resulting inflation from rising import prices (products, components and raw materials) will send products sales into a tailspin. This includes sagging vehicle sales.
I understand that theoretically US exports will increase, but I remain concerned that US manufacturing (not just assembly and/or marketing of foreign components) capacity isn't up to the task.
The dollar has a long way to fall before US labor is competitive with Brazil, India or China.
Seems like there's one discussion going on internationally and another that pretends you can stimulate the domestic economy as if it was a closed system with no international capital flows.
RIP America's Debt-Based Monetary system
1980's - 2007
Create the Dream, Sell the Dream, lather, rinse repeat.
The pain of Joe and Jane Upper Middle Class American is going to get much much worse.
The classes below are already feeling it....
who cares about the dollar. dropping dollar has not lead to import based inflation. the only things inflating are local products, health, education blahblah.
rate cuts are coming and the best reason why is because you guys as a group dont think they will. oh that and the presidential election coming!
CR can you chart rate cuts and election cycles?
and what do interest rate differentials have to do with anything anyway?
Billy Sold a Ton (Billy's Got a Gun - Def Leppard)
Billy sold a ton, he's on the run
Confusion in his mind, his cash flow's in a bind
Oh, Billy sold a ton, as market's goin' down
He sees evil in the lies, has a reason to despise
There's danger in the air
Can you see why I'm a bear?
Danger! (such a strange emotion)
Can you see why I'm a bear?
Oh he was locked inside a loan without a floor
His greediness he suffered for
In a world of black and white, exotic loans can cause fright
Just found himself a clue, "It's a nightmare come true!"
It's turning oversold to back that danger down
Oh Billy, why you sold that ton?
Never gave him a rate break
Defaulting is the chance he takes
It could be his last mistake (he could be so helpless)
As a bird with a broken wing
Like a sheep in a lion's den
Gonna fall but he won't know when
He called bankers in the night, saw writing on the wall
And the ghastly sound of silence, as the prices start to fall
Bernanke's scream rang out like thunder, but the message was too late
As the rates came down on his leveraged ground
The Depression was too Great
And a crowd of hedge funds came unwound, but Billy couldn't wait
CLO market has almost shut down, experts say
Loans for LBOs and corporate borrowing are getting harder to sell
CLO market has almost shut down, experts say - MarketWatch
"I don't understand why we can't have a 30% correction in the stock and housing markets? The Real Estate agents can get back to work and we
get higher long term returns on our portfolios. The Sooner we get the correction the better ( long term.)" [DH]
Thank you. The soon the better, as far as I'm concerned, preferably before the 2008 election. There will be a lot of pain. I feel sorry for people who are buying stocks at these high prices on the 401k installment plan. The backlash will be fierce...
The 2 year and 5 year US treasuries auction today had the lowest percentage of indirect bidders in years. The money is leaving the USA. Less money= higher rates.
Gee the entire gang is assembled tomorrow morning. Leazer, Portman, Gutierrez and of coarse, Paulson. Hmmm....do you think they're going to preach their book? I wonder what would've happened if CNBC declined the invitation to interview them. These 4 clowns are going to get out there and say jack of any value. Does anyone with half a neuron actually believe they will admit that containment has been broken, that they've underestimated the affect of mortgage resets, that they were asleep at the wheel while credit was been thrown around like a financial orgy of greed, that regulators are negligent.
Write this down as this will summarize tomorrow morning which btw is at 9:45 am the interview.
Yada yada...100% fluff, hot air, 0% substance.....
Good lord, give me some Pepto just thinking about it.
y.s.wayne, they aren't all junk? Really, I haven't looked, but I will.
Tom, it's not that unusual. Everyone likes to give advice to the Fed - even me sometimes!
Stuart, I agree ... everyone is gathered because the GDP report is probably going to be pretty good (the headline number), and they want to talk about how great the economy is doing, and how tax cuts are working, etc...
Best to all.
CR, ya a state level sanctioned pump and dump.
This ought to help matters..
China shying from shaky US mortgage market
By Olivia Chung
HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said.
Of the approximately $7 trillion worth of US mortgage securities, subprime loans currently account for about 15%. Thirteen percent of US mortgage delinquencies in the last quarter of 2006 were from subprime loans and about 30 mortgage companies have gone under in the past few months, Yi said. "There are significant financial losses," he said.
Yi said some bond ratings agencies that advise investors, including Chinese, also purposely played down the MBS risk. "Some ratings agencies slapped investment-grade ratings on mortgage-backed bonds that they knew they were risky," he charged.
Bond-rating agencies this month finally downgraded about $12 billion worth of subprime US mortgage securities, Yi said.
Economist Shi Weigan echoed Yi's comments. "With a possible burst in the housing bubble in the US, it's not the right choice for Beijing to spend foreign-exchange reserve funds on the US mortgage-backed securities," Shi said.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2007 Asia Times Online Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Stuart, you make a couple of good points. First, the credibility of our financial leaders is evaporating fast. Second, the Chinese and others who are getting burned on mortgage backed securities will perhaps be less enamored of investing in U.S. securities in the future.
I don't think the GDP number will be as good as the 3.2% consensus. So the buzz will be that GDP came in less than expected (though the headlines will initially tout the improved growth). Kasriel predicts 2.7%...
Detroit Dan, that's a good point about the GDP. I wondered about that too. Perhaps their round table tomorrow morning is to buffer,or attempt to control the market's perception of a WEAKER GDP figure than expected. Just a thought, but very possible.... Kasriel may be right, and if so, you absolutely want to control the interpretation and market perception of that figure.
who cares about the dollar. dropping dollar has not lead to import based inflation. the only things inflating are local products, health, education blahblah.
rate cuts are coming and the best reason why is because you guys as a group dont think they will. oh that and the presidential election coming!
At some point retail & domestic mfg will have a dilemma when lousy margins margins turn negative: Do we keep our revenues up and lose money, or do we fatten our margins and hope the revenue dip is ain't that bad(besides, the high end of the market is holding up, what's an extra 5% to them?)
Is this the same groupthink that said the mortgage market is gonna be a mess, that it isn't just sub-prime, isn't just altA, could spread to MBS & CDO markets? Do you really like them odds? If you think it's a lead pipe cinch take a 2nd out on your house and be George Soros jr.
Best of luck with that.
S. Mark,
That's Aerosmith, I believe, not Dead Leopard.
Elvis
I believe the economy is slipping into recession now. Whatever it was that kept growth barely above 0 so far this year (bubble inertia and bubbly financial activity) is gone. When the Fed meets in October, they will most likely know that the economy has moved into recession territory. I don't know what they'll do, but I would guess a modest decrease in interest rates. The market has been thinking this would come sooner, then thinking it may never come. But by October the writing on the wall should be clear enough that they Fed will feel the need to do something...
Ha,HA HA
"HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said. "
So the Chinese are pulling their money too. I wonder How long they can survive with the european business. I guess the chinese are getting greedy too. Greed is a bad thing.
The plunge protection teams prime directive is to maintain investor confidence at all costs, no matter what the fundamentals are. Just by virtue of an appearance by the top guns, tells you something is seriously wrong.
This credit seizure(and resulting equities problems) might be the exogenic shock that causes the drunk to tip over. It just depends on how long it is.
Can they wish it away until after Labor Day? With the volumes in today's equity markets(2+ billion shares in July?), I hardly think so(unless they start hiring a bunch of 5 year olds to "expedite" trades or have that 3:00 freeze last for weeks at a time.)
But if Gazprom can't issue paper, I'm assuming CRE has dried up like a mummy. If CRE can't use OPM to put up another Lowe's in a Zomburb, CRE basically shuts down once current projects are completed.
Once shutdown in CRE occurs, then the damage in the jobs and retail takes place and we're in recessionville.
Both the recession and rate cut will be in October< I just don't see how a rate cut helps. Mortgages aren't moving with the 10 year anymore, their valuations for a bunch of properties may be upside down, They're running out of originators and warehouses, and nobody wants to buy the sausage.
Stuart & Dan - the one fly in the Chinese won't buy US securities ointment is...
"So what the hell they do with the NEW dollars they keep getting from us?"
The US consumer might be shaky but China's still exporting & we're still buyin'. As long as that happens the Chinese HAVE to buy US SOMETHING else the peg unpegs. So if not securites & agency and T's... what do they buy?
And if they stop exporting to us they either have to find a new mega-export partner (receiver) OR stop exporting... and with the mass of folks looking for work over there the latter is 'inoperative'... They aren't even close to a fully closed loop economy sufficiently large enough to continue their job growth without 'issues'.
And issues in China always bigger than anywhere else.
So everyone can make the case why 'rational buyers' in an 'efficient market' should shun dollars... all I can say is tell that to the party apparatchiks and pseudo-entrepreneurs in China. I'll believe they will walk away from the dollar the same day I see them walk away from our export market.
Elvis,
You are thinking of the very similar "Janie's Got a Gun". Maybe it was Billy's sister, lol.
Janie's Sold a Ton
I just don't have it in me to do another one tonight. Here's the Cliff Notes version though.
Janie's sold a ton [just like Billy did].
What did her banker [Bernanke] do?
He jacked rates little bitty baby [steps].
"The man" has got to be insane.
Run away, run away from the pain...
banker, care to re-visit your version of the benefits of stock buyback on borrowed money? Sebastian can help since he is fond of them too.
They make as much sense as these razor-thin-margin Tyco-style LBO deals that fall apart on 50bpts. I am willing to go out on a limb and speculate that many of the announced stock buybacks are either withdrawn or simply fade into the fair blue sky unfilled.
Who cares if the LBOs fall apart. Let the investment bankers eat cake like everyone else, for once...
dryfly
""So what the hell they do with the NEW dollars they keep getting from us?""
Now that is THE question that everyone is wondering about. US Treasuries IMO will always get some bid but less and less over time. No question though credibility and trust in US Assets is crumbling. They're going to have to start turning the vast majority of their increasing holdings inward much more than they are.
PSST... banker, you're sounding a little bearish these days. dotcommunist dr_strangemoney... are rubbing off on you.
So if not securites & agency and T's... what do they buy?
Zimbabwe? Angola? Mozambique? Sudan?
It seems as if China is shipping more product to Europe already, so if they re-allocate deftly it shouldn't be a problem(for them)
Maybe if they actually consumed instead of speculated they'd be closer to a closeed loop economy.
Both the recession and rate cut will be in October< I just don't see how a rate cut helps.
One thing a rate cut does is increase the value of all existing bonds & bond funds that were initiated at higher previous rates. So existing bonds & bond funds that are under water now due to a delinquency rate 'X' based on short rates at 5.25% might have enough value at a rate lower than that to have value and get moved off the books at the bank (and the secondary market unfreezes again).
Do enough of that and the credit log jam gets unjammed. Sure its a bit like 'financial dynamite' and if you stand too close a log might fall on you... but that's a risk they'll take to get the logs flowing downstream again.
The point made earlier that it opens us up to becoming a 'carry initiator' is a legitimate worry... in such a case our sick loans don't move when our rates drop... OTHER countries loans move instead.
Interesting for sure.
Barely,
This is a GREAT moment for companies who are buying back stock and already have borrowed the money to do so. A GREAT moment.
As for being Bearish, I'm not sure what you mean. I look at each new piece of data and try to figure out what it all means.
I thought the junk market issues that began a couple of weeks ago could be a big problem and said so. It is still too soon to know if it will be a big problem.
Rate cut? Nope. We will see i rates inching higher. The economy does not need cheaper money nor cheaper imports to enhance inflation.
Alec,
Both the recession and rate cut will be in October...
To make things especially interesting October could also be a problem for the year over year headline CPI. It has been running hot this year and if we don't get a massive commodity selloff like we did last fall, well, oh oh!
Not ruling out a commodity selloff mind you. I'm sitting in TIPS mostly. TIPS were one of the few things up today (the deflationists did even better though obviously). I'm not so much betting on inflation (since I can't predict where it is headed), but on even lower real yields. You know, bad times.
dryfly
Rational is relative.
The fact that our academics has a paradigm defining 'rational market' don't mean that it is rational to all folks.
May not even work except between sovereign nations that hold the same paradigm.
I remember reading a sci-fi book about a banker than burned currency that he printed to keep inflation down.(after it had circulated a while)
In the context of that society, it worked.
Not much difference between burning and investing in depreciating assets except appearance.
Maybe if they actually consumed instead of speculated they'd be closer to a closeed loop economy.
The Chinese gov't is trying to squash speculation... but its tough without killing the market altogether.
And in some ways the banks over there aren't helping - the rates they offer for their sterilization bonds are at very low rates... who wouldn't speculate instead?
It wouldn't be a problem if they didn't have 200 to 300 million in central China at subsistence levels who need real jobs... but they do. Its a huge political liability.
Case in point:
I know guys building a factory in China now... When trying to site they went to Shanghai & found the labor rates way too high... about $2000/yr for a highly skilled worker. (LOL).
Never fear they went west about 200 KM to Wuxi or Wuhu... rates there are still 25-35 cents an hour for the same skilled worker.
It's like that all across rural China... until they get the system up and 'cycling' internally to support consumption they will need to rely on export trade.
It could take a generation to reach the level Taiwan is now or Korea - both of them are still 'export dependent' though less so.
I don't see us being able to absorb all this China production... nor Europe. But that doesn't mean the CPC won't try to make it happen - they have too much to lose if it doesn't.
There is no easy answer.
I remember reading a sci-fi book about a banker than burned currency that he printed to keep inflation down.(after it had circulated a while)
That is almost what the Chinese are doing with their sterilization bonds.
It could take a generation to reach the level Taiwan is now or Korea - both of them are still 'export dependent' though less so.
That's the problem with mercantilist policies, innit?
Its a state run economy, creating jobs and industries based on central planning wish list rather then true market demands. The Steel industry has been over producing for quite some time so they begin a ship building industry to absord the excess steel, by 2012 the number of tankers in the world will be doubled.
This is a GREAT moment for companies who are buying back stock and already have borrowed the money to do so. A GREAT moment.
Are they 'committed' to use the money for that? I know its awkward to back away but can they?
I will acknowledge one thing regarding this issue... In my opinion, one thing worse than using additional debt to buy back stock when heading into a recession or is using that debt to buy additional capacity (expansion) instead.
Given the choice of those two going into a very tough period then the buy back looks better than expansion.
Reason: both eat cash that could be the lifeblood of the firm in crisis... but at least a stock buy back doesn't commit the firm to ongoing operational cash flow drain like additional capacity does. If the business isn't there to support the capacity it then becomes a HUGE drain on future resources.
That is one helluva bearish caveat however - if things get that bad they are likely to wish they still had the cash to keep the company solvent.
Kasriel predicts 2.7%...
He took that number from the Chicago Fed..
Welcome to Northern Trust
july 23rd
That's the problem with mercantilist policies, innit?
Yup. And they aren't in any hurry to stop. China especially. Click through this and you get a feel for why. The picture on page two blows me away every time I look at it.
Japan, Korea, Taiwan, etc. - I can't fully grasp why they continue merchantilism - they could 'internalize' their economy without a lot of pain. Hell even Japan's 'lost decade' was pretty painless to the average Japanese... not like trying to find work in Chongqing.
Yep, use perfectly good cash to buy back stock heading into a recession where stocks crater 25%...+ so you lose $$$$ on the "investment" and pay interest on the funds to finance the silly mistake. I am sure the funds haven't been secured for many of the recently announced buybacks.
And dryfly, in a lot of cases, announced buybacks are simply unexercised distant memories that temporarily drove up stock prices and that's it.
ikkei DOWN 2%. Contagion isn't confined to neatly compartementalized pieces of the US debt markets or economy. The container spans the globe. Spillage. So much for the global growth & profits argument.
I don't know if we're headed for a recession, but one thing I can say nearly for sure is we're headed for a crapload of volatility. I might have to swear off finance and personally boycott the blogosphere just to stay sane
My bet is that GDP comes in right at about 3.0%, but most of the growth is sort of below the line if you will. Big inventory accumulation, a bit of help from lower trade defict. Then next month it will be revised down and then revised down a month after that, when all is said and done probably around 2.6% or so.
Part of me wants to think that employment growth is over stated B/D model, falling labor force pareticipation and all that, however, the weekly jobless claims continue to surprise to the downside, and seems like local tax revenues are still holding up pretty well, so at least some of the strength in the labor market is for real. However, with the spread of this credit crunch, I suspect that the second half is going to start looking more like the first quarter than the second.
Oh, and thank god for Boeing, their success seems to be one of the last remaining drivers in the economy (and all the companies feeding into Boeing).
Bernanke said it's largely confined to subprime and no spillover. Surprise, look what they discovered in Australia and Asia? Spillage... !
Debt crunch is taking on a global scale - MarketWatch
"Do enough of that and the credit log jam gets unjammed"
Might work for the LBO stuff but what about CDO's? Economists always seem to have a hard time understanding financial manias and believe everything can be fixed or tweaked with a rate cut or more liquidity. The problem here is the RE market and psychology. Those assets will be dropping for a long, long time and there is nothing anybody can do about it. The logs will remain jammed.
"The point made earlier that it opens us up to becoming a 'carry initiator' is a legitimate worry... in such a case our sick loans don't move when our rates drop... OTHER countries loans move instead."
Bingo. And like Japan, growth will come to a standstill while we inflate the rest of the world. LOL! This may not work so well considering we have no savings and are huge importers - unlike the Japanese.
Funny that the ad on the site with this post is for the "envirolet; waterless toilets." Economy. Toilet. Perfect.
If I was them I would build aircraft carriers.
My extrapolations and calculations point to 1.4% growth in Q2 07 GDP.
We'll see tomorrow morning.
If I was them I would build aircraft carriers.
That's part of the 2009 Stimulus & Security Act.
Funny that the ad on the site with this post is for the "envirolet; waterless toilets." Economy. Toilet. Perfect.
That's the 'Bubble Economy' version... the next release for the 'Post-bubble Economy' looks like this... its also 'waterless'.
After looking at the subprime problem, one simply HAS to conclude that what the US market needs is a huge round of sweeping deregulation. That ought to hold us for another couple of years!
The air craft carrier comment is not so far from the truth, military needs rebuilding the minute they get back.
You guys seem to be pretty antsy about all of this. A 5, 10 or 15% drop only kills you if you are highly leveraged!!
...we're headed for a crapload of volatility.
Woohoo! Loving my VIX calls!!!
re dryfly
You can't do this to us ! How can we compare 2000/yr with 25-35 cents/hr ? Gotta keep the units the same, man - or else we'd accuse you of - you know - SPIN !
So I tried to work it as 2000 hr/year ( an US standard in consultancy ) and it works out at $1 / hr versus 25-35 cents /hr. But what's the Chinese standard ?
-K
Headed for a crapload of volatility? Headed for?
Dryfly,
Here's some follow up on a prior conversation
Debt Crunch Hits Key IPO - WSJ.com
Moreover, the preliminary offer memo for KKR is full of plans to develop a global capital-markets business that would result in far fewer fees going to Wall Street.
Dryfly, please. The Yee Haw Adventure farm with the Flo Gently Show? Canuck hillbillies? Perfect for team building (whatever that is) and corporate gatherings?
Where do you come up with this stuff?
Team building. Is that anything like beer call?
I think this is the trigger. It is not C and BSC but DB and JPM:
Deutsche, JP Morgan stuck with $10b loan - Business - Business - smh.com.au
Asian stocks fell the most in four months, extending a rout that wiped out $1.3 trillion of global market value yesterday, as investors shun riskier assets because of a deepening U.S. housing recession.
``If you believe that water flows uphill and fish have wings, then Asian stocks can keep rallying and ignore the expanding housing and credit problems spreading out from the U.S.,'' said Chua Soon Hock, managing director of Asia Genesis Management in Singapore, which manages about $450 million.
Asian Stocks Plunge, Extending a $1.3 Trillion Global Rout - Bloomberg.com
Contained to the globe.
Team building. Is that anything like beer call?
Unfortunately not, otherwise it might actually work.
Subprime coming home to roost?
At least some people are benefiting from the pain being felt by American homeowners. Word on Wall Street is that the head of one trading desk, after making a lucrative bet against securities backed by mortgages to people with bad credit histories, has had T-shirts made up that cheerfully proclaim: Im short your house.
FT.com / Markets - Subprime coming home to roost?
Me too.
In Europe after an AM selloff things are starting to rebound.
Yal do you ever go to sleep?
Europe is up. The yen is slipping.
The market will be up today.
Forget about a rate cut.
"The market will be up today."
Maybe a little bounce, looks like s&p could fall another 60 or so points and 700 on the dow to fill the gaps may take awhile but no hurry to buy here. IMHOP
A 50bps rate cut by Oct? Futures market, put down the crack pipe, proceed directly to rehab, please. We've got plenty of coffee and some nice cots, just remember lights out at 10PM.
Absent some huge shock to the economy, we have a better chance of seeing Paris Hilton joining Mensa.
People seem to be losing their heads a bit, we haven't even had a 5 % correction (that would be 700 points down) let alone a decent 10% dow haircut. We need to see quite a few more days like yesterday before we get fed action.
Oh, I don't think this is a buying opportunity.
What I really think is that the Bush-bots are in a particularly bad double bind.
If they prop up the market (Knights of Templar, whatever), there will never, ever be a rate cut.
If they let the market soil itself badly...well, two things happen. First, it doesn't make Bush's job any easier. Second, there is absolutely no guarantee of a rate cut.
There are two imponderables:
1) How much borrowed money is in the various markets? If leverage actually is at 90% plus levels, that bodes poorly for markets.
2) Can consumers with negative savings rates go on consuming more and more?
Answers anyone?
Should we be looking an starting an 'Implodometer' for Hedge funds?
Are there parallels between what's happening now in the credit market and the subsequent effect on hedge funds, to what transpired in the sub-prime lending arena?
I am mildly concerned about the market today.
How many people are going to want to be long over the weekend?
Europe is down. The yen is staying high. The euro has toileted.
I wonder if this is more than a blip.
And then there's an article in the NYT about Saudi Arabia's influence in Iraq. Saudi Arabia has gotten a collossal "Get Out of Jail Free" card from the US.
a) The great majority of the 9/11 attackers were Saudi's.
b) The Saudi's have been actively backing with money and personel the Sunni contingent in Iraq who have been killing Americans.
Worms turn occasionally.
The Saudis are getting a free ride because we need them to support the anti-Shite forces across the Arab world, and we still need their oil.
Who do you think is going to fight Hezbollah in Lebanon? Obviously not us. Bad history and we're currently occupied elsewhere.
Kevin,
I am in a differemt time zone half way around the globe.
Hapsburger,
That's a hell of a free ride. I wonder if the families of troops killed in Iraq would completely understand it? Not to mention those killed on 9/11?
I'm not saying I don't understand your rationale. I'm simply saying that some people in the US might not agree with it.
(Begin disgusted sarcasm)
Lowering rages is important for several reasons:
(End sarcasm)
Raise the rates and drain the pool!
Disgusted - it's way too late to save the housing market, any rate cut now would be the proverbial brick thrown into the grand canyon.
Why am I saying this? Too much inventory, and the madness of crowds. Once the public "thinks" something is a bad investment, it just is.
Oh BTW, 2nd Q GDP = 3.4% courtesy of marketwatch. Guess the "rate cut is coming" crowd will need extra prozac and a good shrink.
Thank the maker:
The U.S. economy resurged in the second quarter. Gross domestic product rose at a 3.4% annual rate. Inflation gauges were mixed. Full article coming soon.
WSJ
Geez Arbogast.
I don't make policy. And I didn't vote (either time) for the current administration.
And I'm not advocating giving the Saudis a free ride.
Just calling like I see it.
Someone please explain to me how a lower Fed rate is going to stem the tsunami wave of foreclosures.
If they're needing to refinance, home prices are way too high for a 1/4 point to make any difference in their ability to qualify.
If they're flippers - they're still walking.
I don't see any help here.