I keep seeing it publicized that there is a 100% probability of a Fed rate cut in September. I firmly believe that wont happen. If you want to see higher interest rates happen, just let the bond markets get wind of an increase in inflation.
Last year the Consumer Price Index (CPI) declined from Aug 2006 through Nov 2006 (primarily due to the steep drop in energy prices last year). Therefore if the CPI has no change from Aug 2007 to Sept 2007 we will still have positive Year over Year (YOY) inflation. I quote from John Mauldins 8/3/07 article:
Lets say inflation moderates in the next six months to an annual basis of 2%, which would be the lowest rate for the last three years. That means in November the index would be around 210.5 and the headline inflation rate well over 4% year over year.
But we are told that the Fed likes to look at core inflation. Core inflation looks to be a lot tamer, but still not below 2%. Core CPI was up about 2.7% for the year ended in June. Even if core inflation falls to 2% for the last half of the year (which it did last year), that will mean core inflation in December is still at 2.5%. That is well above the Feds comfort zone of 1-2%. Complete article is here: http://www.frontlinethoughts.com/pdf/mwo080307.pdf
If one looks at the grain prices, most are near all time highs, which promise to continue the food inflation we have been seeing at the stores. This morning it was announced that import prices have increased by 2.8% in the past 12 months. This is the largest yearly increase since last August. The Fed can see this inflation in the pipeline.
So if the Fed cut the rates now, they would have a big jump in headline inflation for all to see being published almost immediately The US dollar would get crushed, which would add to inflationary pressures in the US. I dont see bond yields staying very low with headline inflationary numbers of 4%. While a cut would ease some of the credit crunch right now, it would unleash an entirely different beast which would be much harder to put back into the bottle (and cause much great pain). Paul Volcker did this last time by taking rates to the moon. This is why I dont see the Fed cutting rates soon.
Its not the inflated home prices... its not the actual mortgages... move along. Its the banks, the MBS's, the Funds, the Stock market. In "short" its everything but the actual problem. lol
And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy.
ww, the odds of a rate cut are overstated in the media. 100% is way too high. You can check the market based probabilities at the Cleveland Fed - usually updated late in the day after the market closes.
I don't think the Fed will cut until there is clear evidence of further economic weakness - and they think it will get worse. IMO, they aren't close to that assessment yet.
Bill Sullivan, chief economist JVB Financial, said a rate cut might shore up investor confidence "but would probably do very little to address the losses that have transpired as a result of the imprudent risk strategies."
Economic napalm to rid the forest of bad loans. But Ben's banker buddies are surrounded, so what's a comrade to do? Let's see just how elastic that elastic currency turns out to be. Talk about maternalism. We have some pretty obnoxiously spoiled brats. Obviously jawboning hasn't reined in the children. Let's see some spanking (and not the Scores kind)!
Warsh is always good for a laugh once reality jumps out of the closet and screams "boo!"
First, liquidity is significantly higher than it would otherwise be due to the proliferation of financial products and innovation by financial providers. This extraordinary growth itself is made possible by remarkable improvements in risk-management techniques. Hewing to my proposed definition, we could equally state that financial innovation has been made possible by high levels of confidence in the strength and integrity of our financial infrastructure, markets, and laws. Moreover, remarkable competition among commercial banks, securities firms, and other credit intermediaries have helped expand access to--and lower the all-in-cost of--credit. Interest rate risk and credit risk exposures are now more diversified. Federal Reserve Board: Error
The Fed seems to be preoccupied with inflation that the CPI doesn't show.
And a question: Isn't most of the Fed's influence generated from buying and selling treasury notes?
This thing hasn't even started yet. t starts when the first BBB bond holder sells a boat load of them at 40 or 50 cents on the dollar.
Bag holders, I mean bond holders, are hoping for a rate cut because then a higher % of future mortgage refinancing is viable which means they may get 55 or 60 cents on the dollar. Then the great unwinding really begins. "Those AAAs are worthless, wtf!!"
Basically sellers are on strike hoping for better terms from buyers... but they have to get a market price at some time. The longer they all wait, the less they are going to get as prospects for the economy look worse and worse. The SEC investigating valuations is a step in the right direction, maybe force someone's hand? Or am I just dreaming and there will be a huge bailout?
Some info about those pier loans:
The Buyout Loan Merry-Go-Round
It is well known on Wall Street that private equity firms are pressuring banks to make good on their commitments to fund their deals, even though the banks are having lots of trouble farming the debt out to investors. But here is the latest wrinkle: Many of those same private equity firms are offering to buy that debt from the beleaguered banks at a steep discount, of course.
Ironies abound, but here is the most obvious one: In looking to buy the debt, private equity managers are seeking to profit off the banks pain pain which they themselves took part in causing, by holding the banks feet to the fire.
The PPT has done everything it can today -- three injections -- just to ensure that we get a green Dow tape going into the weekend.
They realized: "holy cow, if we have a second straight 300 or 400-point loss going into weekend, that's going to set up Black Monday because every guy with a 401k plan will be moving into cash funds and out of mutuals. We can't have that."
Notice how the tape came back in the last hour to basically flat-line. You don't think that $40B injection had something to do with that. What a joke. A rigged game. I'm so glad I went into cash 3 months ago, and man I sleep well at night. I say, let 'em crash.
With HeliBen now in action dumping cash into the market, a rate cut would create yet another bubble...Perhaps this one would be the Great Bread Buuble, as everyone races to Walmart in search of affordable food.
Oh Kid, that really made me laugh. But honestly, have you looked at WalMarts numbers the past few months. Me thinks a lot more higher income shoppers are heading that way to stretch their budgets. And still the company's numbers stink.
Since I don't speak such a great english I asked for a translation...
Mozzilo to Fed: Since you want the dam banking system and credit to work you must give funds to contine the MBS biz - otherwise it all stops. Inaflte and don't worry about home prices - we will pump them up...
What is this whole discussion around a major player being weak? Do you have actual info or rumor on this?
probert | 08.10.07 - 4:15 pm | #
no, just all the rumor mill flyin around about stat-arb, ecb injections, fed injections, cramer rant,
The RACE for CASH is clearly Brutal, and with that you have counter parties to transactions that simply can't be paid...
In this respect, the banks' are not unlike the Auto market... let the small, mid-tier, then larger supplier's go belly up, after the big squeeze...But SAVE the Major(B3)
I think the Nation could get by without CFC, but take out a Big 5 bank, and then ....
I keep seeing it publicized that there is a 100% probability of a Fed rate cut in September. I firmly believe that wont happen. If you want to see higher interest rates happen, just let the bond markets get wind of an increase in inflation.
Home prices lower than a year ago. Gas prices lower than a year ago.
That covers the bulk of my expenses.
If that's inflation, I'll take as much as you've got.
All three of today's operation have a duration of 3 days, calendar days at that... So I read that to mean a resale of everything they bought today on Monday - and they'll have to repeat it - and barring other factors, purely logically, the same conditions that prevailed prior to their intervention will prevail.
So what's gonna happen? This is all very educational - seeing the stuff one reads about in theory unfold in realtime - it had better be done by next weekend - I'm going on vacation then.
I think the Chairman will do a few unpalatable things to mute a crisis, if only to keep his post and live to fight another day. While he has a reputation for favoring interventions - and I say this fully aware of events in the past few days - his record so far is one of fiscal probity.
This is, as M-F says so clearly, a standoff. I don't count today's interventions as either party standing down yet. In any case, the Tangelo will ultimately lose the match.
Practically rate cut will have no effect at all,way too late to act! U.S economy has lost 50 % of its growth momentum during first half of 2007 compared to first half of last year(both on y/y and annual basis)and f.funds target is STILL at 5.25 %.It is almost unbelievable!! Recession is just around the corner,I have no doubt. But do not blame only the FED. Miserable
Iraq war is also starting to have depressing effects to overall sentiment and there have been too much dishonesty at mortgage markets. So my opinion is:recession by Q4 2007 and depression by Q1 2008.
To paraphrase Minyanville, today's action by the Fed wasn't an intervention, it was an enabling. Enabling a bunch of banks and hedgies that made bad bets to stumble along for a few more days, or weeks at most.
An intervention would be the Fed saying, sorry markets, work it out amongst yourselves. But instead we got the equivalent of somebody walking up to a bowery bum with a bad case of the shakes and handing him a fifth of Old GrandDad.
"Home prices lower than a year ago. Gas prices lower than a year ago. That covers the bulk of my expenses. If that's inflation, I'll take as much as you've got."
I guess you don't eat much, eh? I guess you don't pay property taxes, either? Do you have any repairs that need to be done to your car or home? I hope not for your bank accounts sake... unless your a heck of handyman.
AC - it's a spread of the "containment" from imploding mortgage origination firms to hedge funds. The Fed is rightly trying to keep it from spreading into ongoing, cash-flowing operations.
Remember, if the Fed doesn't keep the banks solvent, they have to gain cash by calling in loans. THAT would produce the 1980s. We don't want that.
On the other hand, if you are in one of these funds and just got this news, you are most definitely thinking that it's a crisis.
I've seen a couple other people ask this on other threads, but I didn't see an answer: what's the difference between "Agency" and "Mortgage-Backed" debt in the TOMO descriptions? Apparently it's not FNM/FRE debt, and I can't imagine they'd hold neg-am subprime debt even for a few days -- so where do they really draw the line?
AC, I'm with Dustdevil. I guess you don't eat much, and you most certainly don't pay for kids going to school... And your health insurance is paid by someone else?
Thanks, Idaho_Spud. The clarification doesn't totally help me, though -- what's the difference between "Federal agency debt" and "Mortgage-backed securities issued or fully guaranteed by federal agencies"? Those sound the same to me.
The Fed today began its so-called open market operations earlier than usual, shortly after 8 a.m. in New York, lending $19 billion to dealers and accepting ALL forms of collateral.
ewbie, "agency" is fannie, freddie, ginnie. mbs is those plus private issues.
More from Bloomberg, via the excellent summary by Prof. Thoma:
In the U.S., the federal funds rate opened at 6 percent, the highest in six years. The rate fell to 5.25 percent after the New York Fed bought $19 billion of mortgage-backed securities and then followed up with $16 billion of funds in a second operation. ...
So the target remains at 5.25%. As Thoma notes, it is not completely clear whether agency mbs or general mbs were bought, but anything but agencies would be a huge departure. (I hadn't thought about it for a long time, but I do now recall that the Fed has sometimes accepted agencies for overnight repo, probably including even TVA bonds and the like, for over a decade.)
Now see, this is what I get for reading top-down instead of my usual bottom-up: I miss Tanta's post on some of these matters in ' Fed: "Discount Window is Open" '. Very sorry.
"Clarification of Collateral Tranches on Desk RP Operations
Typically, when the Desk arranges RPs it accepts propositions from dealers in three collateral tranches.
* In the first tranche, dealers may pledge only Treasury securities.
* In the second tranche, dealers have the option to pledge federal agency debt in addition to Treasury securities.
* In the third tranche, dealers have the option to pledge mortgage-backed securities issued or fully guaranteed by federal agencies in addition to federal agency debt or Treasury securities.
"From time to time, for operational simplicity, the Desk has arranged RPs just in the third tranche, under which dealers have the option to pledge either mortgage-backed securities issued or fully guaranteed by federal agencies, federal agency debt, or Treasury securities. Today's RPs were of this type."
--Sounds to me like they only accepted agency MBS--
"The Fed today began its so-called open market operations earlier than usual, shortly after 8 a.m. in New York, lending $19 billion to dealers and accepting ALL forms of collateral."
Say, would they accept a house? I just need the money for 30 years. Might be a heckuva solution for those poor little rich boys who can't get a good rate on their Dumbo loans this week
I'm just blown away by all this. I've prepared, radically, but I never expected this to be going down so soon. Well, I did, but I thought I was suffering a mental illness.
"If the Fed is having trouble holding the current interest rate it would be harder to hold a lower one, not easier."
I believe you are missing the big picture, the market has in effect, seized up, this is deflationary.
Deflation has always been the primary concern, don't ever forget it. The Fed has continuously claimed vigilence in regard to the inflationary threat, they allowed the speculation to reach its current levels & allowed the leverage currently present in the system causing the inflation currently present. Why, because "deflation" is breathing down our necks, is already evident, and is a cancer.
The injection of liquidity was to make sure that markets operate smoothly and that the liquidity that is needed is available for productive activity.
This action was a very temporary fix, will likely be repeated, and yes, they will need to cut.
My opinion at this point is 2 50bps moves by the end of 2007.
Its not the inflated home prices... its not the actual mortgages... move along. Its the banks, the MBS's, the Funds, the Stock market. In "short" its everything but the actual problem. lol
Dustdevil | 08.10.07 - 3:27 pm | #
I agree
I keep seeing it publicized that there is a 100% probability of a Fed rate cut in September. I firmly believe that wont happen. If you want to see higher interest rates happen, just let the bond markets get wind of an increase in inflation.
Last year the Consumer Price Index (CPI) declined from Aug 2006 through Nov 2006 (primarily due to the steep drop in energy prices last year). Therefore if the CPI has no change from Aug 2007 to Sept 2007 we will still have positive Year over Year (YOY) inflation. I quote from John Mauldins 8/3/07 article:
Lets say inflation moderates in the next six months to an annual basis of 2%, which would be the lowest rate for the last three years. That means in November the index would be around 210.5 and the headline inflation rate well over 4% year over year.
But we are told that the Fed likes to look at core inflation. Core inflation looks to be a lot tamer, but still not below 2%. Core CPI was up about 2.7% for the year ended in June. Even if core inflation falls to 2% for the last half of the year (which it did last year), that will mean core inflation in December is still at 2.5%. That is well above the Feds comfort zone of 1-2%. Complete article is here: http://www.frontlinethoughts.com/pdf/mwo080307.pdf
If one looks at the grain prices, most are near all time highs, which promise to continue the food inflation we have been seeing at the stores. This morning it was announced that import prices have increased by 2.8% in the past 12 months. This is the largest yearly increase since last August. The Fed can see this inflation in the pipeline.
So if the Fed cut the rates now, they would have a big jump in headline inflation for all to see being published almost immediately The US dollar would get crushed, which would add to inflationary pressures in the US. I dont see bond yields staying very low with headline inflationary numbers of 4%. While a cut would ease some of the credit crunch right now, it would unleash an entirely different beast which would be much harder to put back into the bottle (and cause much great pain). Paul Volcker did this last time by taking rates to the moon. This is why I dont see the Fed cutting rates soon.
If the Fed is having trouble holding the current interest rate it would be harder to hold a lower one, not easier.
This would require even larger interventions than the sizable ones we've had.
Dollar would tank. Import prices grew quite a bit in July so under inflation pressure we would stoke inflation soem more.
What major player is on the ropes...
They'll save the banks before the mortgage player's...
so does that mean CFC will be allowed to fail?
In honor of SRS and SKF holders, I would suggest that the intelligence of Catalano's comment is twice the inverse of what he thinks it is.
Where is the great prognosticator slooowww?
Its not the inflated home prices... its not the actual mortgages... move along. Its the banks, the MBS's, the Funds, the Stock market. In "short" its everything but the actual problem. lol
Tanta, here is some interesting prose:
"Mortgage meltdown is crushing other markets"
And now this week, the mortgage meltdown spread to the financial markets with ebola-like speed, sparking fears that tighter credit will have a broader impact on consumers, markets and the economy.
Ebola-like huh?
Expired
Ebola-like huh?
That certainly makes those "liquidity crisis" metaphors a lot less appetizing. I for one would rather be crushed by a meltdown.
ww, the odds of a rate cut are overstated in the media. 100% is way too high. You can check the market based probabilities at the Cleveland Fed
- usually updated late in the day after the market closes.
I don't think the Fed will cut until there is clear evidence of further economic weakness - and they think it will get worse. IMO, they aren't close to that assessment yet.
Best Wishes.
Ironically, ebola itself promotes MUCH liquidity, in forms uncontrollable excreation and internal hemorrhaging.
Actually, perhaps that's exactly how a lot of those on wall street are feeling right now...
Mr. Market is about to go green...
Greenwich, CT should be turned to ash.
CNN reported the odds of a rate cut as 200%.
I'm kidding, but it's hard to tell these days.
Called_Bluff appears to have it correct. Someone is a CF of illiquidity right now, and I doubt it's Bear.
Anyone checked the regionals? Fifth Third??
wachovia?
Bill Sullivan, chief economist JVB Financial, said a rate cut might shore up investor confidence "but would probably do very little to address the losses that have transpired as a result of the imprudent risk strategies."
Economic napalm to rid the forest of bad loans. But Ben's banker buddies are surrounded, so what's a comrade to do? Let's see just how elastic that elastic currency turns out to be. Talk about maternalism. We have some pretty obnoxiously spoiled brats. Obviously jawboning hasn't reined in the children. Let's see some spanking (and not the Scores kind)!
Warsh is always good for a laugh once reality jumps out of the closet and screams "boo!"
First, liquidity is significantly higher than it would otherwise be due to the proliferation of financial products and innovation by financial providers. This extraordinary growth itself is made possible by remarkable improvements in risk-management techniques. Hewing to my proposed definition, we could equally state that financial innovation has been made possible by high levels of confidence in the strength and integrity of our financial infrastructure, markets, and laws. Moreover, remarkable competition among commercial banks, securities firms, and other credit intermediaries have helped expand access to--and lower the all-in-cost of--credit. Interest rate risk and credit risk exposures are now more diversified.
Federal Reserve Board: Error
Re: "Greenwich, CT should be turned to ash."
As I understand it all Hedge Fund redemption request must be made on August 15th.
The Fed seems to be preoccupied with inflation that the CPI doesn't show.
And a question: Isn't most of the Fed's influence generated from buying and selling treasury notes?
My bet is it's an off-the radar derivatives issue. I go w/BK.
This thing hasn't even started yet. t starts when the first BBB bond holder sells a boat load of them at 40 or 50 cents on the dollar.
Bag holders, I mean bond holders, are hoping for a rate cut because then a higher % of future mortgage refinancing is viable which means they may get 55 or 60 cents on the dollar. Then the great unwinding really begins. "Those AAAs are worthless, wtf!!"
Basically sellers are on strike hoping for better terms from buyers... but they have to get a market price at some time. The longer they all wait, the less they are going to get as prospects for the economy look worse and worse. The SEC investigating valuations is a step in the right direction, maybe force someone's hand? Or am I just dreaming and there will be a huge bailout?
Some info about those pier loans:
The Buyout Loan Merry-Go-Round
It is well known on Wall Street that private equity firms are pressuring banks to make good on their commitments to fund their deals, even though the banks are having lots of trouble farming the debt out to investors. But here is the latest wrinkle: Many of those same private equity firms are offering to buy that debt from the beleaguered banks at a steep discount, of course.
Ironies abound, but here is the most obvious one: In looking to buy the debt, private equity managers are seeking to profit off the banks pain pain which they themselves took part in causing, by holding the banks feet to the fire.
The Buyout Loan Merry-Go-Round - DealBook Blog - NYTimes.com
The PPT has done everything it can today -- three injections -- just to ensure that we get a green Dow tape going into the weekend.
They realized: "holy cow, if we have a second straight 300 or 400-point loss going into weekend, that's going to set up Black Monday because every guy with a 401k plan will be moving into cash funds and out of mutuals. We can't have that."
Notice how the tape came back in the last hour to basically flat-line. You don't think that $40B injection had something to do with that. What a joke. A rigged game. I'm so glad I went into cash 3 months ago, and man I sleep well at night. I say, let 'em crash.
-- Judge Smales
"You'll get nothing and like it"
That last half hour was more than a little suspect
I´ve been on vacation, did I miss something...
No Fed cut. Too inflationary.
Remember: the Clinton´s are out of the market.
Wuuuu Hooooo
It's Friday night downgrade time...
Now, to the wires
LOL go to Yahoo Finance right now and look at the top news headline
"Stocks Rally Back on Fed Cash Injections"
With HeliBen now in action dumping cash into the market, a rate cut would create yet another bubble...Perhaps this one would be the Great Bread Buuble, as everyone races to Walmart in search of affordable food.
"Stocks Rally Back on Fed Cash Injections"
Fed Declares the Market a Hazard-Free Zone!
Oh Kid, that really made me laugh. But honestly, have you looked at WalMarts numbers the past few months. Me thinks a lot more higher income shoppers are heading that way to stretch their budgets. And still the company's numbers stink.
There now, all contained until next week. You can rest well, its only a tempest in a teacup.
Called_Bluff,
What is this whole discussion around a major player being weak? Do you have actual info or rumor on this?
F. Frederson: Fed Declares the Market a Hazard-Free Zone!
Green Zone!
Goldman's Global Alpha Hedge Fund Falls 26% in 2007, People Say
Goldman's Global Alpha Falls 26% in 2007, People Say (Update3) - Bloomberg.com
re: 3:00 rally
America, home of the free market. Not.
rebaear beat me by 2 seconds!
My comment was, sounds like an Onion headline.
Area Hedge Fund Loses Money; Investors, Strippers Suffer
Countrywide's Mozilo Says Fed `May Change Everything' (Update1) - Bloomberg.com
Since I don't speak such a great english I asked for a translation...
Mozzilo to Fed: Since you want the dam banking system and credit to work you must give funds to contine the MBS biz - otherwise it all stops. Inaflte and don't worry about home prices - we will pump them up...
Nice and tidy. Everything looks good except that bulge under the carpet.
How 'bout them bulls?
They came roaring back from certain disaster. DOW down 31? A mere piffle.
Fed to orange Mazila:
"and that would suck up all the liquidty - into more R/e transactions - are you sure it will work "?
M: always does
Interesting sort of financial crisis where the Dow ends up for the week.
Pfft...
Called_Bluff,
What is this whole discussion around a major player being weak? Do you have actual info or rumor on this?
probert | 08.10.07 - 4:15 pm | #
no, just all the rumor mill flyin around about stat-arb, ecb injections, fed injections, cramer rant,
The RACE for CASH is clearly Brutal, and with that you have counter parties to transactions that simply can't be paid...
In this respect, the banks' are not unlike the Auto market... let the small, mid-tier, then larger supplier's go belly up, after the big squeeze...But SAVE the Major(B3)
I think the Nation could get by without CFC, but take out a Big 5 bank, and then ....
I keep seeing it publicized that there is a 100% probability of a Fed rate cut in September. I firmly believe that wont happen. If you want to see higher interest rates happen, just let the bond markets get wind of an increase in inflation.
Home prices lower than a year ago. Gas prices lower than a year ago.
That covers the bulk of my expenses.
If that's inflation, I'll take as much as you've got.
Interesting sort of financial crisis where the Dow ends up for the week.
Pfft...
ac | 08.10.07 - 4:28 pm | #
Amazing, isnt it!? I guess a lot of people are unaware of the structure and characteristics of an iceberg.
I think this weekend, a serious study of the 2000-2001 Nasdaq chart is in order...
Many here feed at the trough of volatility...
A cut is a bit more permanent than today's three temporary open market operations. Reading the NYFED's website on their fine work today Temporary Open Market Operations - Federal Reserve Bank of New York
All three of today's operation have a duration of 3 days, calendar days at that... So I read that to mean a resale of everything they bought today on Monday - and they'll have to repeat it - and barring other factors, purely logically, the same conditions that prevailed prior to their intervention will prevail.
So what's gonna happen? This is all very educational - seeing the stuff one reads about in theory unfold in realtime - it had better be done by next weekend - I'm going on vacation then.
-Shantanu
I think the Chairman will do a few unpalatable things to mute a crisis, if only to keep his post and live to fight another day. While he has a reputation for favoring interventions - and I say this fully aware of events in the past few days - his record so far is one of fiscal probity.
This is, as M-F says so clearly, a standoff. I don't count today's interventions as either party standing down yet. In any case, the Tangelo will ultimately lose the match.
Interesting sort of financial crisis where the Dow ends up for the week.
Pfft...
ac | 08.10.07 - 4:28 pm |
Only took a few hundred billion. Everything's good now right ?
Practically rate cut will have no effect at all,way too late to act! U.S economy has lost 50 % of its growth momentum during first half of 2007 compared to first half of last year(both on y/y and annual basis)and f.funds target is STILL at 5.25 %.It is almost unbelievable!! Recession is just around the corner,I have no doubt. But do not blame only the FED. Miserable
Iraq war is also starting to have depressing effects to overall sentiment and there have been too much dishonesty at mortgage markets. So my opinion is:recession by Q4 2007 and depression by Q1 2008.
Recent strengths of economy:
Housing
Finance
We these joining auto and most manufacturing in the tank, things don't look good going forward...
yo dan thanks for the welcome back
Today is just Round 1.
This will continue. Why?
The market is choking on no bid paper.
S&P500 target: 1250.
To paraphrase Minyanville, today's action by the Fed wasn't an intervention, it was an enabling. Enabling a bunch of banks and hedgies that made bad bets to stumble along for a few more days, or weeks at most.
An intervention would be the Fed saying, sorry markets, work it out amongst yourselves. But instead we got the equivalent of somebody walking up to a bowery bum with a bad case of the shakes and handing him a fifth of Old GrandDad.
Not even round 1. This is postureing at the weigh-in before the fight. Round 1 is when the bad paper starts moving for pennies on the dollar.
AC said:
"Home prices lower than a year ago. Gas prices lower than a year ago. That covers the bulk of my expenses. If that's inflation, I'll take as much as you've got."
I guess you don't eat much, eh? I guess you don't pay property taxes, either? Do you have any repairs that need to be done to your car or home? I hope not for your bank accounts sake... unless your a heck of handyman.
All of these "expenses" are UP, UP, UP !
you're not your
AC - it's a spread of the "containment" from imploding mortgage origination firms to hedge funds. The Fed is rightly trying to keep it from spreading into ongoing, cash-flowing operations.
Remember, if the Fed doesn't keep the banks solvent, they have to gain cash by calling in loans. THAT would produce the 1980s. We don't want that.
On the other hand, if you are in one of these funds and just got this news, you are most definitely thinking that it's a crisis.
I've seen a couple other people ask this on other threads, but I didn't see an answer: what's the difference between "Agency" and "Mortgage-Backed" debt in the TOMO descriptions? Apparently it's not FNM/FRE debt, and I can't imagine they'd hold neg-am subprime debt even for a few days -- so where do they really draw the line?
Temporary Open Market Operations - Federal Reserve Bank of New York
AC, I'm with Dustdevil. I guess you don't eat much, and you most certainly don't pay for kids going to school... And your health insurance is paid by someone else?
The NY Fed must be reading this blog. Here is a note written today!
http://www.newyorkfed.org/markets/omo/dmm/temp.cfm#tranches
ewbie,
Please read the "clarification" statement near the bottom of the page I linked.
Thanks, Idaho_Spud. The clarification doesn't totally help me, though -- what's the difference between "Federal agency debt" and "Mortgage-backed securities issued or fully guaranteed by federal agencies"? Those sound the same to me.
Is that something like CDOs of GSE debt?
"The market is choking on no bid paper."
The Fed today began its so-called open market operations earlier than usual, shortly after 8 a.m. in New York, lending $19 billion to dealers and accepting ALL forms of collateral.
Today's agreements accepted all forms, meaning that dealers probably delivered ONLY mortgage-backed securities, enabling them to retain their Treasuries at a time when those securities are in high demand.
Treasuries Fall as Fed Moves to Restore Order to Money Markets - Bloomberg.com
You're playing in a rigged game baby, in which the house owns the printing press. This is what is called transparency and I think it's clear enough.
re: newbie : agency debt v (agency) MBS
FNM, FRE + two others tissue bonds - that's agency debt.
FNM, FRE also package their mortgages into MBSes - that's mortgage backed securities.
That's my read of the clarification note linked to above.
Listening to Kudlow just now, he's confused too - as to whether they bought CDXes and CMOs...
-K
ewbie, "agency" is fannie, freddie, ginnie. mbs is those plus private issues.
More from Bloomberg, via the excellent summary by Prof. Thoma:
So the target remains at 5.25%. As Thoma notes, it is not completely clear whether agency mbs or general mbs were bought, but anything but agencies would be a huge departure. (I hadn't thought about it for a long time, but I do now recall that the Fed has sometimes accepted agencies for overnight repo, probably including even TVA bonds and the like, for over a decade.)
Now see, this is what I get for reading top-down instead of my usual bottom-up: I miss Tanta's post on some of these matters in ' Fed: "Discount Window is Open" '. Very sorry.
"Clarification of Collateral Tranches on Desk RP Operations
Typically, when the Desk arranges RPs it accepts propositions from dealers in three collateral tranches.
* In the first tranche, dealers may pledge only Treasury securities.
* In the second tranche, dealers have the option to pledge federal agency debt in addition to Treasury securities.
* In the third tranche, dealers have the option to pledge mortgage-backed securities issued or fully guaranteed by federal agencies in addition to federal agency debt or Treasury securities.
"From time to time, for operational simplicity, the Desk has arranged RPs just in the third tranche, under which dealers have the option to pledge either mortgage-backed securities issued or fully guaranteed by federal agencies, federal agency debt, or Treasury securities. Today's RPs were of this type."
--Sounds to me like they only accepted agency MBS--
"The Fed today began its so-called open market operations earlier than usual, shortly after 8 a.m. in New York, lending $19 billion to dealers and accepting ALL forms of collateral."
Say, would they accept a house? I just need the money for 30 years. Might be a heckuva solution for those poor little rich boys who can't get a good rate on their Dumbo loans this week
I'm just blown away by all this. I've prepared, radically, but I never expected this to be going down so soon. Well, I did, but I thought I was suffering a mental illness.
dis-
"If the Fed is having trouble holding the current interest rate it would be harder to hold a lower one, not easier."
I believe you are missing the big picture, the market has in effect, seized up, this is deflationary.
Deflation has always been the primary concern, don't ever forget it. The Fed has continuously claimed vigilence in regard to the inflationary threat, they allowed the speculation to reach its current levels & allowed the leverage currently present in the system causing the inflation currently present. Why, because "deflation" is breathing down our necks, is already evident, and is a cancer.
The injection of liquidity was to make sure that markets operate smoothly and that the liquidity that is needed is available for productive activity.
This action was a very temporary fix, will likely be repeated, and yes, they will need to cut.
My opinion at this point is 2 50bps moves by the end of 2007.
Where is the great prognosticator slooowww?
Its not the inflated home prices... its not the actual mortgages... move along. Its the banks, the MBS's, the Funds, the Stock market. In "short" its everything but the actual problem. lol
Dustdevil | 08.10.07 - 3:27 pm | #
Arsehole