Fed Cuts Fed Funds Rate 50bps
Submitted by
CalculatedRisk on Wed, 01/30/2008 - 11:14am (213 comments)
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Time to create another bubble!
Who voted against?
Long live the US Peso!
where do u park your money..this is amazing..
1.25% in one week. wow. it begs the question, what is scaring the Fed?
Now where are all the arguments about the forward looking markets already pricing things in?
It just makes me smile!
Sad.
They're looking at something that's scaring them.
Is anyone concerned about inflation over there?
Uh, that's a negativo John.
So in a little under a week the Fed has used up between 20% and 25% of its total ammunition, depending on how comfortable Bernacke et al are with repeating Japan's experience with sub 50 basis point rates.
He's shot off quite a bit of ammo in just one week's time.
Hooray! Overpriced McMansions for all!
Mish's Global Economic Trend Analysis: Bank Reserves Go Negative
That might be what is scaring them.
Interesting post by Mish.
damn! i was betting on 37.5!
Knock knock.
Who's there?
Free money! Wahoooo!
At least there is one sane person left on the Fed.
inflation is everywhere, food, cloths, gas, ...
Gold at $1000 by tomorrow.
And a 125pt spike on ^DJI (so far).
So when does the Fed add "Be the markets' bitch" to its mission statement?
Bigger News - CR just plugged on the floor of the California State Senate
New Guy: no, sorry.
Our standards of living are on their way down the tubes as the currency and the economy are debased.
Try $10/a gallon gas for all and maybe 3-4 families to a McMansion.
""A 3% federal funds rate may be just what the doctor ordered to start reviving home prices, home sales, and refinancing," said Ed Yardeni, president of Yardeni Associates."
You wish... Would you take a 5 percent 30 year loan to refi a house that's worth $200K less than you paid for it, Mr. Yardeni?
Why does everyone assume the Fed has to stop at 0%? Go to -2% and make the consequences tax free and I might even get off the fence and buy some real estate.
They feel a general economic collapse, if it occurs, will contain inflation.
Therefore, contain the collapse, live to fight inflation another day.
My mom is getting screwed. She has interest bearing accounts, very safe investments, but she was planning to live on the interest. Meanwhile, since she has saved money all her life, she actually has to pay for all her expenses while her less thrifty neighbors get a free ride on all their prescriptions, etc.
This is no way to run a country.
Does anyone else think that Fed went 50 just to prove that the recent 75 bp cut had nothing to do with Evil Kneivel?
anyone want to start a pool on how long it takes Cramer or Goss to start screaming for more ?
Look! The Ocean went away! Quick! Everybody go start collecting fish!
And only an 80 pt. bounce.
Sheesh.
"Bigger News - CR just plugged on the floor of the California State Senate"
Link?
No surprise.
Markets will come to face with reality next week.
Bank reserves going negative is scary.
We're in a pretty big mess.
Money is tighter than ever and this rate cut will do nothing to loosen it. Even money going out has 250-300bps more in spread now than it did in the middle of last year - so even with the Fed cuts of the past 6 months money isn't any cheaper.
MAB, the Senior Loan Officer survey should be out soon. The Fed already has this report, and based on this statement "credit has tightened further for some businesses and households" I expect the report to be especially ugly. I think that will show why the Fed has cut so aggressively.
Best to all.
2007 yoy inflation was just above 4%. Where is the logic in negative interest rates? This is a tax on savers and should be illegal.
Rob Dawg writes:
Why does everyone assume the Fed has to stop at 0%? Go to -2% and make the consequences tax free and I might even get off the fence and buy some real estate.
Right there with ya', Dawg!
All the hedgies in Greenwich liked fed cuts a lot, except for the Bear who simply did not.
"There are bubbles and deficits and current account spending. These years of unbalances cannot be unending.
They put in no equity and leverage to hell, they leverage their leverage they finance so well.
Someday we will pay for our past binge indebting. They're problems that rate cuts can't keep abetting."
The Bear smiled a smile and hatched a tall plan to short all the excess he saw in the land.
"I'll short the equity, the debt, and the PIK. I'll buy CDSs 'til my brokers get sick.
When this market buckles, bungles and bails, I'll make tons of money while everyone else fails.
I'll post my returns on the HFR indices to taunt the poor hedgies as they fall to their knees."
The Bear knew his stuff and his bets proved correct; he watched hedgies lose money across Connecticut.
The hedgies' funds crumbled and they started to vent, "This was an unlikely confluence, a six sigma event."
The Bear came and taunted their claim, "Your greed led you here, now feel the pain."
The hedgies got up with a twinkle of mirth, "This drawdown is nothing we'll triple our worth."
Somewhere Meriwether jumped up with glee, "There is something here that you just cannot see.
Investors want hedgies who know what not to do, if you lose one dollar the investors will give two.
Underperformance is relative and part of the game, if everyone loses there is no one to blame."
Always the same nonsense about having to 'carefully monitor' inflation. They really are children. As if this will disguise the fact that they are Wall St lackeys.
it's a golden day boyz
fed bitchery is sooooo reliable
Fed is going to cut at every meeting, and cut between meetings when they feel like it, until we hit 1% or even 0%. Japanese recession, here we come.
Are Dick Fisher and JJ best buddies?
Short covering panic should be over by 3:00 and then we can see where this "rally" is really going.
Look Ma! A Grouper!
what's the topside of the bounce peeople
indu at 12700
then back up the truck on twm
1.25% in one week. wow. it begs the question, what is scaring the Fed?
Either the Fed is really scared or really irresponsible. Both scenarios are pretty grim.
The cheap money junkie is requiring his fix so often these days, Ole Ben'll be outta ammo by end of Februrary.
ELL -
Believe me, many of the hedgies in Greenwich are plenty short.
My first reaction was to look up the process for getting these ivory-tower idiots fired.
Only problem is, the economic slide was inevitable starting around 06. The horse had already left the barn by then due to lack of effective regulations (among other things) and there was nothing BB or anyone else could do.
So, truth be told.. this is pushing on a rope. FFT must follow private market debt origination down to the zero that it is right now.
God help us all.
gold surges, dollar plummets.
WTF are honest people supposed to do in this fraud of a world?
Bernake will now be viewed by history as the smartest Fed Chief ever or the dumbest. No in between.
oh, my poor savings account takes another hit.
I guess I should have speculated more.
Ben is somewhere is this video:
YouTube - Apocalypse Now - Helicopter Attack- Kilgore
Okay, stupid question here. Why does this matter. If banks have negative non-borrowed reserves, why would they be willing to lend to each other at an even lower rate? Haven't there been anecdotal stories about banks being unwilling to lend to each other overnight? Why in heavens name would LOWERING the rate improve matters? I'm ignorant, but ISTM that at this point in the credit crisis the things that matter are the discount rate and what the Fed will accept as collateral.
The Fed jerks off every time they see a dirty chart. Jeez, don't they have anything better to do?
The cheap money junkie is requiring his fix so often these days, Ole Ben'll be outta ammo by end of Februrary.
That's how the Fed really screwed themsevles -- the money's cheap if you're a speculator but expensive if you're a consumer.
It's possible that speculators will use their newfound power to really go for the jugular.
I know I will.
That announcement seemed to nearly break my internet! Weird!
LiberalTarian - you think that's bad, you're mom is going to spanked to high heaven by inflation too.
Gold touching $931.
...and a Flounder!
The only thing bouncing higher than the market indicies is the CalculatedRisk Visitors Online count. 428
this is awesome
best ever
come on peeps this was an easy call
Cpt. Dufresne writes:
Bigger News - CR just plugged on the floor of the California State Senate
I know this is off-topic, but it seems that CR is quickly acheiving bi-partisan political consensus. We all know Paul Krugman has referenced CR several times in his NYT column, but this was news to me:
Michelle Malkin » Meanwhile, back in Washington: The politics of foreclosure
I doubt these two opinion columnists could stand to be in the same room as each other, let alone see eye-to-eye on anything politically, but there you have it, plain as day: they can both agree on CR as an authoritative source for information on the current financial situation.
Seeing as Super-Tuesday hasn't arrived yet, perhaps there is still time for a CR/Tanta '08 ticket?
"fyi writes:
gold surges, dollar plummets."
Yeah, that was interesting; a $10 spike. Oddly enough, it began before the announcement. Oddly....
righty-o drew
Somebody please tell me who's lending this cheap money. All the banks I talk to only have deposit slips and have locked all the draft credit agreements up.
Well, my response was to get into SKF at 96.70(after getting out at 118 on the way down and missing the few trades at >$140 last Tuesday). Let's see how that does
...there's an old boat! Must have sunk years ago...wonder if there's anything valuable inside...
10 Yr is now above FF...
Have the started an executive search for the next Volcker yet? That's what I want to know.
CR also referenced today on National Review's Corner.
Re: Kudos to Kyl - Stephen Spruiell - The Corner on National Review Online
Malkin, NRO, Krugman, now that's bipartisanship!
Been waiting for this 1375 level again... resist it.
fade HARD
...wait a minute...what's that noise....
i can haz rate cutz?
It's called market really no likee like at all. This ship be sinkin!
Thanks for catching that, New Guy.
Michelle Malkin should at least do CR the courtesy of a hyperlink the next time she references CR in her blog.
There are NOOOOOO aggregate benefits to an economy from inflation. Negative interest rates are proof of the fed's incompetence.
Re: New Guy - CR in Malkin
CR has now been praised in both the New York Times and in crayon!
...sounds like a train coming...
hmmm....strange...
...a train where the ocean used to be?
That doesn't sound right....
...there's an old boat! Must have sunk years ago...wonder if there's anything valuable inside...
Marcus Aurelius | 01.30.08 - 2:39 pm |
Now that's comedy!
Totally unbelievable. I guess in a few months when the monolines go bk, Citi has another 20 billion writdown and housing continues to crater that wall street will throw their toys out of the crib in a fit and get another 50 pt cut.
Get ready for $120 oil and $1500 gold.
Wow 588 online...
About bank reserves--I've seen it said that the TAF is basically providing cost-free capital; so the banks are essentially engaging in rate arbitrage between the TAF and their own WACC. According to this story it's no so much that the banks are "lending all their own money out" as that they're using their own money to cover the losses from what they've already loaned, and using the TAF rather than go into the capital markets to raise reserves.
Is there any sense to this?
Gross at PimpCo just said there is a long way to go down on the Syndicated Loan Side; also, that the FED can't really do anything to fix what's happening.
Erin on CNNC ended the segment with: "You've just made a lot of people very very miserable."
"Get ready for $120 oil and $1500 gold."
I've been ready for a year. I just hoped it'd never happen.
CR also referenced today on National Review's Corner.
http:// corner.nationalreview.com...DdkMzAyZDgxNjQ=
Malkin, NRO, Krugman, now that's bipartisanship!
How do I go long CR?
What time today do the monolines get downgraded?
"1.25% in one week. what is scaring the Fed?"
(hat tip FFDIC)
iceman | 01.30.08 - 2:23 pm
Maybe $writedowns may top $70bln
...I wonder why all of those people up on that hill are waving at me?
Hi! Heloooo!
Damn! I must look really hot in this Speedo...
Crazy tourists...
There are NOOOOOO aggregate benefits to an economy from inflation. Negative interest rates are proof of the fed's incompetence.
I disagree. Wage inflation would be very helpful right now. But we're not getting that.
The problem with these rate cuts is they tend to generate more credit expansion than real inflation. On balance this is deflationary.
The more fundamental problem is that genrating real inflation at this point in effect requires "breaking all the rules" and risking a complete currency meltdown.
After we get to ZIRP the next step is "breaking all the rules".
Andrew I took it to mean that absent borrowings, the "banks" collectively were apparently insolvent.
I took it to mean simply that. I could be wrong.
631 online.
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As Chairman, he used his royal connections to eliminate all competing banks, increasing the Bank of Zork's market share from 99.2% to 100%. (He was later able to increase this number to 131% by encouraging customers to deposit their money several times.) He also supervised the installation of the latest magic-based security techniques to guard the bank's vault and deposit box areas. For unknown reasons, J. Pierpont hired exclusively gnomes to fill his teller and security positions.
J. Pierpont Flathead served as the Chairman of the Board until his odd disappearance in 789 GUE, when he entered one of the bank's vaults and never re-emerged. Although gone, he is not forgotten; reproductions of his portrait still hang in every branch of the Bank of Zork.
Sinclair has been saying, "USD at .5200"
It's shocking but true, unless the EU attempts to chase in the same rate direction.
FYI, We've not seen a rise of gold so much so fast, ever, in the spot price movement since 2004 when I started again to track it daily. Gold closed at 921.50. In 30 minutes it rose to 931.40, 10 dollars. Prior all time spot high is $933, reached 2 days ago.
Gold's range daily has been as large as $25-30, with an average fluctuation of about $15, now. This is "new gold". Talk about being born again!
Expect daily fluctuations of $20 and then $30. That will separate the margin players from the real market quite quickly.
ac, there are rules?
Bob Dobbs:
I am new to this so this is quite a shock for me. I think I need a few more months to get used to the problems that are about to befall us.
Thanks,,,
Money is tighter than ever and this rate cut will do nothing to loosen it. Even money going out has 250-300bps more in spread now than it did in the middle of last year - so even with the Fed cuts of the past 6 months money isn't any cheaper.
The Federal Funds Rate is now low enough that money is no longer tight. Look at the results of the last TAF auction, it came in below the Federal Funds Rate and base money is expanding again.
The next question, now there is plenty of supply, is there any demand?
I'm not sure that banks are going to be excited to be expanding balance sheets in this environment.
ac said: "Either the Fed is really scared or really irresponsible. Both scenarios are pretty grim."
I vote "really scared" and "really responsible," and maybe that's the way it ought to be.
Put yourself in Bernanke's shoes. Largest single economy in the world, the linch-pin of it all: Are you going to err on the side of caution or run the risk of crashing it all with no good reason?
S.
So why did gold not go to the moon when FFR was 1% before? Was the sales infrastructure and marketing not ready that time?
x-man
nailed it too.
Bernanke's problem now is that he must constantly fulfill "market" expectations. If he doesn't and the market tanks, then he gets his "financial crisis turning into something larger" scenario (or so he believes).
The problem is that there are several ducks lined up that could make the market tank in the next six months before the stimulus/lower rates begin to have a noticeable effect on the economy. In the meantime, Bernanke will be cutting 0.5 here and there.
My problem is that inflation is persistent and inflationary expectations could increase if the US economy does reflate.
"Malkin, NRO, Krugman, now that's bipartisanship!"
What, you haven't noticed the comments from Atrios, or the blogroll from Balloon Juice? Tsk.
AC,
Wage inflation is not the same as an increase in purchasing power.
I have no doubt that wage inflation would help indebted borrowers, but only at the expense of real savings and investment. This is how banana republics always try to paper over problems. Things are so skewed for so many they probably feel there is no other choice. Where is Paul Volker?
We really are "all subprime" now.
When...pray tell will we start to see some return of regulation in the market place instead or throwing money around???
Anonymous | 01.30.08 - 2:50 pm | #
Because the dollar had value and strength then.
Explanation just heard on CNBC: The fed is cutting rates so banks can earn more and this will make up for their losses. Does this make sense? I am clueless, but I would think the spreads would remain the same so lower rates don't really mean higher profits. It still comes down to how much is borrowed and how much is paid back. Does lower the rates really give them short term gains?
anyone understands what is so scray for the Fed ?
The FED gave the STREET it's crack fix. How long before it needs it's next shot in the arm?
Bilbo - yers banks can replanish their capital when there is a sharp reduction in rates.
What happens to the market when hedge funds decide go short all together with all the cheap money they now have access to?
Yal, gotta be the broke banks. see upthread re:
Trainwreck writes:
http://globaleconomicanalysis.bl...o- negative.html
That might be what is scaring them.
Interesting post by Mish.
Trainwreck | 01.30.08 - 2:25 pm | #
Seb,
so you think not waiting more than 5 days since a 75bps emergency cut, to see how the market(s) react is responsible?
The best inflation hedge the average personal investor can make is buying a house with a high LTV and a low fixed interest rate. As for the rate cut I say keep 'em coming and inflate our country's debt away. Double digit inflation with modestly declining nominal housing prices will correct real housing prices in a hurry.
The fed is so cute when they mention inflation like they are trying to make it lower.
Ben pulled a Major Kong:
YouTube
- Major Kong from Dr. Strangelove
Rob Dawg --
Wow, Zork Zero. Great game. God I miss Infocom.
...
1.25% in a week is nearly inconceivable (and yes that word means what I think it means). My guess? The Fed is not worried so much about the economy as about bank failures. They have to un-invert the yield curve, hard, in the hope that banks can earn enough money in the next few quarters to compensate for their losses on asset write-downs.
This is a race between banks' borrow-short-lend-long earnings and the real-estate driven asset-value decline. And we're off!
Maybe I am not exactly right, but the explanation has to be something similar. The economic data (e.g. yesterday's durable goods number; today's ADP report) is simply not bad enough to justify this kind of dramatic move in the FF rate.
can anyone link to this side by side ?
FOMC STATEMENT: SIDE-BY-SIDE COMPARISON - Bloomberg.com
The Federal Funds Rate is now low enough that money is no longer tight. Look at the results of the last TAF auction, it came in below the Federal Funds Rate and base money is expanding again.
Think of it like this -- with house prices falling, say, 8% a year and the 30-year mortgage at 5.5% a year, that equates to an effective nominal interest rate of about 13.5% a year to buy a house.
I think it has been basically stated, if not by the Fed, then by some other crooks, that the goal is to get the rate of return on safe investments below the rate of inflation so that people are FORCED to give their money over to Wall Street pigs to be gambled away on stupid CDO's, CDO^2's, and other junk. This is just part of the process - they need to increase inflation and destroy savers to get the next Bubble rolling again.
I think we may need a post on how the "little guy" can participate in the soon-to-be-here US dollar carry trade without losing a fortune. With ZIPR on the horizon and inflation stretching to infinity, this would be good to know.
Cramer on CNBC said Financials should be bought and that's he's bullish---guess time to load up on SKF, TWM and SRS, as well as gold and inverse dollar funds.
Anybody have a correlation with what
Cramer says and the market does?
Paulson: housing in a necessary correction.
Nemo,
These would be the same banks trying to lend to people that either are too paranoid to borrow, have no need to borrow, or need to borrow a bunch but cant due to the creit restrictions...
ha ha ha
Bernake the six fingured man, my name is Inigo Mantoya, you killed my dollar, prepare to die...
my name is eniogo montoya you killed my dollar preapare to die
I said! MY NAME IS INIGO MONTOYA YOU KILLED MY DOLLAR PREPARE TO DIE!
630 Visitors Online!
TAF auctioned $30 Bln yesterday ($37.452 Bln requested). 52 bidders. Looks like there was plenty of demand.
FRB: Press Release--Federal Reserve announces results of auction of $30 billion in 28-day credit held on January 28, 2008--January 29, 2008
"The best inflation hedge the average personal investor can make is buying a house with a high LTV and a low fixed interest rate. As for the rate cut I say keep 'em coming and inflate our country's debt away. Double digit inflation with modestly declining nominal housing prices will correct real housing prices in a hurry."
The problem with inflation is that it is in everything we buy not what you get paid. Therefore it is not a wealth generator it is an insidious expropriation of your wealth. Is there a historical president where deflating your debts away was good: uhm Argentina, Turkey etc.
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Bye bye buckey.
ac,
Could you explain/elaborate on your comment earlier? Thanks.
g
,i.That's how the Fed really screwed themsevles -- the money's cheap if you're a speculator but expensive if you're a consumer.
It's possible that speculators will use their newfound power to really go for the jugular.
I know I will.
'Inflation' only exists when it involves a pay raise...at least, that's the message.
From the perspective of monetary policy that's absolutely correct. Again, there's nothing that the Fed can do to make more oil or more rental space in LA.
Mostly that requires intelligent application of resources and industry.
Alas over the past 10 years or so Fed policy has served only to dumb down US businesses and consumers to the point where we're almost financially and economically illiterate.
Santelli on CNBC: dollar index headed for second lowest close in 40 years. guess that's not good- oh wait, I'm short the dollar! yea me.
Yal, thanks for the reply. So is it all about consolidating / refinancing debt at lower rates for banks and individuals? If so, doesn't somebody still have the losses in the interest that they would have gained on the higher rates? Isn't it a zero sum game?
CR,
Have you looked at Mish's post?
Bank Reserves Go Negative
I'd be interested in what you make of it, and what the implications are for the system.
Mish sometimes seems like someone who sounds the alarm before he really understands something.
lancelot asked: "so you think not waiting more than 5 days since a 75bps emergency cut, to see how the market(s) react is responsible?"
It may not be what you or I would have done (personally, I already knew that the economy wasn't that weak), but yes, when you consider the potential consequences from the Fed's point of view.
S.
BS Bernanke is stoking inflation to prevent deflation at all costs. If inflation falters, the Fed loses all control. He's watching inflation alright. Punish the savers and fuel the speculators.
oh and gold over $940!
They have to un-invert the yield curve, hard, in the hope that banks can earn enough money in the next few quarters to compensate for their losses on asset write-downs.
Maybe if banks cut their dividends and bonuses they could make up for their stupidity that way, instead of having the Fed punishing savers and fueling inflation.
Phrases that will soon make it into the mainstream: "liquidity trap" "quantitative easing." When interest rates go to zero, crazy things happen. The miniscule cost of moving money around overwhelms the even more miniscule interest rate to be gained by lending that money, and money just freezes up. You guys can't imagine. It just stops moving. There's no incentive to put money in the bank, because the gas cost to get to the bank to make that deposit will probably outweigh the interest you will earn in a year. MADNESS!
(OT) This explains a lot for me, especially this part:
"...For the average persons in the modern world, the dip in mental health and happiness comes on slowly, not suddenly in a single year," Oswald said. "Only in their fifties do people emerge from this low period."
Middle-age is truly depressing, study finds
| Reuters
S.
Yes, inflation is an "insidious expropriation" of our wealth -- problem is deflation is a really nasty "out-sidious expropriation" of our wealth!
BB and the FED have been into managing the inflation and downside risk expectations for the economy. They believe PR is a major tool but I can't help but wonder if these rate cuts so quickly will not spark a counter trend of fear among US consumers and oversee's equity markets that realize the situation is far worse then they had imagined.
the deflationists r really missing out on this historic movement in gold.
Nemo | Homepage | 01.30.08 - 3:01 pm |
Yep,its the banks,not the market. Whatever the fed has access too info wise that we don't see is scaring the shit outta them...
Chris
Lee Adler had a nice graph on his site yesterday showing that the stock mkt drops during times of rate cuts going back several decades as opposed to rising as the CNBC pundits would have you believe.
watch the pump and dump.
emo and lancelot you're killing me.
Sorry if this has been said before, but which is the more appropriate model for our imminent downward spiral? Japan or Argentina?
MADNESS? This is...
Oh well, never mind.
(personally, I already knew that the economy wasn't that weak)
S.
Sebastian
Yes, the oracle of Mt. Pilot reveals all once again, so omniscient that his data is better than the Federal Reserve Board of Governors.
It must be hard for a man as all-knowing as yourself to walk amongst us mere mortals.
It's really madness today in the market. I dont think anyone knows yet how to interpret this. Im so glad I sidelined a lot of bets other than gold, because we are really getting into iffy territory here. It would appear Bernanke is sort of counting on a good jobs number coming up, since there isnt much in the upcoming data releases that will likely give much reason for cheer, and heck, BBs BB gun must be smoking by now, and he has got to be thinking of giving it a rest. If not, why not just cut 100bp today, or 150?
Truly a sight to behold...
Flash back to 20-Jan-1981:
You and I, as individuals, can, by borrowing, live beyond our means, but for only a limited period of time. Why, then, should we think that collectively, as a nation, we're not bound by that same limitation? We must act today in order to preserve tomorrow. And let there be no misunderstanding: We are going to begin to act, beginning today.
The economic ills we suffer have come upon us over several decades. They will not go away in days, weeks, or months, but they will go away. They will go away because we as Americans have the capacity now, as we've had in the past, to do whatever needs to be done to preserve this last and greatest bastion of freedom.
In this present crisis, government is not the solution to our problem; government is the problem. From time to time we've been tempted to believe that society has become too complex to be managed by self-rule, that government by an elite group is superior to government for, by, and of the people. Well, if no one among us is capable of governing himself, then who among us has the capacity to govern someone else? All of us together, in and out of government, must bear the burden. The solutions we seek must be equitable, with no one group singled out to pay a higher price.
We hear much of special interest groups. Well, our concern must be for a special interest group that has been too long neglected. It knows no sectional boundaries or ethnic and racial divisions, and it crosses political party lines. It is made up of men and women who raise our food, patrol our streets, man our mines and factories, teach our children, keep our homes, and heal us when we're sick--professionals, industrialists, shopkeepers, clerks, cabbies, and truck drivers. They are, in short, "we the people," this breed called Americans.
I guess the GOP really has lost its way.
Fed is not able to set the long term rate as the 30 year keeps increasing.
From Yahoo finance:
Loan type Today Last week
30 year fixed 5.45% 5.42%
15 year fixed 4.94% 4.93%
1 Year ARM 5.12% 5.29%
30 yr fixed jum 6.56% 6.46%
5/1 ARM 5.05% 5.12%
3/1 ARM 4.98% 5.08%
Banks are not passing along the rate changes as they rebuild their loans. With the removal of additional financing, all unconventional loans are disappearing. I looked at a interest only loan in DC from the Yahoo finance rate page. You can only get an I/O if you put down 20% and only from Quicken. Try in your area and see what the heck is going on.
Also, banks are changing their credit card deals left and right. Two of my credit cards from different banks have change my rate to the default rate even though I have not missed a payment. Too bad, I have long term loans at 4% until paid off from them and will also pay off the other card that just came off my special rate. We definately live in interesting times.
Ah, I see at least one person bit the Madness thing.
Thanks, Scratchy.
Sean, the more fitting model for asset depreciation in a developed economy is overwhelmingly Japan. The Argentina model does not fit in this case.
I guess I don't understand market psychology.
I see that the fed has dropped the rates by 1.25% in the space of 2 weeks and think "Oh my god, Bernanke is panicing, and willing to admit that he's scared"
But the market loves it? Who's wrong?
Damn, I think Mish is on to something. Here is the historic series back to 1959.
There is nothing even vaguely close to what's happening now. Look at 1998, the 80s recession, the 90s recession, nada.
I sure wish someone could explain the significance.
Along with the rate cuts, the 'rebates' in the 'stimulus' bill are also for the benefit of the banks.
Top 10 issuers of general purpose credit cards:
Everything appears to be about getting cash into the banks. So the banks get their hands on a bunch of cash...and then what?
10y UST up 2.05% and 13 wk T bill down 2.95%. yes, we do have steepening!
if everything is taking off, why at 3pm est did abk take a nosedive>?
i think ben was pre-alerted to something a few found out about at 3pm and we will find out about after the close.
alec said: "Yes, the oracle of Mt. Pilot reveals all once again, so omniscient that his data is better than the Federal Reserve Board of Governors."
It's not the data, it's the response to the data. The Fed panicked, although they're looking at the same data as we all have access to...which isn't that bad.
S.
Franz,
My mothers WaMu card did the same thing, she paid it off, and moved on. I dont carry a balance on any card that has a default clause. Because they will not tell you why...
DC1000, my pleasure, you and i drink from the same aquifer....scary
I vote for Argentina. Now, I believe that most folks think the US is now Japanese in terms of long, slow recession. I'm now thinking if Bernanke keeps cutting, that Soros will be correct... the US peso will no longer be the only reserve currency. That would give us more than financial problems... we'd have serious import substitution/ resource supply constraints ... think 'oil', and anything we import that's useful.
Sebastian, the Fed truly did panic. A 0.75 and a 0.5 are pretty much unheard of. Perhaps they see something you don't? Or would you be able to provide an explanation to why they would panic whereas you wouldn't be so inclined? Thanks in advance.
Me smell liquidity trap, no Drano.
"And I just flushed, and flushed, and flushed..."
darkmatter: ABK probably getting downgraded today per Charlie Gasparino on CNBC that's reason for tumble. No rescue.
If the US is in a Japanese-style recession, then the US is Tokyo, and the rest of the world is Japan.
For bearish financial folks:
Is there a possibility that depositors will start to move their deposits elsewhere in significant percentages at this point? What is the risk to the banks in losing short end deposits?
Where would the capital go?
darkmatter
downgrades a comin.
FT Woods | 01.30.08 - 3:26 pm | #
Just remember,the banks are dragging all that off book crap back onto the balance sheets. This paper has little to no value. Immediate write down. Multiply by how many banks in the US? Also all the bad loans now showing up,more destroyed capital.
Now imagine all the structured finance that the monolines getting a downgrade. A lot of the CDO crap can't be kept if less than AAA. More margin/capital calls.
This is what worries me short term. Long term i'll start to get excited about inflation.
As an aside I can find counties in Florida that have not sold even 10% of the homes in January that they did just in December...Remember also,Good loans=assets to banks.
Chris
Where would the capital go?
MarkS
its already goin into glod.
Seb-
Wal-Mart announced Tuesday that it will chop prices between 10 to 30% this week on groceries, electronics and other home-related products in an effort to keep its cash-strapped consumers excited about shopping.
While its rivals, including Target (TGT), have seen sales decelerate dramatically in recent weeks from a consumer spending slowdown, Wal-Mart (WMT) has been benefiting from more shoppers trading down to its discount stores.
So a lower valued dollar helps the lower income consumers and the frugle consumer how?
I think the fed data you refer to is actually dependent upon which datum you are standing in....
IMNSHO....
oh my, rally reversed?
"Everything appears to be about getting cash into the banks. So the banks get their hands on a bunch of cash...and then what?"
They give all the money away in huge bonuses to idiot executives while the rest of us wait in lines to buy $5 a gallon gas and $5 loaves of bread when gas and bread are available?
the hammer will come down AH.
hoocoodanode?
hit the bid!
Is there a possibility that depositors will start to move their deposits elsewhere in significant percentages at this point?
I wouldn't say out of a safety consideration, but certainly as flight to higher rates. I've heard several people, including Bill Gross, suggest the $ may become a funding currency, the way the Yen is now. That adds constant downward pressure on the currency.
Seb- Honestly, do you (or anyone else here) think that one man just tinkering with an interest rate that the private sector simply uses to manipulate the largest ecomomy in the world makes any sense at all?
When looking back, those in the future wil be saying 'WTF'
.
Thankyou sir can I have another!
24-hour Spot Chart - Gold
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
Cheers,
Well, this note is just to relieve my feelings, as it is the last time I shall make ANY exceptional effort to understand what is going on in this late-stage American capitalism. I'm punished if I save, if I spend, if I invest. (Why isn't savings account interest and CD interest considered double taxation?) Business interests now are concentrating their efforts on reducing my assets and my income in order to pump up artificial markets for paper certificates that are traded back and forth and generate fees for themselves.
Theft, fraud, and greed are the rule among our "business leaders." And, since the poor are tapped out, they are now trying to extract wealth from the middle class. Sure, I'll throw 401k money into a plain vanilla index fund, and I'll continue to buy only what I can afford to pay off immediately, but I've lost hope that I can manage my money well enough to maintain the lifestyle I have, though I'll try.
I now just want to exit this economy to the extent I can. That stimulus check? It's going to get saved.
ille_vir asked: "Sebastian, the Fed truly did panic. A 0.75 and a 0.5 are pretty much unheard of. Perhaps they see something you don't? Or would you be able to provide an explanation to why they would panic whereas you wouldn't be so inclined?"
I'm sure they know some insider details about the banking system that will only come out later (if at all), but not basic economic data contrary to what we all have access to already.
The Fed is extremely reactionary, swinging from over-confidence to abject panic like the worst, most-emotional trader you ever saw.
Maybe it's worse for Bernanke because it's his first time in the Big Chair and the fate of the world's financial system rests in the balance?
S.
""A 3% federal funds rate may be just what the doctor ordered to start reviving home prices, home sales, and refinancing," said Ed Yardeni, president of Yardeni Associates."
Ahhh, Mr. Yardeni---used to call himself the defacto high priest of the New Economy
Bob_in_MA --
Damn, I think Mish is on to something. Here is the historic series back to 1959.
I am not an expert... But then neither is Mish
. Couldn't this simply reflect:
a) The discount window has almost never been used historically;
and
b) The new TAF?
The TAF is very similar to the discount window, so if it is accounted for in the same way, it would be no surprise to see a huge "historical" jump in some line on the report.
Seb- Honestly, do you (or anyone else here) think that one man just tinkering with an interest rate that the private sector simply uses to manipulate the largest ecomomy in the world makes any sense at all?
When looking back, those in the future wil be saying 'WTF'
.
Anonymous
that is the essence of the problem...
125 bps, and all we get is some weak short-covering. I have to say my portfolio is looking good.
ditto
Shortest. Bounce. Ever.
any more bullets?
I guess stock markets were not impressed by 50 bsp. Both Dow and S&P are going red.
Couldn't this simply reflect...
Nemo,
Yes, I think that is what it reflects, but I'm not sure the word "simply" applies. I knew it was a rare situation, but did you know it was unique over the last 50 years? Nothing has had even a vaguely similar effect. What's so different?
albrt wrotes:
Short covering panic should be over by 3:00 and then we can see where this "rally" is really going.
albrt | 01.30.08 - 2:33 pm | #
idoc writes:
oh my, rally reversed?
idoc | 01.30.08 - 3:41 pm | #
MoneyHoney: financials completely reversing course.
This why we read this SuperBlog (its too good to be just a blog!)
What's so different?
Bob_in_MA
comon Bob. ur smarter than that.
boy, that monoline price action does not look good.
Hmm whats that hissing sound?
Thanks for you response Sebastian. You're right, the Fed is not supposed to react to the market, but that's exactly what they seem to do so many times. Of course, there just might be the possibility in there that you might be a bit more optimistic about the issue than you should be, methinks. Just a possibility. It remains to be seen whether the Fed was justified in this panic. We shall see.
Bob_in_MA --
I knew it was a rare situation, but did you know it was unique over the last 50 years? Nothing has had even a vaguely similar effect. What's so different?
Well, the discount window has almost never been used. And I do not believe it has ever been used at all on a large scale, certainly since 1959...
Now that the TAF is pumping $20-30 billion every other week into (in effect) discount window borrowings, any line items on the report that account for such borrowings would be expected to show a huge jump.
The question is, what all goes into that line item, exactly? Would you expect the $20-30 billion bi-weekly "forced discount window" injections to be compensated for by something else?
This is where the "I am not an expert" part comes into play. But simply observing a huge jump in one line item, out of step with the past 50 years, is not surprising. The discount window really has been that untouched historically.
Unbelievable - the latest half point stimulus lasted just 2 hours...
boy, that Dow headfake was better than Michael Vicks.
The Fed panicked, although they're looking at the same data as we all have access to...which isn't that bad.
S.
Sebastian
If you believe that, Cobradriver has some land in SW Fla you may be interested in and I heard that with the new infrastructure privatization initiative there's a beautiful bridge over the East River that may be available for the right price. Great access to the Financial district...
How many quarters of below trend(or negative if looked at in real inflation terms) growth, credit contraction does one need to figure out a storm's a comin?
The Fed IMO has done a commendable job forestalling the credit crunch that started in August up until this point, but right now they're just setting up a double dipper with a deep second trench rather than a shallow, but wide trough.
the move since the rate cut is a large head and shoulders pattern. bearish.
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banks are jacking up rates on their credit cards in an economy where getting job is already nigh impossible.
People walk from their homes first, then their credit cards. Leave the car at the lot. Balances left unpaid, no hope of ever being paid.
Assuming the rich stay relatively rich, how is screwing over Joe Bank Customer going to help the banking industry?
If everyone rides the barrel all the way to the bottom, what is the new normal and moral?
I don't get it. Thank God I know how to grow my own vegetables.
AMZN tanking
idoc,
i hope you played this HARD...
it was a VERY good day...
thanks Ken lewis.
Seb-
You stated:
I'm sure they know some insider details about the banking system that will only come out later (if at all), but not basic economic data contrary to what we all have access to already.
Sop in other words the fed is panicking because they would not lower rates on good insider news would they?
I'm an Idiot
did indeed.
The wealthy also moved their money offshore in the last 5 years. So they don't actually have much in the way of deposits here in the US. Nor are they likely to.
finished 50 lower than it opened , well good, now we know...he is protecting the financials by buyiong them time....and trying to do so without causing domestic or internationl panic. Before summer, i predict oil will go Euro....
Think we broke the record count of 724 today.... though i did'nt see it.
anyone else see higher than that today?
Oops.
Market closed down.
I guess we'll need another rate cut tomorrow!
Come, Bubbles Ben! You can do it! ZIRP for all, along with "closely monitored inflation!" Hahaha!
"did you know it was unique over the last 50 years?"
Bob_in_MA | 01.30.08 - 3:53 pm
Please try this with yer data. Plot BORROWED RESERVES (TOTAL - NONborrowed) as a percent of Monetary Base over your time series. As of 16 January 2008 its just over 5%. On 29 Aug 1984 it breached 4.4%. 19 Sep 2001 was just over 1%. I'm just using the weekly data since 08 January 1975. The late 1980s were just a mess, but not this big.
Just sayin' it sure is big, but maybe not entirely 100% unique.
I guess the daily cash flows of the banks are deteriorating because of the walkaways.
It is not a balance sheet problem now, they could have engineered that the good old way with level 3 stuff.
The pressure from the daily cash flow is what we can see from the nonborrowed reserves.
This is coupled with the insolency crisis caused by the same root, thats why the FED has to redistribute wealth on behalf of the banks from the savers.
Sebastian writes:
Put yourself in Bernanke's shoes. Largest single economy in the world, the linch-pin of it all: Are you going to err on the side of caution or run the risk of crashing it all with no good reason?
Are those really his only two choices? Slash like a b*tch or crash the economy? Sounds like a false dichotomy to me.
I'm not saying the Bernanke's choices are easy, the hand he was dealt by Easy Al was a nasty one. Even so, the Fed should have a few options other than pummeling the sh*t out of savers and fixed-income investors.
Of course, the Fed (under Easy Al) would not be in this "conundrum" today if it had not actively blown the housing bubble to begin with, but that's a topic for another thread...
BS Bernanke (Ben the Blinker) is pushing the string.
Can someone explain to me the impact that these rate cuts will have on the looming mortgage resets?
Thanks!
"Unbelievable - the latest half point stimulus lasted just 2 hours..."
That is nature of adiction, more drugs are needed as time goes buy till the time that one overdose will kill a person.
I'm reminded that one of Canada's better known columnists, Allan Fotheringham, usually identified America as "The Excited States". Nothing is done by halves, even a half point cut has to be introduced with a more pronounced emergency slash (and for Brits who know the other meaning of that last word, the pun is intended). Its now clear that there will be no Japanese style deflationary purgatory. The Fed is in full flight, with no hold's barred. Ben will avoid a repeat of the Depression that he knows so well, and in the process give the world a unique dislocation. While most of the talk has been about the extent to which the Fed's latest moves make it plain that it listens to Wall Street instead of Main Street, it has also become clear that it can't be trusted with the world's reserve currency. Oil will effectively be priced in Euros, including Canadian oil, and America might even have to borrow in that relatively new currency.
The Excited States no longer matters as much as it did to the rest of the world, which should give Americans the incentive and courage to address their home-made problems with the ingenuity and determination that made the country great in the first place.
lancelot asked: "So in other words the fed is panicking because they would not lower rates on good insider news would they?"
We'd have to know what the nature of the insider news is in order to know if the Fed is right to be panicking. For all we know it could be the banks channeling Cramer ("They have NO idea!"), lobbying for the Fed to lower interest rates far enough to bail them out of their losses instead of taking their medicine.
That's not the same as genuinely "bad" developments inside the banking system.
S.
Fed cuts the funds rate to 3%, but the 10yr treasury yld rises by .075 to 3.73%. It doesn't make any sense to me. Any explanations?
Is there a possibility that depositors will start to move their deposits elsewhere in significant percentages at this point? What is the risk to the banks in losing short end deposits?
There really isn't any way to take money out of the banking system with a fiat currency. The reason that it is money is because it's in the banking system.
Back in the good-old-days, you could go down to the bank and pull your money out as gold coin. Money would actually leave the banking system.
Today, your money is backed by debt. You could try to go out and pull out your deposits in debt securities, but if the bank ain't sell'n....
Of course, there are a lot of investments that people think of as money because they are short term and very liquid (Money Market Funds) but they aren't really money as some people recently discovered.
Fed cuts the funds rate to 3%, but the 10yr treasury yld rises by .075 to 3.73%. It doesn't make any sense to me. Any explanations?
The Fed only controls the short-end of the yield curve (although they could control all of it if they wanted to). The 10yr treasury yld is driven more by inflation expectations than the yield curve.
In other words, if the Fed cuts rates "too low" inflation will pickup and long term investors will demand higher yields to compenstate.
we are on our way to 1%.....by summer.
When you say a bank has 'no reserves' -- that means that the reserves are borrowed via TAF?
Anyway, BAC which is about 10% of retail banking just raised $12 billion. Thats part of their tier 1 capital. However, given the size of the numbers, I take it that isn't part of the 'reserves'.
Why are reserves and monetary base more important then tier 1 capital.
Anyway, BAC which is about 10% of retail banking just raised $12 billion. Thats part of their tier 1 capital. However, given the size of the numbers, I take it that isn't part of the 'reserves'.
Bank reserves consist of non-interest-bearing deposits at the Federal Reserve and vault cash.
I made a point in a previous thread that banks (for practical purposes) are no longer limited by reserve requirements. These days the Fed only requires reserves on transaction accounts with balances over $9.3M.
I was shot down by both the FFDIC and MP with a one word post. I still believe that reserves are now an "artifact" of Fed policy and were mostly removed under Greenspan. Hopefully FFDIC and MP will clarify their objections but for proof, I point to the latest numbers from the Fed that show that required reserves decreased even as banks were rolling SIVs and conduits onto their balance sheets.
The only constraint that banks these days seem to have on increasing the size of their balance sheets is regulatory capital requirements.
Regulatory capital is a measure of how big a hit in profits the banks can take and still remain solvent. There are rules for how much capital a bank needs to have for different types of loans but in general banks want to keep the ratio above 6%.
The fact that banks have been out with tin-cups raising capital is a good indicator that they have hit-the-wall as far as tier I capital is concerned.
That is scary because very $1 in lost regulatory capital is 16B that the bank can't lend. It's also a concern because the Fed can't directly influence banks capital the same way they can reserves.
For example, the TAF auctions was to effectively suspend reserves requirements (all the banks "reserves" are now borrowed from the Fed). If reserve requirements were really "holding back" the banks the Fed could just suspend them if it chose.
The only way the Fed can influence regulatory capital is by lowering short term rates and steepening the yield curve to increase banks net-interest-margin and increase banks profits. But, this is a trickle and is going to take a long time before it compensates for the hits the banks balance sheets are taking.
Regulatory capital is also a measure of the "health" of the banking system. The Fed can't just "suspend" the requirements in a crisis without weakening the system as a whole.
I don't understand why no one is talking about a possible connection between the low cost of money for speculators and the high price of crude oil these days. I have seen several statements by Saudi officials stating that they don't think that oil production fundamentals justify the prices of oil. I think that a lot of speculative cash left the housing bubble to go into the current oil price bubble we are seeing. The Fed by cutting rates is just providing more ammo for oil speculation.
lancelot--Before summer, i predict oil will go Euro....
Arguably, it already has. Certainly the price of oil has been much flatter if you look at the price in Euro. Coincidence does not imply causation, but....