I give up. 5% fall in stock market. CUT CUT CUT CUT CUT CUT CUT CUT CUT. It can only mean it is worse than we all think and Bernake just wants to be able to say he did all he could.
ok let's talk here for now, unless, CR is gonna be putting a few more articles momentarily.
I see 3 things here:
1) dishonest statement: "The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth."
No, they did it for stocks and hedge funds and bank liquidity.
2) inflation risks will be monitored, market may not like that
3) we can probably rule out mid-day surprise cut although the PPT, if it exists, might do something.
4) "Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin."
The Bernanke Fed is pathetic to an extent that still managed to surprise me. Ok, suppose for the last time.
I would have thought they could keep their water to themselves for a week at least, until their scheduled meeting. But the bulls cry when they have a little ouchie, and Benny comes with their favourite drug.
I'm not surprised that WallSt owns the Fed. I'm just surprised the Fed doesn't give a flying f*** about the appearance.
In my mind there are two things this could mean. Bernanke and team know it is worse than anyone thought, thus justifying some of the quickest cuts in history, or Bernanke is an idiot.
I suppose bofa, ambac was part of the fed "incoming information"
quite stunning how these guys cut at the behest of the wall street boys. australia had a 7% drop and is raising rates, and telling the market to go take a hike!
I come from an Asian country that got whacked in 1997 and I remember still the admonitions from the IMF, WB about the need for central bank independence and monetary and fiscal discipline. So our central banks were basically ordered to raise interest rates and cut spending.
The Bernanke Fed is like a 19-year-old army trainee who's never fired a shot in anger and is suddenly dropped behind enemy lines with an Uzi.
He's shaking in panic but gripping his trusty gun tight, secure in his ability to destroy whatever foe he comes across.
The problem is, he fires off a half-clip in panic every time the wind rustles the trees.
Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo.
And anyone who's watched a war movie knows what will happen then.
"Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo."
Perceived as supporting the market, but, from the market reaction, they are now basically ineffectual. Market rallied in Europe, but is already starting to give up gains. 75bps indicates panic and a complete inability to predict what the real economy is doing when they cut a mere 50bps in December.
I think the Ambac, B of A and Wachovia numbers are just too bad. CDS widened for all of them, so bad news still getting worse.
As many people have commented they now seem to be pushing on a string.
So, the FED doesn't want to target asset prices as bubbles grow, but they're very willing to target asset prices as bubbles deflate.
My 2 cents....
Bush's tax rebate on option expiration day didn't give the expected result, so now here's plan B. I hate so see what plan C is. Probably the US Gov't buying the entire NYSE for a 25% premium.
Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo.
don't you know, in the Matrix they never run out of ammo...
An emergency 75 basis point cut announced before the opening bell. Seeing the Federal Reserve panic and run for the hills is supposed to CALM the markets? The stench of fear and panic will stalk the street today.
"And anyone who's watched a war movie knows what will happen then."
Mook-
If it's a Stallone or Ahhhnold movie, they'll run across an open field with 50 enemy firing machine guns and not get hit. They'll surprised the deaf guard manning the 50 caliber who has his back turned and cut down the enemy. They they will say...."And I can cut down more if necessary"
Cool. Now I can buy that half million dollar home with my 45k salary. Awesome. And buy a new iphone, a Tivo, some lattes, and take that trip to Maldives. Thanks Bernanke. You have saved us.
Now wait. I think the general tone here is unfair to the Fed. What all the traders in Asia were saying is that they could do nothing until New York opened. They were begging for intervention.
My belief is that the Fed is trying to keep the EU alive. They believe that the weakened dollar will allow US manufacturing to rebound and inject some broader stimulus into the economy, but that is not possible if Europe collapses.
Remember they joined into the joint CB actions earlier, and even provided funding to help other CBs. This is not just about the markets. It's to prevent a panic in Europe from cutting off the flow of cash into Europe's expanding EM countries, which are really the source of most EU growth.
I believe it will not work, but to say that the Fed is just trying to support our stock market is wrong in my opinion.
I don't ever, well hardly ever, trade in AH or premarket but looking at the reaction, the sharp pop that started to fade in 2 minutes I just had to go a little more short - TWM; almost just to show those idiots at the Fed - it doesn't work and you've just emptied your gun you fools.
It will pay for a nice dinner or more today - famous last words ? I hope not.
So , how much do they cut next week ? 50 bps or another 75 bps .... something else much be happening for this move this morning. The Fed couldn't wait one week ? Is it that bad ??????
I think this Fed release really summed up what many of us said for the past few years:
1) the Fed does not always shoot straight
2) the market expects a Fed put
3) the Fed has become a political entity that needs to take care of its own image
4) the Fed is both late and clumsy in identifying problems
5) Bernanke is more professor than anything
6) Fed policy, however creative, is still not creative enough
7) For whatever reasons, the chairman is probably too powerful vs. its fellow FOMC members.
Well, I think being unfair to the Fed is completely fair. Those idiots got us here in the first place. Either they are stinkin' liars or incompetent idiots. Probably both.
On the other hand, given that the US, the US consumer and most US banks are bankrupt, I can understand the act of desperation.
Frankly, I still don't see how it helps. Once the bubble pops as it has, not even ZERO percent rates can save us. Look at Japan.
PS: So far the Fed action has had one effect - Bovespa futures are up. And Bovespa (Brazil) is really on the line between EM/sustainable internal economies. I have been watching Bovespa to assess just how severe the pullback from EM countries will be. If it can go up and manage to stay relatively high today, the flow of money into the more reasonable EMs is likely not to totally collapse. If it drops well into the 40s, the effect of this panic on countries like Greece and Turkey will be dire.
This is some serious stuff here. Politically and financially.
I'm hoping for a pop today, of about 2-3% if possible.
I can then sell the remaining long positions I own. (yeah yeah I know... I really thought I could hold out well until after the Jan 30 meeting then sell the rest of my longs)
The Fed has not just emptied the gun, but done it in advance of what will be an entire year of increasingly bad news.
ARMs resets still haven't peaked, and are set to do so later this year. Foreclosures will continue to rise. Bankruptcies will continue to rise. Unemployment will continue to rise. Consumer spending will continue to fall. Housing prices will continue to fall. Some banks will likely outright fail, along with a hedge fund or two (if we're lucky; many more if we're not). Credit will continue to be frozen. More credit cards will become maxed out.
There's a whole year of this kind of bad economic news monsoon left. If markets are this unstable now (and the Fed this prone to panic), what are things going to look like in July? In October? I've been an economic bear now for four years, and I've always believed the financial collapse due to the housing-crash/credit-bubble would be quick, deep and long-lasting , but even I'm surprised how quickly things are deteriorating this week on the world's markets.
Frankly, I still don't see how it helps. Once the bubble pops as it has, not even ZERO percent rates can save us. Look at Japan.
I've got a confession to make. I bought John Mauldin's "Just One Thing" the day it came out a couple of years ago, read through the chapter where someone (I think it was Gary Shilling) said that the long bond was headed to 3 percent, and laughed. Loudly.
With OUR Fed? With "Helicopter Ben" virtually guaranteeing inflationary times ahead? Ha! Fat chance!
Here we are, not 18 months later, and it looks like Shilling w(or whomever it was) as dead on. And the scary part is, we may not be done yet. A 2-handle, anyone?
with every drop of the market, I hear whiners (including the biggest whiners of all time, Cramer, Steve Weisman, and Wayne Angel ex Fed Governor) talk about how the Fed is behind the curve.
The fed is simply going AHEAD of the curve. this way when we look back the blame cannot be placed on them.
I'd like to see China stop spending $1B per day buying US treasuries to show BB and the Fed, Wall St, and this pathetic Bush admin who's the real global economic boss.
"the Fed has to get ahead of the game... and drop rates on "safe" investments so low that the average investor is forced to put his money back in the mortgage arena"
sounds like someone has it spot on.
Now in which mortgage related security should I invest? Hmmm... I guess I'll take a MBS of AAA+ rated supbrime NINA loans.
So everyone used to wrack on me about my apocalyptic outlook. Um, how about a big fed cut getting no traction?
The losses pent up from two days of bloodbath from overseas are going to be catastrophic for a bunch of geared funds here. Now we get to see the wild side of the markets.
How about blaming ourselves (not us here, since we are all stinkin'g geniuses who are NOT responsible for this credit problem) for this mess? America has been spending twice what it makes for too long.
Maybe it's my perspective from having lived abroad for so long, but I am appalled that the proposed "solution" to America's consumer and credit binge is , yep, more consumption and more credit.
This comes from electing a coke-head, alcoholic for President. And God will punish the author of "Evil Genes" for not mentioning Cheney. (sorry, off topic, but how to resist?)
I'd like to see China stop spending $1B per day buying US treasuries to show BB and the Fed, Wall St, and this pathetic Bush admin who's the real global economic boss.
I'm not sure the fed would mind all that much. We'd be balancing our budgets and making our own crap that very same afternoon... that's why the Chinese haven't done it and maybe the real reason why they might not EVER do it - or not anytime soon.
Well, at least there are no lines at Home Depot. I had to buy a new mailbox, used to always dread going there but it was a breeze. I bought the $14.99 model, though.
I believe it will not work, but to say that the Fed is just trying to support our stock market is wrong in my opinion.
MaxedOutMomma,
I don't know MoM... what you said sounds sort of nuanced.. it's far easier to say, "teh Fed is poop-dumb" instead of trying to really see what is happening.
Though, I agree that there's something going on that the Fed sees.. and all the Central Banks will need to act in unison to prevent bigger issues with rate/currency swaps..
We'll see if they can all hold the line without breaking ranks..
America has been spending twice what it makes for too long.
Well, the good news is that once our dollar hits C$0.80 and E0.60, maybe the Treasury can implement an "emergency stimulus measure" that involves flying Canadians and Europeans over here to do some of our consumer spending for us!
At what point is a middle-aged father with a masters and sixteen years of commodity and financial trading experience allowed to run screaming through the streets quoting Charlton Heston?
Well, the good news is that once our dollar hits C$0.80 and E0.60, maybe the Treasury can implement an "emergency stimulus measure" that involves flying Canadians and Europeans over here to do some of our consumer spending for us!
Mook | 01.22.08 - 9:15 am | #
That would work... the rest of the world put up with dollar heavy Ugly Americans for half a century... why can't we experience the reverse? Payback is hell.
the scary thing, if it didn't happen there is a possibility that the market would react even MORE down.
we only know what happened ("surprise rate cut" markets didn't bounce up much). we don't know what would have happened without it. (perhaps 10% loss today).
I think it's often O-Joe who uses the "it's priced in" mantra... but I think in this instance it WAS priced in.
i think even I brought this up 1-2 days ago, didn't I? And I swear I'm one of the stupidest people on this board.
half the time I have no idea what people are talking about!
"The increase from the fourth quarter of 2006 also was impacted by seasoning and deterioration in the small business portfolio..."
Small business credit deteriorating ahead of an official recession! I would imagine this is normally a lagging, not leading, variable. When Wall Street strategists point to "healthy corporate balance sheets" I wonder if they know that the small business sector created the bulk of the jobs in the past five years...
This is only the first of the coming big drops in the market. I've heard people speculating that we are now near the bottom, but we still have not seen the CRE plunge, the official recession announcements, the default of major homebuilders, the possible default of one or more major banks, the European slowdown and recession, the panics in China and India when manufacturing drops off the edge. It seems early, to me, for the Fed to get so worked up.
Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is.
So what do BB and Fed actions really mean ?
Continue to spend and party hard until more Americans become indentured servants !
Does anyone else here really believe that Bernancke is just over his level of aptitude? Five months ago, he was concerned about the economy overheating, runnaway inflation. Rhetoric aside, resume aside; can he do this job? I'm not blaming him for the current conditions (long time in coming), but his reactions to data.
This is not just about the markets. It's to prevent a panic in Europe from cutting off the flow of cash into Europe's expanding EM countries, which are really the source of most EU growth.
--MaxOutMama
Interesting idea, MOM-- I think you may be right and I hope it works, since I'm headed over to one of those EMs to live for the next year...
I agree that Bernanke is no fool. He knows he's facing a strong deflationary headwind, and he's probably justified in thinking he has to lean pretty far forward if he's to keep us on our feet.
My economics class this summer happened to have scheduled its visit to the Fed on the day of first big infusion of liquidity. Primed by this blog and Economist's View I was able to ask some pretty sharp questions and I must say I was impressed by the answers. They track a huge amount of data and are perfectly aware of how the data they aren't able to track (like hedgefund positions and levels of margin) could come back to bite them.
This is not to say he'll succeed-- as to that, who knows? But he's spent his whole career studying deflation and he knows that once the psychology of 'prices-- down' takes root it's too late.
Honestly, I thank the man for his service because there is nothing he could do, or could have done to fix this mess he inherited.
Greenspan on the other hand is a real P.O.S and is the engineer of what we see happening around us.
So when I read comments about Bernanke it makes me feel people are being duped by the press. I guess he should have been smart enough not to take the job.
While I'll freely admit there's probably not a lot the Fed could do and they're probably multi-tasking, after watching this pony show for a while after ignoring it for most of my life, I've come to the conclusion that the card
BANK ERROR IN YOUR FAVOR
only exists in Monopoly. I'm just tired of having to genteelly not point out the obvious and pretend the board isn't tilted.
I agree people are being very unfair to the Fed. This cut was absolutely the right thing to do. A cut was already needed just because the money supply - by all measures - has been declining. The .75 cut was already expected for that and other reasons before this crash happened - it's not about saving the market. Cutting now as opposed to next week is about the stock markets but stock markets are important both economically and psychologically and advancing a cut by one week is hardly an over-reaction to an international 10% stock plunge.
I suspect a lot of the whiners are shorts upset that the Fed won't crash the international economy to make a little more on their short positions. To them I say, "take a hike". Even uberbear Roubini is pushing for aggressive rate cuts now.
Lower rates would help some mortgage resets... but remember that the price bubble is still the underlying problem. Prices must decline or there is not a future market because prices have outrun incomes. So, even at lower rates, the mortgages for most homes purchased in about the last 4 years will be upside-down.
What you are describing is like drinking more because of the pain of coming off a long drunk. Sooner or later...
1) drop the FFR to 1% as soon as possible
2) come up with a way to SQUASH the non-bank financial arena. an example would be to get congress to pass laws to make hedge funds more transparent, and under regulation. Once the hedge funds are under regulation, regulate them to hell.
3) now lending/financial sector is back in the banking arena, over which I have control
4) get OFHEO etc on the same page as my book... and up fannie/freddie's limits.
5) once FFR at 1%, rework all the toxic loan crap into Fannie/Freddie stuff at 30 years.
6) regulate teh banks like crazy, so no more bubbles. restrict reserve ratios, restrict types of loans allowable... etc
7) once all the toxic garbage is in "safer" loan products, then slowly bring the FFR back up.
8) watch for the next inevitable bubble. There will be something. If it's something that's aided/abetted by the banking industry, regulate it away ASAP. if it's out of my banking purview, find out who can regulate it away.
can it work? yes I know it's naive somewhat... but can there be something like this that is possible?
because IMO it seems that a lot of the reason we're where we are is that there was UNREGULATED lending for so long, allowing us to get where we got... it wasn't just the 1% FFR...
C rumor is that one of their investors is pulling out and Citi will file Chapter 11. I don't believe it; they would be facing regulatory capital inadequacy but not cash flow trouble. Under the circumstances, the Fed would cut them slack. Since the second part of the rumor is nonsensical I very much doubt the first.
Honestly, I thank the man for his service because there is nothing he could do, or could have done to fix this mess he inherited.
Greenspan on the other hand is a real P.O.S and is the engineer of what we see happening around us.
The reason the media are engaged in a feeding frenzy w/r/t Bernanke, IMO, is that many of the same people and institutions spent years fawning - fawning! - over Greenspan in print and on TV, up until as recently as last year.
Many of them are unable to change their worldview in such a short time frame; others fear looking like hypocrites and/or dupes if they come out and savage the guy now after having been so firmly attached to his backside for two decades. Whereas BB doesn't have a history of glowing media coverage, so these same people feel 'safer' tearing into him.
I agree though that the smartest thing BB could have done was not accept the post.
"So, even at lower rates, the mortgages for most homes purchased in about the last 4 years will be upside-down."
yes... but this is where the HOPE NOW alliance comes in.
Rework these loans that are upside down. It keeps them "performing".
keep the homedebtor paying at least some on that mortgage...
Most OA people can't afford a recast to higher rates AND amortising schedule... but many CAN afford simply going from OA to an IO ARM... and some may be able to go from an OA to a 40 year fixed.
again... the Fed alone is impotent to stop this.
But there's a reason that the President's Working Group on Financial Markets has been meeting, WITH the president.
no?
I agree... this action seems like it can't work. But I'm trying to think like a person in power... CAN it "sortof" work????
I am so sick of this. When are we going to get to negative Fed rates so we simply are not allowed to save anymore? Idiots - it's all about the Wall Street pigs! I guess making over 400 times the average salary of their workers isn't enough - they need to have some bigger bonuses and stock options in there.
The market simply will not be allowed to correct. I can't wait for price controls on housing, or whatever the next stupid trick will be to keep everyone in debt.
Yearning - it works, with a problem. The problem is that once all those banks are sitting on long mortgages at crazy low rates a realistic FFR brings the banking system down because their borrowing cost exceed their income. So we're stuck with a slow economy for many many years. Still, there's no way out that won't hurt and I like the idea of trying to fix the underlying problem.
Need some opinions of those on this board. Does a person rebuilding their credit after a pretty devastating business failure use extra income on hand today to pay down debts still owed (ie charged off credit card & the one car I still own) or do I hoard/save my cash???
Seeing where the economy & market is heading makes me think my $12k in debts won't kill anyone if they don't recover it, and my FICO is bad enough.
Nico: FIRST keep payments current. SECOND save six months income. THIRD pay off debt. If you've got a predatory 30% rate then maybe go for a 4 month cushion. But as you're seeing now a crash is a possibility and you will need cash if that happens.
Okay, haloscan doesn't like a 'less than' sign and cuts off it and everything that follows it. I've been trying to say it's now down 'less than' 1% and this is a very wierd way to make money.
Thanks to those who responded...I know this is not the purpose of this forum. I've lurked here for a long time and learned much...now I'm just trying to rebuild and start over and trying to do it the right way.
Many thanks to CR & Tanta for hosting such an insightful board...
I suspect a lot of the whiners are shorts upset that the Fed won't crash the international economy to make a little more on their short positions. To them I say, "take a hike".
Fair Economist,
Why are you so angry? Because the shorts are making more money than you?
You better get short, buddy, while there's still time.
bacon - can I come over to your parallel universe? Cuz what I watched was something straight out of 'Coming to America':
Prince Akeem: Oh sir, the Giants of New York took on the Packers of Green Bay. And in the end, the Giants triumphed by kicking an oblong ball made of pigskin through a big “H”. It was a most ripping victory.
Cleo McDowell: Son.
Prince Akeem: Yes?
Cleo McDowell: If you want to keep working here, stay off the drugs.
I don't see how this can be seen as "Supporting the markets" when it sends such a signal that "The Fed is in Panic Mode".
Until this morning, I was pretty sanguine. Yeah, my index funds were getting hit, but eh, volatility happens. It goes up, it goes down, who cares, its not like I'm paying attention anyway.
But now I'm thinking "What does the Fed know that I don't that is not only causing the Fed to panic, but to be so scared they are WILLING to let people think they are panicing?"
There is no way this could be a "Defending the market" action, as I can't believe that the market wants to hear from the Fed is "OH MY F#@)(* GOD!".
And I don't see how a .75% rate cut, a week before the scheduled meeting, can be interepreted as anything other than the Fed screaming "OH MY F#@)(* GOD!".
I don't see how this can be seen as "Supporting the markets" when it sends such a signal that "The Fed is in Panic Mode".
A 500 point down day should't be such a big deal. It's hard to interpret this move as anything else except panic about broader financial or economic issues.
My guess is they're trying to stop a deleveraging death spiral.
That's why I would have been very suprised if we didn't get the cut this morning.
The danger, though, is that the cut causes some re-leveraging, especially in commodities.
i agree. i also think people on this site give way too much credit to the fed and too much blame.
emergency 75 bp cuts prior to opening after a holiday weekend are not supportive to the stock markets. it reeks of panic. or perhaps, they're coming around and realize that holy crap its really going to be bad, an nope, inflation is not a problem.
inflation is not going to be a problem people.
i read somewhere that we are the world's largest agricultural producer by far. we make cars and planes and tech and drugs and movies and everything one needs.
we will buy our own stuff with our own crappy dollars.
and on top of it, we're going to start selling that crap to everyone else now too.
you all say this economy needs an adjustment and cutting rates isn't going to do it.
what you're missing is that the rate cuts, lower dollar is going to provide EXACTLY the adjustment you want:
we are going make and sell stuff to them instead of just consuming and borrowing. we're going to be mercantilist. we're going to be holding euros and pounds and they're going to start stacking up. we're going to have humming factories and in time, the dollar will rise again.
seriously.
now, excuse me while i run out to snatch up industrial properties near ports and main transportation hubs
I seriously doubt we'll be producing anything in this nation anytime soon. That would require us to chuck out the illegals so American citizens can get a job, and it would require the Wall Street pigs to actually WANT to provide real jobs for American citizens, instead of spending their time shuffling stock, outsourcing, looting pension plans, flying around the globe, and getting millions upon millions of dollar rewards even for stunning failure.
Until there is a cultural shift in America, where real jobs for real Americans is considered vital to our nation by EVERYONE, I don't expect anything to get better.
i am still waiting for someone to explain why the monoline insurers are up 20 to 30% today - MBIA and ABK. They aren't any less bankrupt than they were last week..
its easy. when your stuff is cheaper than their stuff, they buy your stuff. and with the dollar in the crapper it'll happen. and wall street doesnt need to do a thing about it.
lessse. i'm a entrepreneurial guy who has a lease in a factory and some manufacturing know how. guys like dryfly come around and tell me instead of me buying something from china as an input, it might make more sense for me to sell something i can make here to the euro's because its cheaper for them. and blammo, i'm in the export business.
dryfly is the expert on this and i think he can validate or refute this hypothesis
Read the trade mags, exports are growing so fast that carriers can't get enough containers to the right ports to handle it all. Also the ships are weighting out on their outbound voyage.
Even when you take out the scrap metal/paper and grain exports we are DEFINITELY exporting more this year that in recent memory. A decent amount of that is a boost in finished goods. We're never going to undercut china (hopefully) on wages, but things like furniture exports are just shooting through the roof.
If you guys are gonna endlessly debate inflation vs. deflation again, which is actually interesting, it'd be good to have a separate thread for that on a day like today. Maybe we can have one "breaking news, links and opinions" thread and one "theory discussion" thread.
and PS: it might not be as beneficial to the worker as it had been in the past with modern mechanized production. (sounds like a quote from the 30's).
and wrt to the yuan again: china still has 800MM peasants. they will undercut even our domestic producers in many cases to continue to sell stuff to us. the currency based import led inflation models never took this into account.
If it's not about the markets, then why not wait until the 31st!!!!
It just feeds into the perception that the Fed is on the side of the bulls and is trying to prop prices and prevent alot of Wallstreet buddies from margin calls.
It can't be good for the long term reputation of our tranparent markets.
No matter what the fed does, I don't think there is anyway to go back across that imaginary line which allowed us (and more importantly our lenders) to pretend we could continue to make the payments. The rate cut is as much for government spending as it is for wall street. They hope that it will convince the global markets we can keep our heads above water. But, they know we lost our life preserver (future growth) and they can see the storms on the horizon. It's time to build some shelters and minimize the damage.
If congress hadn't been delaying the permanent tax cut, maybe all of these wouldn't have happened.
Compassionate Conservative Bus
HA HA HA. The entire thing is a direct result of the tax cuts, and the compassionate conservative dogma of don't regulate anything, borrow big to consume today, and to do anything else is to hate America.
Yeah right. the American consumer will pay 24000 USD for a plasma tv made in America? 45$ for a Transformer made in America? NFW. China will outsell and outproduce us until the yuan looks like the Swiss Franc.
But that is also missing the point. Joe Six-Pack is broke. He blew his HELOC on Fritos and iphones. 75 BP will not drive home prices back up by 20%. Houses are still going down by another 30% or more until they hit reasonable rental or income ratios. 75 BP does not mean squat to credit card debt. Gee, I was paying 24% on my Visa but now its only 23%! Cool, I'll have two more Lexuses (Lexi?)
expat: you are right. it will take some time for joe401k to recover / BK. as well you miss my earlier point that yes china will undercut even our domestic prices because they can and must.
Compassionate Conservative Bus: Er, i guess this is all Jimmy Carter's fault, right? or that arab guy called Al Cader? or them cheeze eatin surrender frogs?
Ok, so let's cut taxes to zero permanently. Logically GDP would then go to infinity. Wheeee!
so, for somebody that is just starting a family and renting. likes to save and invest, dislikes debt. needs to pay for retirement, education and housing.
is changing mentality and getting into debt as soon as the IR hit bottom the best strategy? let inflation do its magic helping paying back part of it? work during the credit bubble to eventually prove the bank that you don't really need the loan (as banks only give under those terms during recessions).
saving and investing might not be 100% appropriate all the time. here savers are being penalized. am i saying a very obvious thing or making any sense?
The conventional wisdom (add salt in appropriate taste) is that inflation favors the borrower, with two big caveats. First, that your cost for borrowing is less than the rate of inflation. Second, that you can afford the short-term load till inflation eases the burden.
At least we know now for sure there will be no recession in '08 and '09. It's now official. Whether we'll see the market bottom today or the next day is of secondary nature.
It means that anyone thinking that we are going to get deflation in nominal currency terms is going to be very very wrong.
Mercantilism is a set of policies to encourage domestic prodution over domestic consumption. This leads to an increase in national savings, wealth, and incomes.
Unfortunately, this is a zero sum game. My increase in wealth is your decrease in wealth (assuming no increase in total factor productivity). Mercantilism is also known as "beggar-thy-neighbor".
So, what happens to all the excess production every nation it putting policies in place to encourage production (currency devaluation) and discouraging production (consumption taxes).
The only reason that Asian and European mercantilism worked in the past was that the US was willing to be the "consumer of last resort" and our astounding productivity increases were able to support increased income even with negative national savings.
But, there is evidence that our run of strong productivity gains may be comming to an end.
does anybody remember/know how was the supply of mortgages during the last real estate crash (late 80s and early 90s). how tight did lending standards get?
kicker,
most of the policy implementation of mercantilism is just currency intervention, either with ludicrous funding rates a la japan or outright manipulation a la china. In either event the outcome is to produce more units of account (money) than if they were allowed to seek their own level, hence overall global inflation.
there is nothing on the horizon which is going to stop this. The natural and correct investor reaction is to grab for as much supply constrained commodity money as possible. Hence the huge and continued rise in all sort of natural resource prices. There is a huge disconnect today between the forward price curves of some of these commodities and the current discounted prices of the companies that produce them. I am buying the producers.
if cost of money is less than inflation, you are being paid basically to take on debt.
savers are not braking even in real terms as interest paid to them (even before tax) might be less than inflation. inflation is a hidden tax, a transfer from the saver to the borrower.
as Kirk said assuming "that you can afford the short-term load till inflation eases the burden". that's a bet, you never know how high inflation will get in the future.
dryfly is the expert on this and i think he can validate or refute this hypothesis
dc1000 | 01.22.08 - 10:41 am | #
LOL. Expert huh...
Well I agree pretty much with what dc1000 just said - its pretty much econ 101. Dollar weakens & our domestic production increases.
HOWEVER there is one minor detail he left out - even though our factories will hum and the farms will plant hedge row to hedge row... we will all FEEL POORER. We will all be working harder for less global purchasing power and while we produce a lot of stuff that stuff still feels the influence of global pricing.
But it was going to end anyway... the deficits are unsustainable.
It is a ton of fun borrowing and spending and borrowing and spending... and we've been doing that for a very long time... at least since Reagan.
Working hard to pay it off sucks.
But its gotta end... and the only way it ends is via currency alignment and that's what this is ultimately all about.
As per Kicker's point about what happens if everyone 'goes merchantilist'... Well those out in the ROW have a choice... work for even LESS to keep shipping to us on credit or consume some more themselves. If they think it makes sense to give us shit for free then they can take even crappier dollars than they did before.
I mean if you guys are really upset and want to do something on personal level to benefit from this - quit your McJob and start a business and make something. Sell'em to sucker foreigners in exchange for their hard currency. Turn the profits into gold & foreign exchange... hell that's what the rest of the world has been doing for decades while we went head over heels in debt - both privately and publicly.
I got myself into a heap of trouble back in 1991. Took forever to get out but here's how I finally did it. It may or may not work for you. Depends on the kind of debt you've got.
You need to retain cash to stay afloat. Look at your debts, target the smallest one and pay it off as quickly as possibe. Pay the minimums on the rest. Once you get the first paid, move on to the next one and just work you way up the debt.
Take advantage of credit card balance transfers if you can.
Unfortunately, this is a zero sum game. My increase in wealth is your decrease in wealth (assuming no increase in total factor productivity). Mercantilism is also known as "beggar-thy-neighbor".
But we have been inviting them to bugger us for decades and in effect buggered ourselves.
The rest of the world can't treat the US like the bullseye in merchantilist dart board. World leaders have talked about this FOREVER... now they gotta do something.
The ROW can work for less or start consuming some of their own capacity - we are tapped out... debt piled on top of debt. We gotta start paying it off - not with paper but with product. Real goods and services not promises.
I'd like to believe this means stock prices and asset values are slowly returning to realistic valuations instead of speculative.. it'll be painful in the interim, but in the long run this is definitely a good thing.
Hopefully this also shows the return of the real economy "horse" driving the market "cart" instead of the other way around. DOW isn't a sage, you see..
I sometimes have the feeling that there is a Hari Seldon out there, but instead of manipulating events for the future benefit of mankind he pushes just the right buttons to keep us on our most destructive path.
are you seeing goods starting to flow the other way?
Absolutely. The first effect has been via substitution... imported goods now being resourced here in the US. I have meetings later this week on that topic exactly.
I am too far down the food chain to see a lot of direct exports myself BUT the folks I make parts for are seeing a big step up in exports... including car parts (not complete cars so much).
However - I would not be surprised to see Toyota & Honda exporting cars from the US before long.
Yep. But we're not going to sell our way out of it. BK will happen first.
There will be a lot of 'reassigning' of assets via 'various legal means'... but the farms & factories are still here... folks who learned IT, engineering, science are still here... so whoever owns them (or hires them) will be the ones paying off the 'deficits'... As long as I'm eating I don't care who owns them.
The balances have to be rebalanced no matter who owns them. A weak dollar is part of that. Hard money folks should understand that more than anyone.
I don't know how many years I've been saying that here and on other forums - at least since '98.
Personally I have always like some liquidity.
Zigurrat | 01.22.08 - 11:37 am | #
me too! i'm to the extreme, 100% liquid. just realizing a change of mind in my part has to come or i have to be willing to pay part of the debt that others took indirectly.
i'm from argentina, should have learned that long time ago! but one thing is the rational process, another is doing it.
buying a house, for example, after prices fall by say 30% (if that happens) with a very low interest if mortgages are available might be optimal. that if the mortgage is available.
but, i'm so pregnant that i don't know if i'm thinking straight.
As far as debt is concerned, debt that is used for an investment can be fine. If it is just consumption, then it is hard to see much good coming out of it.
interesting tid-bit. whilst negotiating a loan today (commercial) the bank is refusing to go below their quoted rate from 3-4 weeks ago even in face of the cuts.
most of the policy implementation of mercantilism is just currency intervention, either with ludicrous funding rates a la japan or outright manipulation a la china.
The only reason currency manipulation has worked is because the US was willing to turn a blind eye towards it for short-term political gain (the strong dollar policy).
Now the US has abandoned the strong dollar policy there will be a lot more emphasis on destroying domestic consumption (targeted towards imports).
European VAT taxes are a prime example. WTO rules allow indirect taxes to be rebated on exports. When the rule was first put in place, EU VAT taxes were 2-3% while they now hover around 20%.
Japanese bans on US beef. EU bans on GM food. The Japanese byzantine regulations on imports. EU imposing VAT taxes on US digital goods. Chinese controls on foreign purchase of equities. EU privacy laws that prohibit export of customer data. China's blind eye towards rampant domestic piracy of movies, games, and software.
interesting tid-bit. whilst negotiating a loan today (commercial) the bank is refusing to go below their quoted rate from 3-4 weeks ago even in face of the cuts.
dc1000 | 01.22.08 - 11:48 am | #
Protecting their yield curve - I'd make them sweat... go shop.
Why are Bank of America, Ambac and MBIA all up as of this moment--just before noon est? The monolines are WAY up, even ACA. Surely the Barrons article can't explain it? Is there some kind of deal in the wings that most of us get to find out about tomorrow?
Not disagreeing. Perhaps being subtle. But what's the value of a BK US dollar?
Well you and I know the dollar won't 'bankrupt'... but that is only 'cause bankrupt is a well defined and orderly legal process. The dollar will just get less and less valuable via fis and starts until the flows in and out equalize - approximately. At some point during that period we'll see the dollar lose reserve status...
It is gonna be different. We will not feel richer... but then folks who stop living off Visa or MEW and go to work paying down debt don't feel richer either.
Why are Bank of America, Ambac and MBIA all up as of this moment--just before noon est? The monolines are WAY up, even ACA. Surely the Barrons article can't explain it? Is there some kind of deal in the wings that most of us get to find out about tomorrow?
John Stark | 01.22.08 - 11:53 am | #<
Ask Siv. He was going to double down on ABK.
If they go up enough, it will be another opportunity to buy puts.
As far as BAC, Cramer said something about BAC walking away from CFC. The current thinking is that they aren't just going to absorb the whole thing.
JohnStark, Misean said above that "something is afoot."
The fed slammed the brakes on global melt-down, and the market skidded around a bit this morning...Now the question is, will the brakes hold, or does the fed start to look like the little dog with antlers tied to his head holding up the Grinch's sleigh?
If traders come back from their 3 (or more) beverage lunch shaking their heads over fundamentals, and in the mood to sell, look out Whoville.
The fed slammed the brakes on global melt-down, and the market skidded around a bit this morning...Now the question is, will the brakes hold, or does the fed start to look like the little dog with antlers tied to his head holding up the Grinch's sleigh?
Oh I'd be shocked if the market didn't continue down... I'd also bet the fed believes this too & doesn't care. They just want it 'orderly'. No free falls.
The question is... can they keep markets sufficiently 'liquid' so there aren't rapid free falls. With all the leverage - I have my doubts but what do I know...
"The only reason currency manipulation has worked is because the US was willing to turn a blind eye towards it for short-term political gain (the strong dollar policy)."
I think that that US has generally taken the right economic path in not trying to stop the chinese or japanese from manipulating their currencies downwards. If the rest of the world wants to supply us with goods and services for paper promises which can and will be inflated away then I'll hoist a ching'tao or a pilsner urquel and say thanks. Any time the rest of the world wants to put their financial well being in the hands of anyone other than markets i am willing to take the other side of the trade. The best thing the US has done with respect to all the mercantilist policies is to do nothing. Hopefully they will continue on this course.
Then how is buying a house with a mortgage good[?] A house is consumed. It is not an investment.
A home provides a service - shelter - that allows people to be more productive in other aspects of their lives. Try studying for school in a tent or being productive for 8 hours at work when you spent all night shivering to keep warm. It's perfectly reasonable to pay for productive assets over their useful lifetimes, and thus in one sense of the word "investment" a house is an good investment.
As for being an investment that earns a vacation in the Bahamas next year, well, that's where the country has gone wrong.
Misean, yes, renting provides the same service. But:
First, note that the discussion kicked off with caveats, the big one being when housing prices returned to near bottom (or 'reasonable'), and the second being the assumption that inflation will continue. With that in mind, purchase becomes a reasonable, and in fact advantageous option, IF (more caveats):
You intend to live there long enough. Long enough that inflation's effects on rent make it significantly higher than the costs of the house (both payments and maintenance costs). Long enough that the net of expense minus equity is less (as a whole) than what you'd have paid over the same time.
If you're expecting to stay in the same place for two or three decades, buying can be smarter than renting for the same period of time. Can be, not is. Individual situations cannot be answered with a one-size-fits-all determination.
Well, even though I have a mortgage, renting provides the same service.
Yes, that is true. But since the utility of a home isn't depleted (given regular maintenance) at the end of the maximum available loan period, it makes sense to buy (all other factors being equal, which they aren't, but we know that).
There are lot of angry foreigners out there. I just breezed through a Korean website and people are very shocked and scared of what had happen within few days. Few weeks ago, some of the analyst were predicting Kospi to hit 2,000. It went the other way. It looks like lot of foreigners have dumped their equity, which is reflected on the currency movement between won and the dollar. People are keeping their eye on the Wall Street, today.
Here's a bigger killer: In some neighborhoods, the predatory mortgage peddlers have done their work, and homes are in foreclosusre on every block. This affects the value of all homes, even those people who were sensible, and of course it affects the quality of life in the neighborhood, when bums move into the empty houses.
On a less apocalyptic scale, that home investment can be impaired by the simple arrival of an obnoxious new neighbor.
the folks who learned IT, engineering, science are still here because they earn more in the USA than back home. Will they still be here when they can make more money back home in India? I don't think so
he folks who learned IT, engineering, science are still here because they earn more in the USA than back home. Will they still be here when they can make more money back home in India? I don't think so
charly | 01.22.08 - 1:28 pm | #
There are plenty of domestic engineers - always have been. And the foreign ones can go home any time they want - if they can find work over there. You see if their company exports to the US to support itself - they've just become more expensive IN DOLLARS and won't be as competitive here - so maybe don't need as many engineers as they would have needed had the dollar stayed stronger.
If congress hadn't been delaying the permanent tax cut, maybe all of these wouldn't have happened.
Compassionate Conservative Bus
Yeah, right now the most important economic problem facing the U.S. is that a handful of bilionares will be taxed on the zero cost basis stock that has run up when they kick the bucket.
If the Supreme court hadn't instaled a moron as POTUS, maybe all this wouldn't have happened.
This fire has been burning out of control for 8 years and the Iraq war continues to consume GDP wealth, but the Fed is faced with allocation of resources (supply and demand) relating to less cash flow and thus an inability to fight multiple battles in the form of multiple interconnected economic bubbles -- like a housing crash, inflationary increases, stock value declines, and dynamic variables that are impacting the resources available for them to put out any of these related fires.
I think we have had years of un-precedented financial collusion where synthetic derivatives were packaged into a tsunami of un-precedented dis-proportional easy global credit allowances which were universally abused, resulting in the current financial chaos and systemic crisis -- which I think is symbolic of an out of control fire. The fire needs time to burn out, the market needs to correct and the more casino/lotto theories embarked upon by government intervention will only add more fuel for this fire!
Of course the real solution was to raise the interest rate to 7 percent. That would stop the dollar slide, inflation, and bring money from the outside. Let the banks and financial businesses fail. It will be cheaper to pay the FDIC insurance! How many of the account holders can you pay off with just the S145b stimulus package?
7 percent would be a very punitive posture, causing the economy to crash. Lots of people would lose their jobs. It would be very bad for most people.
However, it would be great for me because I don't need a job, and having sold most of my stock into the rallies in 2007, I now have about half of my investment assets in cash. So, the higher interest rate and stronger currency would be great for me. And the more severe crash would create a better buying opportunity at the bottom of the depression that would surely follow such a restrictive monetary policy.
However, it appears that the Fed is not interested in helping me. Instead, they are trying to soften the impact on most other people.
I think I'll be glad to see Crazy Bill Poole depart the FOMC shortly . . . . . .
Did they mention containment?
S&P futures still down 45 points.
I give up. 5% fall in stock market. CUT CUT CUT CUT CUT CUT CUT CUT CUT. It can only mean it is worse than we all think and Bernake just wants to be able to say he did all he could.
Full panic mode...
Well that does it. There should be no doubt now the Fed doesn't care about the overall economy, just the stock market.
spits
and there it is..
Have they ever, in anyone's memory, announced a cut before the opening?
"Full panic mode" doesn't quite hit the point---They don't know whether they're punched or bored.
It is simply so clear that the only economy they care about is their market and they will do anything to maintain it.
Well, when the dollar goes bye bye my Roth IRA in foreign equities won't look quite as stupid as it did earlier this morning.
ok let's talk here for now, unless, CR is gonna be putting a few more articles momentarily.
I see 3 things here:
1) dishonest statement: "The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth."
No, they did it for stocks and hedge funds and bank liquidity.
2) inflation risks will be monitored, market may not like that
3) we can probably rule out mid-day surprise cut although the PPT, if it exists, might do something.
4) "Voting against was William Poole, who did not believe that current conditions justified policy action before the regularly scheduled meeting next week. Absent and not voting was Frederic S. Mishkin."
Will there be any insightful comments from Alan Greenspan today?
Maybe he will do an encore of his ARM loan speech. Or, the one where he spoke of the glories of securitization and derivatives.
The Bernanke Fed is pathetic to an extent that still managed to surprise me. Ok, suppose for the last time.
I would have thought they could keep their water to themselves for a week at least, until their scheduled meeting. But the bulls cry when they have a little ouchie, and Benny comes with their favourite drug.
I'm not surprised that WallSt owns the Fed. I'm just surprised the Fed doesn't give a flying f*** about the appearance.
Utterly, completely pointless.
probert, I'll try not to post anything for awhile. Ambac's numbers are out too!
Yes, this will definitely be perceived as supporting the markets. That isn't good.
Best Wishes.
Welcome to Japan 1996.
Cash is king, even at 0.1% APY, in a post-bust deflationary world. "It'll be cheaper next year"
In my mind there are two things this could mean. Bernanke and team know it is worse than anyone thought, thus justifying some of the quickest cuts in history, or Bernanke is an idiot.
I don't think he is an idiot.
and bofa which basically barely turned a profit.
I suppose bofa, ambac was part of the fed "incoming information"
quite stunning how these guys cut at the behest of the wall street boys. australia had a 7% drop and is raising rates, and telling the market to go take a hike!
And the checks will be increased to $1,600.00 per person. Whoopee
I come from an Asian country that got whacked in 1997 and I remember still the admonitions from the IMF, WB about the need for central bank independence and monetary and fiscal discipline. So our central banks were basically ordered to raise interest rates and cut spending.
I guess the rules only apply to us.
did you guys hear? the packers won!!!
The Bernanke Fed is like a 19-year-old army trainee who's never fired a shot in anger and is suddenly dropped behind enemy lines with an Uzi.
He's shaking in panic but gripping his trusty gun tight, secure in his ability to destroy whatever foe he comes across.
The problem is, he fires off a half-clip in panic every time the wind rustles the trees.
Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo.
And anyone who's watched a war movie knows what will happen then.
"Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo."
Uhhh, we find out that he's Chuck Norris?
Since super Tuesday is just around the corner, maybe we can call today Kryptonite Tuesday.
Perceived as supporting the market, but, from the market reaction, they are now basically ineffectual. Market rallied in Europe, but is already starting to give up gains. 75bps indicates panic and a complete inability to predict what the real economy is doing when they cut a mere 50bps in December.
I think the Ambac, B of A and Wachovia numbers are just too bad. CDS widened for all of them, so bad news still getting worse.
As many people have commented they now seem to be pushing on a string.
Another day to get your short positions in.
Yes, this will definitely be perceived as supporting the markets. That isn't good. - CR
Wait, wait, wait... are you suggesting the radical concept that there is MORE to the economy than just the markets?
[...pause for reflection...]
wow, who coodanode.
So, the FED doesn't want to target asset prices as bubbles grow, but they're very willing to target asset prices as bubbles deflate.
My 2 cents....
Bush's tax rebate on option expiration day didn't give the expected result, so now here's plan B. I hate so see what plan C is. Probably the US Gov't buying the entire NYSE for a 25% premium.
did you guys hear? the packers won!!!
which parallel universe are you living in ?
Anybody know anything about the Citigroup rumors? European Market Update
Pretty soon he's going to stumble right into an enemy squadron and pull the trigger, only to hear the fateful 'click-click' that indicates he's out of ammo.
don't you know, in the Matrix they never run out of ammo...
"don't you know, in the Matrix they never run out of ammo...
It's obvious that Ben was told not to take the clue pill.
An emergency 75 basis point cut announced before the opening bell. Seeing the Federal Reserve panic and run for the hills is supposed to CALM the markets? The stench of fear and panic will stalk the street today.
"And anyone who's watched a war movie knows what will happen then."
Mook-
If it's a Stallone or Ahhhnold movie, they'll run across an open field with 50 enemy firing machine guns and not get hit. They'll surprised the deaf guard manning the 50 caliber who has his back turned and cut down the enemy. They they will say...."And I can cut down more if necessary"
I think that the mkts do not believe anymore. I think the rate cut will have an evanescent effect, if it has any effect at all.
Big ?- Wow, if ADIA pulled their 7.5Bln and Citi is filing Ch.11 that would explain a lot of things. I hope that rumor isn't true.
Dow tanking again after bounce to -300.
I thought the bounce would happen around 11AM.....that equation is now dead...
Fed Strategy:
When you have only two bullets remaining, use the first to shoot yourself in the foot.
The second?
Well, we don't want to talk about that...
Cool. Now I can buy that half million dollar home with my 45k salary. Awesome. And buy a new iphone, a Tivo, some lattes, and take that trip to Maldives. Thanks Bernanke. You have saved us.
Now wait. I think the general tone here is unfair to the Fed. What all the traders in Asia were saying is that they could do nothing until New York opened. They were begging for intervention.
My belief is that the Fed is trying to keep the EU alive. They believe that the weakened dollar will allow US manufacturing to rebound and inject some broader stimulus into the economy, but that is not possible if Europe collapses.
Remember they joined into the joint CB actions earlier, and even provided funding to help other CBs. This is not just about the markets. It's to prevent a panic in Europe from cutting off the flow of cash into Europe's expanding EM countries, which are really the source of most EU growth.
I believe it will not work, but to say that the Fed is just trying to support our stock market is wrong in my opinion.
I don't ever, well hardly ever, trade in AH or premarket but looking at the reaction, the sharp pop that started to fade in 2 minutes I just had to go a little more short - TWM; almost just to show those idiots at the Fed - it doesn't work and you've just emptied your gun you fools.
It will pay for a nice dinner or more today - famous last words ? I hope not.
-K
The obvious danger here is what happens if it does no good ?
Would anyone really know if it had an effect of not ?
So , how much do they cut next week ? 50 bps or another 75 bps .... something else much be happening for this move this morning. The Fed couldn't wait one week ? Is it that bad ??????
I think this Fed release really summed up what many of us said for the past few years:
1) the Fed does not always shoot straight
2) the market expects a Fed put
3) the Fed has become a political entity that needs to take care of its own image
4) the Fed is both late and clumsy in identifying problems
5) Bernanke is more professor than anything
6) Fed policy, however creative, is still not creative enough
7) For whatever reasons, the chairman is probably too powerful vs. its fellow FOMC members.
Pimco- 2 for 2
They ask, they recieve...
The Fed is dead.
Wow - S&P futures are back down in the range they were trading before the rate cut.
yes Pimco got everything
"weakening of the economic outlook and increasing downside risks to growth"
Umm . . . nope, this is all about trying to save the markets. Half an hour until we find out if it works.
Repent, the end of the world is nigh!
Anybody see Rick S. open a can of STFU for Cramer this AM. Thank goodness for Rick!
The mini-Dow is also back down. I am looking at the link CR posted last night:
Sorry. Page not found.
Where can we watch the S&P futures?
Well, I think being unfair to the Fed is completely fair. Those idiots got us here in the first place. Either they are stinkin' liars or incompetent idiots. Probably both.
On the other hand, given that the US, the US consumer and most US banks are bankrupt, I can understand the act of desperation.
Frankly, I still don't see how it helps. Once the bubble pops as it has, not even ZERO percent rates can save us. Look at Japan.
Incompetence in governance? Not with Bush and Cheney at the helm.
He's the MBA President, you know.
PS: So far the Fed action has had one effect - Bovespa futures are up. And Bovespa (Brazil) is really on the line between EM/sustainable internal economies. I have been watching Bovespa to assess just how severe the pullback from EM countries will be. If it can go up and manage to stay relatively high today, the flow of money into the more reasonable EMs is likely not to totally collapse. If it drops well into the 40s, the effect of this panic on countries like Greece and Turkey will be dire.
This is some serious stuff here. Politically and financially.
I'm hoping for a pop today, of about 2-3% if possible.
I can then sell the remaining long positions I own. (yeah yeah I know... I really thought I could hold out well until after the Jan 30 meeting then sell the rest of my longs)
as I said before, bad timing, bad bad timing!
I wonder what gold will do?
(WWGD?)
The Fed has not just emptied the gun, but done it in advance of what will be an entire year of increasingly bad news.
ARMs resets still haven't peaked, and are set to do so later this year. Foreclosures will continue to rise. Bankruptcies will continue to rise. Unemployment will continue to rise. Consumer spending will continue to fall. Housing prices will continue to fall. Some banks will likely outright fail, along with a hedge fund or two (if we're lucky; many more if we're not). Credit will continue to be frozen. More credit cards will become maxed out.
There's a whole year of this kind of bad economic news monsoon left. If markets are this unstable now (and the Fed this prone to panic), what are things going to look like in July? In October? I've been an economic bear now for four years, and I've always believed the financial collapse due to the housing-crash/credit-bubble would be quick, deep and long-lasting , but even I'm surprised how quickly things are deteriorating this week on the world's markets.
Would this be a good time to buy a condo? I can get in with no money down...
Suggestions how to trade thios inasnity are welcome. I am 15% short 85% cash.
Oh SHIT.
MOM,
I think you are reading FAR too much subtlety and cunning into what is a very blunt action. The Fed can try to accelerate, but they cannot steer.
Gold will fluctuate wildly, and end up on the plus-side, big.
This is some serious stuff here. Politically and financially.
MaxedOutMama | Homepage | 01.22.08 - 9:03 am | #
No one argues that MOM - just what to do (or not do) about it.
Frankly, I still don't see how it helps. Once the bubble pops as it has, not even ZERO percent rates can save us. Look at Japan.
I've got a confession to make. I bought John Mauldin's "Just One Thing" the day it came out a couple of years ago, read through the chapter where someone (I think it was Gary Shilling) said that the long bond was headed to 3 percent, and laughed. Loudly.
With OUR Fed? With "Helicopter Ben" virtually guaranteeing inflationary times ahead? Ha! Fat chance!
Here we are, not 18 months later, and it looks like Shilling w(or whomever it was) as dead on. And the scary part is, we may not be done yet. A 2-handle, anyone?
the Fed is saving face. that is all.
with every drop of the market, I hear whiners (including the biggest whiners of all time, Cramer, Steve Weisman, and Wayne Angel ex Fed Governor) talk about how the Fed is behind the curve.
The fed is simply going AHEAD of the curve. this way when we look back the blame cannot be placed on them.
all about blame folks.
I'd like to see China stop spending $1B per day buying US treasuries to show BB and the Fed, Wall St, and this pathetic Bush admin who's the real global economic boss.
as Wayne Angel said, may he rot in hell...
"the Fed has to get ahead of the game... and drop rates on "safe" investments so low that the average investor is forced to put his money back in the mortgage arena"
sounds like someone has it spot on.
Now in which mortgage related security should I invest? Hmmm... I guess I'll take a MBS of AAA+ rated supbrime NINA loans.
can't be worse than my ING account can it?
/sarcasm
Dummm, Dummmm....just going further up the river.
So everyone used to wrack on me about my apocalyptic outlook. Um, how about a big fed cut getting no traction?
The losses pent up from two days of bloodbath from overseas are going to be catastrophic for a bunch of geared funds here. Now we get to see the wild side of the markets.
Nothing left to say but the tagline:
Someday this war's gonna end...
I'm expecting a lot of crazy talk today.
Asking china not to buy our sheeet should NOT be one of them
How about blaming ourselves (not us here, since we are all stinkin'g geniuses who are NOT responsible for this credit problem) for this mess? America has been spending twice what it makes for too long.
Maybe it's my perspective from having lived abroad for so long, but I am appalled that the proposed "solution" to America's consumer and credit binge is , yep, more consumption and more credit.
This comes from electing a coke-head, alcoholic for President. And God will punish the author of "Evil Genes" for not mentioning Cheney. (sorry, off topic, but how to resist?)
I'd like to see China stop spending $1B per day buying US treasuries to show BB and the Fed, Wall St, and this pathetic Bush admin who's the real global economic boss.
I'm not sure the fed would mind all that much. We'd be balancing our budgets and making our own crap that very same afternoon... that's why the Chinese haven't done it and maybe the real reason why they might not EVER do it - or not anytime soon.
ScoProLaw your comment is bunk !
Hahaha... I hope nobody is suprised by this.
Which one of you was BB watching the horror in India last night??
America has been spending twice what it makes for too long.
A few of us have been blowin' that horn. A lonely job but somebody has to do it.
Anyone here HAVE CHANGE FOR A NICKLE??
Well, at least there are no lines at Home Depot. I had to buy a new mailbox, used to always dread going there but it was a breeze. I bought the $14.99 model, though.
Yawn!! Good morning all...what did i miss....oh a .75 bps cut...great...thanks you dollar it was nice knowing you....
Whitman out at Ebay - I think everyone will pile in their bad news today
I believe it will not work, but to say that the Fed is just trying to support our stock market is wrong in my opinion.
MaxedOutMomma,
I don't know MoM... what you said sounds sort of nuanced.. it's far easier to say, "teh Fed is poop-dumb" instead of trying to really see what is happening.
Though, I agree that there's something going on that the Fed sees.. and all the Central Banks will need to act in unison to prevent bigger issues with rate/currency swaps..
We'll see if they can all hold the line without breaking ranks..
America has been spending twice what it makes for too long.
Well, the good news is that once our dollar hits C$0.80 and E0.60, maybe the Treasury can implement an "emergency stimulus measure" that involves flying Canadians and Europeans over here to do some of our consumer spending for us!
At what point is a middle-aged father with a masters and sixteen years of commodity and financial trading experience allowed to run screaming through the streets quoting Charlton Heston?
"You bastards! you blew the whole thing up!"
Hahaha... I hope nobody is suprised by this.
I don't think there is a lot of either 'shock' or 'awe' out there...
Well, the good news is that once our dollar hits C$0.80 and E0.60, maybe the Treasury can implement an "emergency stimulus measure" that involves flying Canadians and Europeans over here to do some of our consumer spending for us!
Mook | 01.22.08 - 9:15 am | #
That would work... the rest of the world put up with dollar heavy Ugly Americans for half a century... why can't we experience the reverse? Payback is hell.
Poole is the only one with balls
liquidity trap 101
Hahaha... I hope nobody is suprised by this.
I think this, in a nutshell, is the problem
EVERYBODY was expecting this.
the scary thing, if it didn't happen there is a possibility that the market would react even MORE down.
we only know what happened ("surprise rate cut" markets didn't bounce up much). we don't know what would have happened without it. (perhaps 10% loss today).
I think it's often O-Joe who uses the "it's priced in" mantra... but I think in this instance it WAS priced in.
i think even I brought this up 1-2 days ago, didn't I? And I swear I'm one of the stupidest people on this board.
half the time I have no idea what people are talking about!
MoM,
I wonder if you caught this in the BofA release:
"The increase from the fourth quarter of 2006 also was impacted by seasoning and deterioration in the small business portfolio..."
Small business credit deteriorating ahead of an official recession! I would imagine this is normally a lagging, not leading, variable. When Wall Street strategists point to "healthy corporate balance sheets" I wonder if they know that the small business sector created the bulk of the jobs in the past five years...
America has been spending twice what it makes for too long..
America earns more than enough to support its current median standard of living.
It doesn't earn nearly enough to support its current distribution of income.
That is the problem.
What do they do next week? 75 bps more?
David Pearson,
Exactly, Exactly, Exactly.
"What do they do next week? 75 bps more?"
Nope. 100 bps.
75bps is so this morning.
100bps is the new black.
What do they do next week? 75 bps more?
crispy&cole | 01.22.08 - 9:22 am | #
25 bips is what they are demanding on CNBC (about a half hour ago)... We'll see.
25 this afternoon!
crispy&cole, it will be interesting to see the Fed probabilities this afternoon. My guess is the debate will be between 25bps and 50bps for next week.
Best Wishes.
How many more emergency meetings before rates are down to 0?
We have the most feckless leadership this nation has ever known.
I'll bet the Fed cuts another 50bps next meeting...
Isn't this the second time shorts have been slaughtered out of hours by an 'emergency' Fed. move?
Fine. Keep killing the messengers and eventually you stop getting messages.
The Fed last fall started using up all its ammo. They're just about out right now.
MoM, I'm with you and appreciate the global perspective.
Maybe Ben thinks the cut shows the U.S. is taking one for the team. It'll be interesting to see how the Asian markets respond.
Feckless Tuesday
ECB responds - no cut for you! They are taking the hard line on this one
hey , does this mean that Prince gets back on the dancefloor? Seriously, who did not laugh at the image of Chuck Prince dancing?
ECB responds - no cut for you! They are taking the hard line on this one.
Uh, did I say E0.60 to the dollar earlier? Maybe I should have said E0.55. Hell, we could hit 0.60 by lunchtime.
I have a question:
Does dropping the rates this quickly not help with the interest rate spreads that the banks can make?
It would seem that this would help.
If you have an ARM that is adjusting this year... it is now adjusting based on a much lower FFR.
so if you adjust the FFR down to 1% or so, then the people who adjust will not raise in their payments.
It would seem that this really has the possibility of stalling some of the foreclosures... no?
If you are trying to save what do you do now?
This is only the first of the coming big drops in the market. I've heard people speculating that we are now near the bottom, but we still have not seen the CRE plunge, the official recession announcements, the default of major homebuilders, the possible default of one or more major banks, the European slowdown and recession, the panics in China and India when manufacturing drops off the edge. It seems early, to me, for the Fed to get so worked up.
wow... english bad...
If you are trying to save what do you do now?
One word: Everbank.
Any economist will say that Americans have been living better than they should—which is by definition the case when a nation’s total consumption is greater than its total production, as America’s now is.
So what do BB and Fed actions really mean ?
Continue to spend and party hard until more Americans become indentured servants !
Does anyone else here really believe that Bernancke is just over his level of aptitude? Five months ago, he was concerned about the economy overheating, runnaway inflation. Rhetoric aside, resume aside; can he do this job? I'm not blaming him for the current conditions (long time in coming), but his reactions to data.
Ok folks...lock and load...good luck to you all.
wally...
but again:
what if they drop 50bps each meeting, with a few more "suprise" cuts.
They could be down to 1% in just 2 months.
thus, resetting ARMs would not recast with higher payments.
Option ARMs would recast to an amortising loan... but at 1% FFR again.
For those that are reset based on LIBOR or the 10 year treasury, I have a hard time believing those will not go down as well.
would this not bring more "value" to the "old" mortgages, MBS securities, and the derivatives of those?
whould it not slow the foreclosure process?
I feel that overall this is a BAD thing... but it may have it's intended results... slowing down the downturn...
not saying this can stop the downturn... but can it SLOW it?
This is not just about the markets. It's to prevent a panic in Europe from cutting off the flow of cash into Europe's expanding EM countries, which are really the source of most EU growth.
--MaxOutMama
Interesting idea, MOM-- I think you may be right and I hope it works, since I'm headed over to one of those EMs to live for the next year...
I agree that Bernanke is no fool. He knows he's facing a strong deflationary headwind, and he's probably justified in thinking he has to lean pretty far forward if he's to keep us on our feet.
My economics class this summer happened to have scheduled its visit to the Fed on the day of first big infusion of liquidity. Primed by this blog and Economist's View I was able to ask some pretty sharp questions and I must say I was impressed by the answers. They track a huge amount of data and are perfectly aware of how the data they aren't able to track (like hedgefund positions and levels of margin) could come back to bite them.
This is not to say he'll succeed-- as to that, who knows? But he's spent his whole career studying deflation and he knows that once the psychology of 'prices-- down' takes root it's too late.
time to rumble boys
Yearning-
You would think so, but one factor is to check the index. If the rate is indexed to Libor, for instance, not so much.
Aren't the Asian Markets more worried about inflation? Won't rate cuts in the US increase inflation.
Yes the global economy is "coupled" but I beleive they have very different views on where it currently "is" and where it need to "go".
damn, anyone have any popcorn?
Like the beginning carpentry class, you have a hammer and a bag of nails--and you pound nails into the board until it's splintered.
Cut, cut, cut. It's the only thing they can do.
What will happen when the Fed rate prescription bottle runs out? It says "0 refill(s)"... Dang!
If the rate is indexed to Libor, for instance, not so much.
yeah I know... but again... how high can LIBOR stay with a 1% FFR?
how high can a 10 year treasury stay with a 1% FFR?
Goodbye Ruby Tuesday.
Dollar/Yen response was sharp, but brief. Evidently over now.
INO Foreign Exchange - US Dollar/Japanese Yen (FOREX:USDJPY) Price Chart and Quote
When it is zero, there will men in suits on corners passing out wads of cash, just like the cigarette girls used to do.
Have they chosen...poorly?
Bernanke is in a "no-win" situation.
Honestly, I thank the man for his service because there is nothing he could do, or could have done to fix this mess he inherited.
Greenspan on the other hand is a real P.O.S and is the engineer of what we see happening around us.
So when I read comments about Bernanke it makes me feel people are being duped by the press. I guess he should have been smart enough not to take the job.
Who is NaN?
While I'll freely admit there's probably not a lot the Fed could do and they're probably multi-tasking, after watching this pony show for a while after ignoring it for most of my life, I've come to the conclusion that the card
BANK ERROR IN YOUR FAVOR
only exists in Monopoly. I'm just tired of having to genteelly not point out the obvious and pretend the board isn't tilted.
I agree people are being very unfair to the Fed. This cut was absolutely the right thing to do. A cut was already needed just because the money supply - by all measures - has been declining. The .75 cut was already expected for that and other reasons before this crash happened - it's not about saving the market. Cutting now as opposed to next week is about the stock markets but stock markets are important both economically and psychologically and advancing a cut by one week is hardly an over-reaction to an international 10% stock plunge.
I suspect a lot of the whiners are shorts upset that the Fed won't crash the international economy to make a little more on their short positions. To them I say, "take a hike". Even uberbear Roubini is pushing for aggressive rate cuts now.
The Citigroup rumor seals it. No way the markets will do anything but crash this week.
What is the C rumor??
Cramer must be feeling like Bernanke is his bitch now.
Yearning,
Lower rates would help some mortgage resets... but remember that the price bubble is still the underlying problem. Prices must decline or there is not a future market because prices have outrun incomes. So, even at lower rates, the mortgages for most homes purchased in about the last 4 years will be upside-down.
What you are describing is like drinking more because of the pain of coming off a long drunk. Sooner or later...
Foreign investment pull-out and Chapt 11. Even if tis a rumor, that should be enough to tank the stock.
I'm trying to think like a Fed person.
Here's what I would do. can this work:
1) drop the FFR to 1% as soon as possible
2) come up with a way to SQUASH the non-bank financial arena. an example would be to get congress to pass laws to make hedge funds more transparent, and under regulation. Once the hedge funds are under regulation, regulate them to hell.
3) now lending/financial sector is back in the banking arena, over which I have control
4) get OFHEO etc on the same page as my book... and up fannie/freddie's limits.
5) once FFR at 1%, rework all the toxic loan crap into Fannie/Freddie stuff at 30 years.
6) regulate teh banks like crazy, so no more bubbles. restrict reserve ratios, restrict types of loans allowable... etc
7) once all the toxic garbage is in "safer" loan products, then slowly bring the FFR back up.
8) watch for the next inevitable bubble. There will be something. If it's something that's aided/abetted by the banking industry, regulate it away ASAP. if it's out of my banking purview, find out who can regulate it away.
can it work? yes I know it's naive somewhat... but can there be something like this that is possible?
because IMO it seems that a lot of the reason we're where we are is that there was UNREGULATED lending for so long, allowing us to get where we got... it wasn't just the 1% FFR...
C rumor is that one of their investors is pulling out and Citi will file Chapter 11. I don't believe it; they would be facing regulatory capital inadequacy but not cash flow trouble. Under the circumstances, the Fed would cut them slack. Since the second part of the rumor is nonsensical I very much doubt the first.
Bernanke is in a "no-win" situation.
Honestly, I thank the man for his service because there is nothing he could do, or could have done to fix this mess he inherited.
Greenspan on the other hand is a real P.O.S and is the engineer of what we see happening around us.
The reason the media are engaged in a feeding frenzy w/r/t Bernanke, IMO, is that many of the same people and institutions spent years fawning - fawning! - over Greenspan in print and on TV, up until as recently as last year.
Many of them are unable to change their worldview in such a short time frame; others fear looking like hypocrites and/or dupes if they come out and savage the guy now after having been so firmly attached to his backside for two decades. Whereas BB doesn't have a history of glowing media coverage, so these same people feel 'safer' tearing into him.
I agree though that the smartest thing BB could have done was not accept the post.
"So, even at lower rates, the mortgages for most homes purchased in about the last 4 years will be upside-down."
yes... but this is where the HOPE NOW alliance comes in.
Rework these loans that are upside down. It keeps them "performing".
keep the homedebtor paying at least some on that mortgage...
Most OA people can't afford a recast to higher rates AND amortising schedule... but many CAN afford simply going from OA to an IO ARM... and some may be able to go from an OA to a 40 year fixed.
again... the Fed alone is impotent to stop this.
But there's a reason that the President's Working Group on Financial Markets has been meeting, WITH the president.
no?
I agree... this action seems like it can't work. But I'm trying to think like a person in power... CAN it "sortof" work????
I'm trying to think outside of the box.
I am so sick of this. When are we going to get to negative Fed rates so we simply are not allowed to save anymore? Idiots - it's all about the Wall Street pigs! I guess making over 400 times the average salary of their workers isn't enough - they need to have some bigger bonuses and stock options in there.
The market simply will not be allowed to correct. I can't wait for price controls on housing, or whatever the next stupid trick will be to keep everyone in debt.
Yearning - it works, with a problem. The problem is that once all those banks are sitting on long mortgages at crazy low rates a realistic FFR brings the banking system down because their borrowing cost exceed their income. So we're stuck with a slow economy for many many years. Still, there's no way out that won't hurt and I like the idea of trying to fix the underlying problem.
CNBC guy said it best.....The Fed's asprin bottle is empty.
The unwinding will pick up steam - look for a line to form at the Chap 11 door.
Need some opinions of those on this board. Does a person rebuilding their credit after a pretty devastating business failure use extra income on hand today to pay down debts still owed (ie charged off credit card & the one car I still own) or do I hoard/save my cash???
Seeing where the economy & market is heading makes me think my $12k in debts won't kill anyone if they don't recover it, and my FICO is bad enough.
thoughts?
I wonder what the Saudi's think of this cut. IIRC< they didn't like the last ones all that much.
Nicodemus:
Pay down your debts.
icodemus:
the honorable thing to do is to pay your debt.
however, the practical thing to do may be to pay down your CAR debt because it may end up being a productive asset (i.e. can get you to/from work).
the charged off credit card... not so much.
And the Dow bounces..only down 240....
Will it end up on the day?
Nico: FIRST keep payments current. SECOND save six months income. THIRD pay off debt. If you've got a predatory 30% rate then maybe go for a 4 month cushion. But as you're seeing now a crash is a possibility and you will need cash if that happens.
Didn't get my gold stock buy at a 10% discount; it opened down 8%. Got it at down 7%. It's now dow
why is ABK up 33% so far?
What, your supposed to sell EEV because SOSA said so? Maybe I made a mistake sending you here.
It's now dow
uh oh, second leg down time...
Okay, haloscan doesn't like a 'less than' sign and cuts off it and everything that follows it. I've been trying to say it's now down 'less than' 1% and this is a very wierd way to make money.
Sorry for multiple posts.
Thanks to those who responded...I know this is not the purpose of this forum. I've lurked here for a long time and learned much...now I'm just trying to rebuild and start over and trying to do it the right way.
Many thanks to CR & Tanta for hosting such an insightful board...
what a time to be shopping a long-term commercial loan!! yippeee!!
Fair Economist,
Why are you so angry? Because the shorts are making more money than you?
You better get short, buddy, while there's still time.
bacon - can I come over to your parallel universe? Cuz what I watched was something straight out of 'Coming to America':
Prince Akeem: Oh sir, the Giants of New York took on the Packers of Green Bay. And in the end, the Giants triumphed by kicking an oblong ball made of pigskin through a big “H”. It was a most ripping victory.
Cleo McDowell: Son.
Prince Akeem: Yes?
Cleo McDowell: If you want to keep working here, stay off the drugs.
NYSE Invokes Rule 48
NYSE Invokes Rule 48 - CNBC
Wow, SCC was up to 182 for a moment there.
Another half point next week. Buy lots gold. Inflation's through the roof this year.
So does this mean the "Put all you money into gold and rifle bullets!" people were right?
Yeah, you need the bullets to make change. I'd suggest .22 longs.
75bps emergency cut, eh?
I know I should be outraged, but I can't muster the energy. 75bps is just crushing.
Maybe a second pot of coffee will help.
I don't see how this can be seen as "Supporting the markets" when it sends such a signal that "The Fed is in Panic Mode".
Until this morning, I was pretty sanguine. Yeah, my index funds were getting hit, but eh, volatility happens. It goes up, it goes down, who cares, its not like I'm paying attention anyway.
But now I'm thinking "What does the Fed know that I don't that is not only causing the Fed to panic, but to be so scared they are WILLING to let people think they are panicing?"
There is no way this could be a "Defending the market" action, as I can't believe that the market wants to hear from the Fed is "OH MY F#@)(* GOD!".
And I don't see how a .75% rate cut, a week before the scheduled meeting, can be interepreted as anything other than the Fed screaming "OH MY F#@)(* GOD!".
ya know how someone asked for popcorn?
i'm scrounging for malox.
looks like i'm going to learn more than i ever wanted to about economics. arg.
Rediculous.........this will create devastating inflation, and like others said, is just an attempt to save face.
I called my congressman and my two senators to call for Bernanke's resignation and for more Fed oversight.
I hope you will call to voice your opinion as well - if many call they will take notice and its a good way to get frustrations out.
(202) 224-3121 (Congress Switchboard)
I don't see how this can be seen as "Supporting the markets" when it sends such a signal that "The Fed is in Panic Mode".
A 500 point down day should't be such a big deal. It's hard to interpret this move as anything else except panic about broader financial or economic issues.
My guess is they're trying to stop a deleveraging death spiral.
That's why I would have been very suprised if we didn't get the cut this morning.
The danger, though, is that the cut causes some re-leveraging, especially in commodities.
"We will continue to monitor inflation as we slash the funds rate. Now move along."
If congress hadn't been delaying the permanent tax cut, maybe all of these wouldn't have happened.
. weaver:
i agree. i also think people on this site give way too much credit to the fed and too much blame.
emergency 75 bp cuts prior to opening after a holiday weekend are not supportive to the stock markets. it reeks of panic. or perhaps, they're coming around and realize that holy crap its really going to be bad, an nope, inflation is not a problem.
inflation is not going to be a problem people.
i read somewhere that we are the world's largest agricultural producer by far. we make cars and planes and tech and drugs and movies and everything one needs.
we will buy our own stuff with our own crappy dollars.
and on top of it, we're going to start selling that crap to everyone else now too.
you all say this economy needs an adjustment and cutting rates isn't going to do it.
what you're missing is that the rate cuts, lower dollar is going to provide EXACTLY the adjustment you want:
we are going make and sell stuff to them instead of just consuming and borrowing. we're going to be mercantilist. we're going to be holding euros and pounds and they're going to start stacking up. we're going to have humming factories and in time, the dollar will rise again.
seriously.
now, excuse me while i run out to snatch up industrial properties near ports and main transportation hubs
Oh don't even throw that tax cut stuff into this. Things seem to be trickling down more than enough today as is.
I somehow doubt Paris Hilton saving 10% on her inheritance was going to save the day.
Commodity Boom Over For Now...live it, like it, embrace it..Deflation..with Inflation...what a wild ride.
we are going make and sell stuff to them instead of just consuming and borrowing. we're going to be mercantilist.
What happens when everybody is trying to be mercantilist?
I wonder why BAC stock seems unaffected...
I seriously doubt we'll be producing anything in this nation anytime soon. That would require us to chuck out the illegals so American citizens can get a job, and it would require the Wall Street pigs to actually WANT to provide real jobs for American citizens, instead of spending their time shuffling stock, outsourcing, looting pension plans, flying around the globe, and getting millions upon millions of dollar rewards even for stunning failure.
Until there is a cultural shift in America, where real jobs for real Americans is considered vital to our nation by EVERYONE, I don't expect anything to get better.
we make cars [...] and on top of it, we're going to start selling that crap to everyone else now too.
dc1000 | 01.22.08 - 10:34 am
dc100, do you know many furners buying US cars? Any idea how bad the rep of American cars is outside the US?
tech and planes, ok... cars, no.
i am still waiting for someone to explain why the monoline insurers are up 20 to 30% today - MBIA and ABK. They aren't any less bankrupt than they were last week..
Ok, a cut of 75. But where are the stinking pink ponies? I WANT MY PONY!!
Where is MP and Conjure Bag? Where is the clock at now?
emergency 75 bp cuts prior to opening after a holiday weekend are not supportive to the stock markets.
Except that the market has recovered about 300 points of lost ground as of 10:30 EST.
dc1000...
the only problem with your analysis:
the yuan is pegged to the dollar. (as are a lot of currencies)
so this only works if it forces the Yuan to depeg.
(which it might... i'm sure the chinese aren't happy about their inflation...)
pondering the mess and kicker:
its easy. when your stuff is cheaper than their stuff, they buy your stuff. and with the dollar in the crapper it'll happen. and wall street doesnt need to do a thing about it.
lessse. i'm a entrepreneurial guy who has a lease in a factory and some manufacturing know how. guys like dryfly come around and tell me instead of me buying something from china as an input, it might make more sense for me to sell something i can make here to the euro's because its cheaper for them. and blammo, i'm in the export business.
dryfly is the expert on this and i think he can validate or refute this hypothesis
It's just a sub-prime problem Ben.
Pondering the Mess,
Read the trade mags, exports are growing so fast that carriers can't get enough containers to the right ports to handle it all. Also the ships are weighting out on their outbound voyage.
Even when you take out the scrap metal/paper and grain exports we are DEFINITELY exporting more this year that in recent memory. A decent amount of that is a boost in finished goods. We're never going to undercut china (hopefully) on wages, but things like furniture exports are just shooting through the roof.
anon:
what i'm saying about cars is that WE can buy them from OURSELVES
re: the yuan peg. thats absolutely right. but i'm talking more about EU land, CA, NZ, AUS etc.
If you guys are gonna endlessly debate inflation vs. deflation again, which is actually interesting, it'd be good to have a separate thread for that on a day like today. Maybe we can have one "breaking news, links and opinions" thread and one "theory discussion" thread.
Senate hearings on Bloomberg TV:
"We're not going to do the cash rebates until the peak product season, which begins in May."
WTF?
"What happens when everybody is trying to be mercantilist?"
It means that anyone thinking that we are going to get deflation in nominal currency terms is going to be very very wrong.
and PS: it might not be as beneficial to the worker as it had been in the past with modern mechanized production. (sounds like a quote from the 30's).
and wrt to the yuan again: china still has 800MM peasants. they will undercut even our domestic producers in many cases to continue to sell stuff to us. the currency based import led inflation models never took this into account.
Further: they're talking about "how quickly they're going to spend it and what they're going to spend it on".
Easy: they'll spend it right away on stuff made in China. Next question, please.
If it's not about the markets, then why not wait until the 31st!!!!
It just feeds into the perception that the Fed is on the side of the bulls and is trying to prop prices and prevent alot of Wallstreet buddies from margin calls.
It can't be good for the long term reputation of our tranparent markets.
They just took the "free" out of free markets.
Not good.
ac,
"Hahaha... I hope nobody is suprised by this."
Suprised, no. Frightened, yes.
Cheers,
Weather Helm,
Easy: they'll spend it right away on stuff made in China. Next question, please.
Or perhaps they could offer cash rebates redeemable only through stores that offer all-American products, like the... hmmm.
Oh boy the government is talking about doing stuff "very quickly, VERY quickly". We are in deep doodoo now.
this is not logical...this is either PPT or a hedge-fund short covering rally.
No matter what the fed does, I don't think there is anyway to go back across that imaginary line which allowed us (and more importantly our lenders) to pretend we could continue to make the payments. The rate cut is as much for government spending as it is for wall street. They hope that it will convince the global markets we can keep our heads above water. But, they know we lost our life preserver (future growth) and they can see the storms on the horizon. It's time to build some shelters and minimize the damage.
I see Gold is up $40 from London's open this morning. It was a bargain.
As Jim Sinclair states.
"This is it" Gold to $1600.
tech and planes, ok
planes, now iffy.... rememba the 777 engine crapout? not an isolated incicdent...
sheez... someone's still trying to pimp another rate cut.
Pimco's Kiesel see another 50 bps cut next week
| Reuters
Maybe we should call them Pimpco.
If congress hadn't been delaying the permanent tax cut, maybe all of these wouldn't have happened.
Compassionate Conservative Bus
HA HA HA. The entire thing is a direct result of the tax cuts, and the compassionate conservative dogma of don't regulate anything, borrow big to consume today, and to do anything else is to hate America.
Or perhaps they could offer cash rebates redeemable only through stores that offer all-American products, like the... hmmm.
mattresses ?
Yeah right. the American consumer will pay 24000 USD for a plasma tv made in America? 45$ for a Transformer made in America? NFW. China will outsell and outproduce us until the yuan looks like the Swiss Franc.
But that is also missing the point. Joe Six-Pack is broke. He blew his HELOC on Fritos and iphones. 75 BP will not drive home prices back up by 20%. Houses are still going down by another 30% or more until they hit reasonable rental or income ratios. 75 BP does not mean squat to credit card debt. Gee, I was paying 24% on my Visa but now its only 23%! Cool, I'll have two more Lexuses (Lexi?)
thought I'd be closing out shorts today. Instead, I'm adding to them.
expat: you are right. it will take some time for joe401k to recover / BK. as well you miss my earlier point that yes china will undercut even our domestic prices because they can and must.
Compassionate Conservative Bus: Er, i guess this is all Jimmy Carter's fault, right? or that arab guy called Al Cader? or them cheeze eatin surrender frogs?
Ok, so let's cut taxes to zero permanently. Logically GDP would then go to infinity. Wheeee!
so, for somebody that is just starting a family and renting. likes to save and invest, dislikes debt. needs to pay for retirement, education and housing.
is changing mentality and getting into debt as soon as the IR hit bottom the best strategy? let inflation do its magic helping paying back part of it? work during the credit bubble to eventually prove the bank that you don't really need the loan (as banks only give under those terms during recessions).
saving and investing might not be 100% appropriate all the time. here savers are being penalized. am i saying a very obvious thing or making any sense?
And Bush is expected to make a speech at 2:30PM EST today. What now, emergency war?
Operation Enduring War on Peace
Maybe Bush will announce he's moving the election up and is endorsing Billary?
Julia,
The conventional wisdom (add salt in appropriate taste) is that inflation favors the borrower, with two big caveats. First, that your cost for borrowing is less than the rate of inflation. Second, that you can afford the short-term load till inflation eases the burden.
Time to double down folks.
It's fundamentally worse than just the Fed being the stock market's slave.. commercial credit demand has collapsed.
At least we know now for sure there will be no recession in '08 and '09. It's now official. Whether we'll see the market bottom today or the next day is of secondary nature.
O-Joe
Julia:
I think the advantages of avoiding debt and having liquidity becoming more and more obvious.
Especially credit card debt.
Stop baiting, O-Joe
And Bush is expected to make a speech at 2:30PM EST today
Great just what we need more reality TV...
It means that anyone thinking that we are going to get deflation in nominal currency terms is going to be very very wrong.
Mercantilism is a set of policies to encourage domestic prodution over domestic consumption. This leads to an increase in national savings, wealth, and incomes.
Unfortunately, this is a zero sum game. My increase in wealth is your decrease in wealth (assuming no increase in total factor productivity). Mercantilism is also known as "beggar-thy-neighbor".
So, what happens to all the excess production every nation it putting policies in place to encourage production (currency devaluation) and discouraging production (consumption taxes).
The only reason that Asian and European mercantilism worked in the past was that the US was willing to be the "consumer of last resort" and our astounding productivity increases were able to support increased income even with negative national savings.
But, there is evidence that our run of strong productivity gains may be comming to an end.
O-JOE is toking the Mojoe this morning...please! your boring us with your light at the end of the tunnel BS.
Gold back up to 892...ino.com is freezing up.
BB has only one button to push. He pushed.
Less than 1% down now. Dollar still in trading range. Something is afoot, still trying to sniff it out.
Cheers,
does anybody remember/know how was the supply of mortgages during the last real estate crash (late 80s and early 90s). how tight did lending standards get?
Tastes like bongwater!
Whats the advantage of avoiding debt and having cash at this point in time vs. any other?
kicker,
most of the policy implementation of mercantilism is just currency intervention, either with ludicrous funding rates a la japan or outright manipulation a la china. In either event the outcome is to produce more units of account (money) than if they were allowed to seek their own level, hence overall global inflation.
there is nothing on the horizon which is going to stop this. The natural and correct investor reaction is to grab for as much supply constrained commodity money as possible. Hence the huge and continued rise in all sort of natural resource prices. There is a huge disconnect today between the forward price curves of some of these commodities and the current discounted prices of the companies that produce them. I am buying the producers.
DOW is back up to 12,050 now -- hmmm. . . .
if cost of money is less than inflation, you are being paid basically to take on debt.
savers are not braking even in real terms as interest paid to them (even before tax) might be less than inflation. inflation is a hidden tax, a transfer from the saver to the borrower.
as Kirk said assuming "that you can afford the short-term load till inflation eases the burden". that's a bet, you never know how high inflation will get in the future.
dryfly is the expert on this and i think he can validate or refute this hypothesis
dc1000 | 01.22.08 - 10:41 am | #
LOL. Expert huh...
Well I agree pretty much with what dc1000 just said - its pretty much econ 101. Dollar weakens & our domestic production increases.
HOWEVER there is one minor detail he left out - even though our factories will hum and the farms will plant hedge row to hedge row... we will all FEEL POORER. We will all be working harder for less global purchasing power and while we produce a lot of stuff that stuff still feels the influence of global pricing.
But it was going to end anyway... the deficits are unsustainable.
It is a ton of fun borrowing and spending and borrowing and spending... and we've been doing that for a very long time... at least since Reagan.
Working hard to pay it off sucks.
But its gotta end... and the only way it ends is via currency alignment and that's what this is ultimately all about.
As per Kicker's point about what happens if everyone 'goes merchantilist'... Well those out in the ROW have a choice... work for even LESS to keep shipping to us on credit or consume some more themselves. If they think it makes sense to give us shit for free then they can take even crappier dollars than they did before.
I mean if you guys are really upset and want to do something on personal level to benefit from this - quit your McJob and start a business and make something. Sell'em to sucker foreigners in exchange for their hard currency. Turn the profits into gold & foreign exchange... hell that's what the rest of the world has been doing for decades while we went head over heels in debt - both privately and publicly.
Nico,
I got myself into a heap of trouble back in 1991. Took forever to get out but here's how I finally did it. It may or may not work for you. Depends on the kind of debt you've got.
You need to retain cash to stay afloat. Look at your debts, target the smallest one and pay it off as quickly as possibe. Pay the minimums on the rest. Once you get the first paid, move on to the next one and just work you way up the debt.
Take advantage of credit card balance transfers if you can.
Julia,
Stay out of debt, live below your means, start a vegetable garden. I'll be off to the bunker now.
Where are those extra batteries....
Cheers,
Unfortunately, this is a zero sum game. My increase in wealth is your decrease in wealth (assuming no increase in total factor productivity). Mercantilism is also known as "beggar-thy-neighbor".
But we have been inviting them to bugger us for decades and in effect buggered ourselves.
The rest of the world can't treat the US like the bullseye in merchantilist dart board. World leaders have talked about this FOREVER... now they gotta do something.
The ROW can work for less or start consuming some of their own capacity - we are tapped out... debt piled on top of debt. We gotta start paying it off - not with paper but with product. Real goods and services not promises.
dry:
are you seeing goods starting to flow the other way?
Poorer? or just not in german cars? wont we as a society begin to revalue (rebrainwash) ourselves into thinking USA STUFF = GOODEST
Zigurrat ,
Whats the advantage of avoiding debt and having cash at this point in time vs. any other?
I'd like to believe this means stock prices and asset values are slowly returning to realistic valuations instead of speculative.. it'll be painful in the interim, but in the long run this is definitely a good thing.
Hopefully this also shows the return of the real economy "horse" driving the market "cart" instead of the other way around. DOW isn't a sage, you see..
I sometimes have the feeling that there is a Hari Seldon out there, but instead of manipulating events for the future benefit of mankind he pushes just the right buttons to keep us on our most destructive path.
are you seeing goods starting to flow the other way?
Absolutely. The first effect has been via substitution... imported goods now being resourced here in the US. I have meetings later this week on that topic exactly.
I am too far down the food chain to see a lot of direct exports myself BUT the folks I make parts for are seeing a big step up in exports... including car parts (not complete cars so much).
However - I would not be surprised to see Toyota & Honda exporting cars from the US before long.
dryfly,
"we are tapped out... debt piled on top of debt."
Yep. But we're not going to sell our way out of it. BK will happen first.
Cheers,
Kudlow on CNBC: the problem is that asset values are falling, so we need to cut the capital gains tax.
sigh
Whats the advantage of avoiding debt and having cash at this point in time vs. any other?
stealthwii | 01.22.08 - 11:32 am | #<
I said that the advantages are more visible. I am thinking of the obvious example....housing. Leverage looks like fun when assets are appreciating.
Personally I have always like some liquidity.
Yep. But we're not going to sell our way out of it. BK will happen first.
There will be a lot of 'reassigning' of assets via 'various legal means'... but the farms & factories are still here... folks who learned IT, engineering, science are still here... so whoever owns them (or hires them) will be the ones paying off the 'deficits'... As long as I'm eating I don't care who owns them.
The balances have to be rebalanced no matter who owns them. A weak dollar is part of that. Hard money folks should understand that more than anyone.
I don't know how many years I've been saying that here and on other forums - at least since '98.
Personally I have always like some liquidity.
Zigurrat | 01.22.08 - 11:37 am | #
me too! i'm to the extreme, 100% liquid. just realizing a change of mind in my part has to come or i have to be willing to pay part of the debt that others took indirectly.
i'm from argentina, should have learned that long time ago! but one thing is the rational process, another is doing it.
buying a house, for example, after prices fall by say 30% (if that happens) with a very low interest if mortgages are available might be optimal. that if the mortgage is available.
but, i'm so pregnant that i don't know if i'm thinking straight.
Bilbo:
hari seldon line... classic.
probably my favorite sci-fi book of all time.
I hope people got the reference.
dryfly,
Not disagreeing. Perhaps being subtle. But what's the value of a BK US dollar?
Cheers,
Julia:
Buying a house with a mortgage is fine.
As far as debt is concerned, debt that is used for an investment can be fine. If it is just consumption, then it is hard to see much good coming out of it.
So good luck and try not to worry.
interesting tid-bit. whilst negotiating a loan today (commercial) the bank is refusing to go below their quoted rate from 3-4 weeks ago even in face of the cuts.
Zigurrat,
Then how is buying a house with a mortgage good. A house is consumed. It is not an investment.
Cheers,
most of the policy implementation of mercantilism is just currency intervention, either with ludicrous funding rates a la japan or outright manipulation a la china.
The only reason currency manipulation has worked is because the US was willing to turn a blind eye towards it for short-term political gain (the strong dollar policy).
Now the US has abandoned the strong dollar policy there will be a lot more emphasis on destroying domestic consumption (targeted towards imports).
European VAT taxes are a prime example. WTO rules allow indirect taxes to be rebated on exports. When the rule was first put in place, EU VAT taxes were 2-3% while they now hover around 20%.
Japanese bans on US beef. EU bans on GM food. The Japanese byzantine regulations on imports. EU imposing VAT taxes on US digital goods. Chinese controls on foreign purchase of equities. EU privacy laws that prohibit export of customer data. China's blind eye towards rampant domestic piracy of movies, games, and software.
interesting tid-bit. whilst negotiating a loan today (commercial) the bank is refusing to go below their quoted rate from 3-4 weeks ago even in face of the cuts.
dc1000 | 01.22.08 - 11:48 am | #
Protecting their yield curve - I'd make them sweat... go shop.
Why are Bank of America, Ambac and MBIA all up as of this moment--just before noon est? The monolines are WAY up, even ACA. Surely the Barrons article can't explain it? Is there some kind of deal in the wings that most of us get to find out about tomorrow?
Then how is buying a house with a mortgage good. A house is consumed. It is not an investment.
Cheers,
Misean | 01.22.08 - 11:49 am | #<
Let me count the ways.....
You get the joy of ownership and a nice tax break.
Not disagreeing. Perhaps being subtle. But what's the value of a BK US dollar?
Well you and I know the dollar won't 'bankrupt'... but that is only 'cause bankrupt is a well defined and orderly legal process. The dollar will just get less and less valuable via fis and starts until the flows in and out equalize - approximately. At some point during that period we'll see the dollar lose reserve status...
It is gonna be different. We will not feel richer... but then folks who stop living off Visa or MEW and go to work paying down debt don't feel richer either.
Ask Siv. He was going to double down on ABK.
If they go up enough, it will be another opportunity to buy puts.
As far as BAC, Cramer said something about BAC walking away from CFC. The current thinking is that they aren't just going to absorb the whole thing.
JohnStark, Misean said above that "something is afoot."
The fed slammed the brakes on global melt-down, and the market skidded around a bit this morning...Now the question is, will the brakes hold, or does the fed start to look like the little dog with antlers tied to his head holding up the Grinch's sleigh?
If traders come back from their 3 (or more) beverage lunch shaking their heads over fundamentals, and in the mood to sell, look out Whoville.
Poole: "Wake me when there is a calamity."
The fed slammed the brakes on global melt-down, and the market skidded around a bit this morning...Now the question is, will the brakes hold, or does the fed start to look like the little dog with antlers tied to his head holding up the Grinch's sleigh?
Oh I'd be shocked if the market didn't continue down... I'd also bet the fed believes this too & doesn't care. They just want it 'orderly'. No free falls.
The question is... can they keep markets sufficiently 'liquid' so there aren't rapid free falls. With all the leverage - I have my doubts but what do I know...
"The only reason currency manipulation has worked is because the US was willing to turn a blind eye towards it for short-term political gain (the strong dollar policy)."
I think that that US has generally taken the right economic path in not trying to stop the chinese or japanese from manipulating their currencies downwards. If the rest of the world wants to supply us with goods and services for paper promises which can and will be inflated away then I'll hoist a ching'tao or a pilsner urquel and say thanks. Any time the rest of the world wants to put their financial well being in the hands of anyone other than markets i am willing to take the other side of the trade. The best thing the US has done with respect to all the mercantilist policies is to do nothing. Hopefully they will continue on this course.
http://www.itulip.com/images/3econstooges.jpg
Then how is buying a house with a mortgage good[?] A house is consumed. It is not an investment.
A home provides a service - shelter - that allows people to be more productive in other aspects of their lives. Try studying for school in a tent or being productive for 8 hours at work when you spent all night shivering to keep warm. It's perfectly reasonable to pay for productive assets over their useful lifetimes, and thus in one sense of the word "investment" a house is an good investment.
As for being an investment that earns a vacation in the Bahamas next year, well, that's where the country has gone wrong.
dryfly,
I'm in a mood today. I agree with that, you are correct.
threetorches,
"or does the fed start to look like the little dog with antlers tied to his head holding up the Grinch's sleigh?"
ROFL.
Cheers,
F. Frederson,
Well, even though I have a mortgage, renting provides the same service.
Cheers,
Misean, yes, renting provides the same service. But:
First, note that the discussion kicked off with caveats, the big one being when housing prices returned to near bottom (or 'reasonable'), and the second being the assumption that inflation will continue. With that in mind, purchase becomes a reasonable, and in fact advantageous option, IF (more caveats):
You intend to live there long enough. Long enough that inflation's effects on rent make it significantly higher than the costs of the house (both payments and maintenance costs). Long enough that the net of expense minus equity is less (as a whole) than what you'd have paid over the same time.
If you're expecting to stay in the same place for two or three decades, buying can be smarter than renting for the same period of time. Can be, not is. Individual situations cannot be answered with a one-size-fits-all determination.
Well, even though I have a mortgage, renting provides the same service.
Yes, that is true. But since the utility of a home isn't depleted (given regular maintenance) at the end of the maximum available loan period, it makes sense to buy (all other factors being equal, which they aren't, but we know that).
you have to calculate periodic moving expenses when renting too
hey, its a good time to buy!
are we really having this conversation again?
There are lot of angry foreigners out there. I just breezed through a Korean website and people are very shocked and scared of what had happen within few days. Few weeks ago, some of the analyst were predicting Kospi to hit 2,000. It went the other way. It looks like lot of foreigners have dumped their equity, which is reflected on the currency movement between won and the dollar. People are keeping their eye on the Wall Street, today.
"given regular maintenance..."
--Frederson
And that's the killer. New roof, new furnace. Hours spent scraping and painting, scraping and painting.
Here's a bigger killer: In some neighborhoods, the predatory mortgage peddlers have done their work, and homes are in foreclosusre on every block. This affects the value of all homes, even those people who were sensible, and of course it affects the quality of life in the neighborhood, when bums move into the empty houses.
On a less apocalyptic scale, that home investment can be impaired by the simple arrival of an obnoxious new neighbor.
Woke up this morning to this news. I was not shocked or surprise but disappointed as I thought that the FED was independent. Silly me.
Dryfly
the folks who learned IT, engineering, science are still here because they earn more in the USA than back home. Will they still be here when they can make more money back home in India? I don't think so
he folks who learned IT, engineering, science are still here because they earn more in the USA than back home. Will they still be here when they can make more money back home in India? I don't think so
charly | 01.22.08 - 1:28 pm | #
There are plenty of domestic engineers - always have been. And the foreign ones can go home any time they want - if they can find work over there. You see if their company exports to the US to support itself - they've just become more expensive IN DOLLARS and won't be as competitive here - so maybe don't need as many engineers as they would have needed had the dollar stayed stronger.
That is how imbalances get rebalanced.
If congress hadn't been delaying the permanent tax cut, maybe all of these wouldn't have happened.
Compassionate Conservative Bus
Yeah, right now the most important economic problem facing the U.S. is that a handful of bilionares will be taxed on the zero cost basis stock that has run up when they kick the bucket.
If the Supreme court hadn't instaled a moron as POTUS, maybe all this wouldn't have happened.
This fire has been burning out of control for 8 years and the Iraq war continues to consume GDP wealth, but the Fed is faced with allocation of resources (supply and demand) relating to less cash flow and thus an inability to fight multiple battles in the form of multiple interconnected economic bubbles -- like a housing crash, inflationary increases, stock value declines, and dynamic variables that are impacting the resources available for them to put out any of these related fires.
I think we have had years of un-precedented financial collusion where synthetic derivatives were packaged into a tsunami of un-precedented dis-proportional easy global credit allowances which were universally abused, resulting in the current financial chaos and systemic crisis -- which I think is symbolic of an out of control fire. The fire needs time to burn out, the market needs to correct and the more casino/lotto theories embarked upon by government intervention will only add more fuel for this fire!
Of course the real solution was to raise the interest rate to 7 percent. That would stop the dollar slide, inflation, and bring money from the outside. Let the banks and financial businesses fail. It will be cheaper to pay the FDIC insurance! How many of the account holders can you pay off with just the S145b stimulus package?
7 percent would be a very punitive posture, causing the economy to crash. Lots of people would lose their jobs. It would be very bad for most people.
However, it would be great for me because I don't need a job, and having sold most of my stock into the rallies in 2007, I now have about half of my investment assets in cash. So, the higher interest rate and stronger currency would be great for me. And the more severe crash would create a better buying opportunity at the bottom of the depression that would surely follow such a restrictive monetary policy.
However, it appears that the Fed is not interested in helping me. Instead, they are trying to soften the impact on most other people.
This makes total sense.
thank the man for his service because there is nothing he could do.
Tactical Flashlights
r c helicopter
video game