Bernanke Blinks
FOMC Chair Ben Bernanke surprised me (and apparently, quite a few others) by slashing both the Fed Funds Rate and the Discount Rate 50 bps each.
Markets loved Larry Kudlow's "shock & awe," with the Dow rallying over 300 points on the session. Yield on the 10 year is now well below 4.50%.
Why did Bernanke blink? "The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally." The hope is today’s action will "help forestall some of the adverse effects on the broader economy" that could arise from financial market disruptions.
The flip side is concerns about inflation. The FOMC statement read "Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully."
As to the Dollar, Oil, Gold, soft commodities: We're long them all ('cepting the greenback) through one asset class or another.
The Fed now has a third problem to deal with: They have become Wall Street's bitch. They may find that's a difficult condition to wriggle out from . . .
For more details, see:
• Christmas in September
http://www.thekirkreport.com/2007/09/christmas-in-se.html• Jim Rogers, Faber Say Fed Rate Cuts Will Spur a Recession http://www.bloomberg.com/apps/news?pid=20601087&sid=aYBOOiT5mAO0&
• Economists React: ‘One and Done’? http://blogs.wsj.com/economics/2007/09/18/economists-react-one-and-done/
• Half-Point Surprise
http://blogs.wsj.com/marketbeat/2007/09/18/half-point-surprise/• Who Messed Up the Markets: Hedge Funds, Greenspan? http://blogs.wsj.com/deals/2007/09/18/who-messed-up-the-markets-hedge-funds-greenspan/?mod=homeblogmod_dealjournal
• Former Fed Chair Alan Greenspan: the era of low inflation is over http://bigpicture.typepad.com/comments/2007/09/ironic-quote-of.html
• The Fed is Spooked
http://bonddad.blogspot.com/2007/09/fed-is-spookled.html• Fed Funds Rate Cut: Watch Long Rates
http://calculatedrisk.blogspot.com/2007/09/fed-funds-cut-watch-long-rates.html• FOMC Statement
http://www.federalreserve.gov/newsevents/press/monetary/20070918a.htm
Tuesday, September 18, 2007 | 03:21 PM | Permalink
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Comments
I have a thought to short the Dow Friday afternoon. I think we're going to push to 14,000 by then and retest the previous highs. Then more bad credit news surfaces someplace to take us lower. Anyone have thoughts on this?
Posted by: Chief Tomahawk | Sep 18, 2007 3:26:17 PM
9.18.07 -- Ben Bernanke declares war on the fiscally prudent (there are about 2 dozen of us) in America.
Posted by: TheGuru | Sep 18, 2007 3:28:04 PM
Gold up 9.80 at CBOT to 725, Silver up .25 close to 13 and the dollar tanking to just over 79. Boy did they ever make a huge mistake. Who in their right mind wants to take a double beating with inflation and devaluation of the dollar when looking at market returns?
Kiss the market goodbye. I'm with Jim Rogers who has made real money as opposed to Ben who is an academic assclown.
Posted by: SPECTRE of Deflation | Sep 18, 2007 3:30:56 PM
TheGuru:
The Fed was never your friend. After all, instead of asking us to sacrifice a few years ago, a certain someone told us to go shopping instead. Hell, he wanted to cut taxes during a war for gosh sake.
Posted by: Joe Klein's conscience | Sep 18, 2007 3:31:35 PM
Fed has become Wall Street's bitch. Hahahah!
Get me another beer, bitch!
Posted by: Christopher Laudani | Sep 18, 2007 3:33:53 PM
Never said they were my friend. I had a glimmer of hope that Bernanke would not be Greenspan's lapdog. Sadly, that glimmer of hope was dashed.
Posted by: TheGuru | Sep 18, 2007 3:34:59 PM
Maybe now I will be able to sell my house in Las Vegas, and NOOO!!!, I am not a NINJA or some skanky speculator who yanked all the equity out of my house and then let it go to foreclosure. I am just one of those folks with great credit, a solid job future and a relocation for my job. I am not WALL STREET and Bernanke is definitely not my bitch...BTW, I am extremely fiscally conservative...
Posted by: SoNotintheKnow | Sep 18, 2007 3:35:00 PM
Chief,
I would not short this market(indexes) now...even with a tight stop.
They can jack up the market in minutes and/or in the Futures/overnight circus.
The financials, however, might make a few good targets when some other credit news surfaces and this ramp extends itself....
My guess is at least 14,500 on the DOW because it is just too easy, and money(USD) became worthless today.
Posted by: MarkTX | Sep 18, 2007 3:36:31 PM
SoNotintheKnow,
The psychology in the housing market has turned negative. Lower your asking price and you will clear out your inventory.
Posted by: TheGuru | Sep 18, 2007 3:36:34 PM
wait, I don't get it... rate cuts for an economy that cries for rate cuts is somehow good? I thought that kinda stuff happens when the shite hits the fan, no? some say he is proactive by doing so, take another step back folks and look at, you know... the big picture.
BB pushed big, twice... that somehow tells me that the FED is worried as hell about the economy...
I sure as hell wouldn't buy into this market right now (short or long)...
Posted by: lauteus | Sep 18, 2007 3:37:08 PM
In response to the actions by Helicopter Ben, the fed funds futures is pricing in a 90% chance the Fed cuts rates again in Oct to 4.5% up from a 26% chance priced in yesterday that we'd see a 4.5% fed funds at that meeting. The market is also pricing in a 60% chance that the fed goes another 25 bps in Dec to 4.25% up from a zero chance priced in yesterday.
Posted by: Peter | Sep 18, 2007 3:37:25 PM
Lol, folks are going to be loading up on everything non-dollar like it was going out of style.
Posted by: rob | Sep 18, 2007 3:42:01 PM
"The psychology in the housing market has turned negative. Lower your asking price and you will clear out your inventory."......
Duhhh....Does not help if there ARE NO BUYERS!!!! because there is no money to borrow...(Not my words but Barry R's words on Kudlow yesterday)
Posted by: SoNotintheKnow | Sep 18, 2007 3:44:12 PM
Revisiting the forecast thread http://bigpicture.typepad.com/comments/2007/09/open-thread-wha.html
My analysis was correct:
"""
My (folly) forecast for the Cut Day: the US stock market will track the FX market.
- dollar sell off -> global meltdown.
- in any other case the US stock market will go up.
If I was a large institution (I'm not) I would have a large carry position at the ready, in cash.
- if there is a .25 or no cut at all I'd jump into the stock market.
- a larger cut may cause a dollar sell off and I'd close my carry position. If not I'd jump into the stock market.
"""There we have 300 points up, on a slowly sinking dollar. Very sad actually.
Posted by: mhm | Sep 18, 2007 3:50:09 PM
SoNotintheKnow,
Living in LV, you'll know about games of chance.
If your potential buyers can't finance, you could take back a high rate vendor 1st lien and use that as collateral on your new home. You'll even pick up some vig, if your credit is good.
Posted by: Estragon | Sep 18, 2007 3:50:51 PM
Obviously the Fed is more concerned about financial markets more than they're letting on. Ron Insana was speaking about the derivative markets and perhaps there's some fireworks starting to unfold in that pandora's box. Maybe the Fed sees that too. Either way they're obviously still very concerned and by taking such a drastic action, is in effect, calling Lehman a bunch of liars.
Posted by: Stuart | Sep 18, 2007 3:52:53 PM
So,
"There is no money to borrow"
Remember,
Why would one want to accept risk and loan the banks money at a low interest rate!!!!!
And NOW....
Interest rates went lower today....ok
As a bank customer/depositor, why would I accept even less return on my money from the bank??....
Posted by: MarkTX | Sep 18, 2007 3:53:34 PM
This was a good day to rebalance the old 401k. Potential upside vs downside.
Posted by: Josh | Sep 18, 2007 4:02:54 PM
Yep all the old folks living off the interest on bonds who just took a pay cut, while paying hefty annual increases in their assisted living rents and healthcare costs, really appreciate that all the brokers on Wall Street can now afford a new Benz or Range Rover or Bentley... because that's the way it should be no?
Posted by: Bob A | Sep 18, 2007 4:04:19 PM
DOW's up 300pts because Ben Dover-Bernanke has confirmed that he is in fact Wall Street's bee-atch.
Posted by: mappo | Sep 18, 2007 4:04:40 PM
Thanks for your thoughts, MarkTX.
Posted by: Chief Tomahawk | Sep 18, 2007 4:07:29 PM
Josh, If you mean you rebalanced after today's rally...
I will drink to that!!!!!
Hell, it is even $1 beer day at one of my
"speak easys" today!!!!!!
Posted by: MarkTX | Sep 18, 2007 4:07:46 PM
Looks like I picked the wrong day to stay 50% cash.
Posted by: Lloyd Bridges from Airplane! (wunsacon) | Sep 18, 2007 4:21:27 PM
I don't believe it .. The Money Honey was just parroting Kudlow ... she used his "Keeping America Great" line ... lol how does those people at CNBC sleep at night?
Posted by: Joe Klein's conscience | Sep 18, 2007 4:21:42 PM
I would seriously consider shorting after this runup. The fed pulls out this unanimous move, how are we not to suspect that there are problems out there? 4% from record highs and the fed pulls out this move. When did this happen in past history when oil and other commodities were at such high levels and US dollar at such low levels?
Shit is about to hit the Bernanke fan!
Posted by: UrbanDigs | Sep 18, 2007 4:23:15 PM
