Open Thread: Bill Gross Quote
I totally agree:
"It's a sad testament to think the Fed has to cut interest rates eight days in front of a meeting to salvage the equity markets. The U.S. economy is in a rather sad state of affairs in that it depends on housing and stock prices to keep going.''
-Bill Gross, founder and chief investment officer, Pacific Investment Management Co. (PIMCO)
>
Yes, I know its like throwing red meat in front of the lions -- but have at it . . .
>
Source:
Pimco's Gross Says Fed Rate Cut a `Sad Testament'
Kathleen
Hays and Deborah Finestone
Bloomberg, Jan. 22 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aa3hU2DVr014&r
Tuesday, January 22, 2008 | 08:39 PM | Permalink
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Chutzpah, anyone?
Posted by: armchair_fed | Jan 22, 2008 8:47:29 PM
BooYaa!!
Posted by: Warp9 | Jan 22, 2008 8:48:39 PM
A financialized economy is a Bubble economy.
Bubble II (2002-2007) is dead; RIP.
Bubble III (2008-20??) will debut any day now. "One percent forever!" as Mad, Bad Al used to croak.
Posted by: Jim Haygood | Jan 22, 2008 8:49:22 PM
Hey, Dont jump to conclusions so fast. Lets give them some credit. Cramer wanted a full percent cut plus the government buying out Ambac and MBIA. They didn't give it all away today. Maybe they will make him wait for another day and announce a nationalization of the bond insurers when the futures point to the abyss.
THE ELEMENT OF SURPRISE THAT Ben thinks he is delivering with an emergency rate cut every time the Asian markets sell off (by the way propping those markets too ) is no more a surprise. He has delivered each time the futures were looking down the cliff.
Welcome.. the females of the canine species
Posted by: Ahmed | Jan 22, 2008 8:54:15 PM
I agree with his general point as well, but methinks Gross is being a little disingenuous here.
He has been calling for aggressive rate cuts since last spring...as the Fed has eased, his fund has been up--12% on a TTM basis.
He is massively long the front end of the curve, and is laughing all the way to the bank.
So he gets to chide the "adolescents" of the equity markets as a sober "bond guy" while at the same time looking like a genius b/c he predicted FF at 3% before the end of the year.
Remember he's the guy who was one of the first market participants calling for Govmint intervention in the crisis. Bush grants his request, the world markets sniff, and Ben caves with an emergency cut.
All is very well in Newport Beach...
Posted by: alex norman | Jan 22, 2008 8:56:26 PM
Speaking of the next big bubble. If you want to read a long "big picture" kind of article, check out the Feb issue of Harper's magazine. There's a story by Eric Janszen titled "The next big bubble: Priming the markets for tomorrow's big crash".
I don't know if non-subscribers can access it online, but you can try it here:
http://harpers.org/archive/2008/02/0081908
Posted by: Bruce F | Jan 22, 2008 8:59:03 PM
Bernanke: Damned if he does, damned if he doesn't! He inherited this mess, yet ANYTHING he does (or doesn't) do leaves him as a target for the talking heads. Cut the guy a fucking break. Seriously. By the way, my favorite quote of the day came from Ron Insana, now of fund of fund of funds of funds at Insana Capital Partners fame; he stated something to the effect that Bernanke et al should attend one of Bush's financial literacy workshops. This coming from a man who, according to his CNBC.com bio, has ZERO formal financial education! Sure he may have been a reporter for however many decades, but that does not make him a portfolio manager. I've been staring off into space for four decades, yet I don't claim to be a fucking astronaut!
Posted by: AJF | Jan 22, 2008 9:01:08 PM
It's sad but they are trying to avoid what happened the first time in 1929 when no one would protect the banks and they went under. It's the bad cycle that was referred to today (one bad thing takes out another and another, etc, etc).
So they are trying to avoid a depression type economy. Can they?
Ben had big talk when he came in about people taking risk have to be responsible but then totally backed down when push came to shove.
In short I think the damage is already done or will move elsewhere. I think most of the credit problems are now in credit cards and not homes. Time will tell.
Posted by: John Borchers | Jan 22, 2008 9:01:18 PM
If that was a salvaged market I think I want to opt out of salvation.
Bernanke is a drunk teenager at the zoo, eating beef jerky, taunting the mediocrially caged bears. He's on a first date with Goldilocks. The sea was angry that day...
Posted by: KirkH | Jan 22, 2008 9:03:30 PM
I took the Fed's early rate-cut as an evaluation of the financial stimulus package proposed by the current administration: It will be ineffective, a non-starter even if passed in a timely fashion.
I get the feeling sometimes that the Fed has not so much been paying obeisance to whoever rules the roost in DC as trying to compensate when it becomes clear the rulers either do not understand what they should be doing and/or are simply unwilling to do what is fiscally necessary because it's not ideologically palatable or politically advantageous.
Posted by: RW | Jan 22, 2008 9:13:43 PM
I read somewhere that Paul McCulley was begging for rate cuts before the "crash".
Posted by: Mike M | Jan 22, 2008 9:18:09 PM
The good news is that people are being very diligent about ordering vegetable seeds for spring planting.
Posted by: Doug Watts | Jan 22, 2008 9:23:08 PM
Gross did get the call on the 10 yr right...
Its not like the situation we are in developed overnight...This has been evident to anyone (w/o an agenda or vested interest) for a long time...The only question was WHEN would it crack...
SHOULD WE TALK ABOUT THE FACT THAT THE FED IS OWNED BY THE BANKS AND THAT THEY WILL INEVITABLY DO WHAT THEY NEED TO TO HELP THEMSELVES AKA RELIQUIFY BY STEEPENING THE CURVE...
They maintain power...Americans and their purchasing power just stay fucked...
Posted by: SINGER | Jan 22, 2008 9:23:35 PM
it's funny, but the fact that the Fed was always potentially there in the background ready to slash rates to pump the market higher was partly responsible for such big falls the last couple of days.
like a lot of folk who were short i reckon, i cut my shorts following a decent fall last thursday due to all the talk of bernanke coming in slashing rates, thinking a bounce would come...then when the markets started to puke, i suspect there were far fewer shorts around to soak up any selling pressure, resulting in some huge moves down.
if the Fed would just stick rates at whatever they think is a suitable level, during a scheduled meeting, the markets can then focus on pricing risk appropriately, without shorts risking getting burned for all these surprise cuts whilst the market is closed (eg today AND the discount rate cut last August).
Posted by: 2and20 | Jan 22, 2008 9:29:03 PM
Well, the markets here in Tokyo seem to like it anyway, so...
Posted by: Hubris Sonic | Jan 22, 2008 9:33:57 PM
"Bernanke: Damned if he does, damned if he doesn't!"
The FED's two purposes are to promote employment and price stability. From a historical perspective, a 5% unemployment rate is considered acceptable. Creating more inflation by cutting rates doesn't provide price stability.
It's the old adage: "do no harm".
Posted by: Pat Gorup | Jan 22, 2008 9:35:19 PM
The question then is, what does the Fed see that would prompt a 75 bps cut 8 days ahead of a scheduled meeting?
Posted by: Stuart | Jan 22, 2008 9:35:20 PM
Gross has been right for 6 months. But Remember in June he called the start of a bond bear market.
Aside from that, Gross is a FJO. Before it's all said and done he'll get his comeuppance. The next 5-10 years are going to apocalyptic for bonds. With any luck, he'll end up in a padded room across the hall from Cramer.
Posted by: CaptiousNut | Jan 22, 2008 9:35:55 PM
Dow's 128-point loss is a victory
http://articles.moneycentral.msn.com/Investing/Dispatch/080122markets.aspx
Posted by: Suge Knight | Jan 22, 2008 9:40:39 PM
Anyone who is surprised or caught off guard by this Fed's actions simply isn't paying attention. Bernanke and his clone, Mishkin, have been writing and speaking about this scenario since grad school.
The system open market account has been draining for months and that is why the markets faltered so badly since the summer high - so to think Bernake gives a rat's ass about the markets is simply to not understand his motivation. The market is simply part of the tool to foretell the future to him.
And with his panic today, he signalled loud and clear that he in instituting his plan to combat deflation.
And deflation has been the great fear of this Fed this whole time. Bernanke understands one thing well - a collapse of the credit markets is a deflationary event.
The bigger the credit bubble, the more serious the likely deflation to be.
This one looks like a doozy.
Posted by: Winston Munn | Jan 22, 2008 9:42:34 PM
Hi Barry - I love the blog. I am trying to subscribe via Feedburner and I keep getting an error message. Is it just me or is there an issue with subscribing?
Posted by: Tim Abbott | Jan 22, 2008 9:45:22 PM
And now the dollar is tanking.
2008 will be remembered as the year a first world economy morphed into a banana republic by slipping on a banana peel market.
Posted by: AGG | Jan 22, 2008 9:47:29 PM
Someone shoiuld thank riclk santelli from CNBC - he is the only person on the network with any sense. HE took Cramer to school this moring after Cramer tried to embarrass a contributer. Cramer is a great take down artist. Maybe he can tell us again how he went to Harvard and its so much smartert than everyone. Maybe he should take his seed magazine and go choke on it. Santelli made Cramer look like the joke he is. The entire staff at CNBC is a joke. And Rich Farrell, he is long bank stocks 40% higher. Talk about 9 lives.
Posted by: s | Jan 22, 2008 9:48:08 PM
I'm no accountant, but I'm pretty sure they can only do this a few more times before they'll have to come up with a "Plan B".
Posted by: Drewbert | Jan 22, 2008 9:55:08 PM
Man, it is going to suck one of these days when the futures are up 550 and the Fed raises rates 75 points and Paulson talks down the economy.
It would be funny how different the Bull/Bear argument would be if the government in fact cared about the dollar and currency destruction and false asset valuations....maybe the broken clock comment would be given a rest in this environment.
Posted by: Sammy20 | Jan 22, 2008 9:59:24 PM
