Open Thread: How About That Fade . . . ?
Mr. Market got the 50 bps he wanted -- and after a brief 250 point run up in the Dow, gave just about all of it back.
The excuse du jour was that its the traders fault blamed a Fitch downgrade of FGIC, or WIlliam Ackman's comments that MBIA and Ambac each had much bigger than reported losses. Maybe it was the report that S&P may lower or cut $534 billion of subprime debt.
Regardless, the gains were all spit up by the bell.
Question: Will markets rally on this cut, or is the Fed pushing on a string? Y'all discuss this, while I go out for a few drinks. (play nice)
~~~
What say ye?
Wednesday, January 30, 2008 | 07:00 PM | Permalink
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Comments
Wow, WTH(hell) glad I did not take a swing trade position on that one, yeah the bulls should'a got a rally, but there just seems to be overwhelming downward pressure at este' momento!
Posted by: Steve | Jan 30, 2008 7:08:51 PM
had to go down. even Kudlow doesnt think you can cut 125 bps per week for very long. and the previous cuts certainly had a salutary effect on Mr Market.
Posted by: scorpio | Jan 30, 2008 7:09:24 PM
I figure the U.S. economy, between bank losses and increasingly scared consumers, has lost some 200, 300, maybe 400 billions in GDP, on an annual basis. Banks are more cautious, consumers don't want more debt. Wiley Coyote moment comes when the markets realize nothing the Fed can do will affect the fundamental problems afflicting the U.S. economy. I expect to Europe, especially U.K., to be falling in tandem; but their fall will be healthier because the ECB will not be lowering rates. Asia will stumble, and only moderately recover. The rest of the world will be slow to make up the decline in the U.S. -- I'm guessing slow global growth into 2009. No need to rush back into equities for awhile.
Posted by: mlnberger | Jan 30, 2008 7:09:32 PM
I vote the Fed is pushing a schwing.
--
Schwing! Economics
The problem is, the Fed can make more money available in the financial system, but it can't force lenders to lend it out—or borrowers to borrow it. Economists refer to this problem as "pushing on a string." You can push and push, but the string just collects in a pile. Nothing happens.
---
Posted by: Keith Shepard | Jan 30, 2008 7:14:16 PM
When was the last time the DOW closed down on the day of a Fed rate cut????
Posted by: Chief Tomahawk | Jan 30, 2008 7:15:39 PM
as I mentioned earlier c) and c) and then d) as they realize they're pushing on a string. The markets realizing this too is why the fade into closing.
Posted by: Stuart | Jan 30, 2008 7:25:52 PM
negative real interest rates
inflation rampant
banks refinancing themselves thru the fed but still not trusting each other let alone the consumer!
ummm is nero fiddling while rome is burning?
rgds pcm
Posted by: peter from oz | Jan 30, 2008 7:29:45 PM
Yep, what Keith said...
It ain't a monetary crisis ... it's a credit implosion.
There's no cure for that, except time and pain.
Posted by: sysin3 | Jan 30, 2008 7:33:00 PM
http://www.topix.com/forum/city/torrance-ca/TGN3NTBHR4UIOO1FH
Anybody catch the Deciders stim-u-less speech today, location, of all places, a Torrence Helicopter Factory, gotta keep Ben's choppers in the friendly skies while there's still something left to drop the money on
Posted by: Stormrunner | Jan 30, 2008 7:33:57 PM
Just one comment about the "rampant inflation." Not any more. For the last year or so? Absolutely. Going forward? No way. The tide only recently, as in circa January '08, started to turn, but it be a turning. Make no mistake, it's a turning.
Posted by: Tim | Jan 30, 2008 7:36:38 PM
Looks like a bunch of traders got caught leaning towards second. Youurr'e out!
Banks are in bidness to lend money. Given the yield curve, those shylocks will earn a bunch of moola. I suspect, however, you better have a real good payment history and an iron balance sheet...Credit standards worldwide are getting TIGHT.
I need a question answered...Where is the NEXT bubble? Ideas? I need to get in front of that train.
Bumper sticker on the back of a former mortgage brokers car "God please let there be another housing bubble. Next time I promise not to piss it away."
Oh, the answer to the next bubble may be what grows in Kansas and Moos in Texas.
Posted by: Ross | Jan 30, 2008 7:40:46 PM
So many things that one can say.
The bottom line is that there is no way an economy that needs a 1.25% rate cut is healthy!
The bottom bottom line is that if having low rates caused all this mess than how can low rates be the solution!!!!!
We very much on purpose allowed poor policies to create a credit bubble. Well, that is over! Why can't people just get their arms wrapped around that one.
Lowering rates just buys one a little time before one has to face the music. However, it is also a shortsighted approach because the longer we wait to deal with this the worse the pain will be!!!!
Posted by: Advsy | Jan 30, 2008 7:42:40 PM
The US government is bankrupt, municipal governments will soon be bankrupt, the entire credit and investment system is bankrupt. The financial system in the US is finished. Dead. We're just at the beginning of the complete elimination of wealth and the economy. Gold, food stores and plenty of ammunition in a defendable position are your only prayer.
Posted by: Zed | Jan 30, 2008 7:44:13 PM
The answer lies more in psychology than in interest rates.
There are over 300 million here in America - has any TBP reader stopped to take his own risk pulse - what is your perception of liquidity? Are you unconcerned about upping your credit card debt because it's been easy to pay, or are you feeling more cautious about taking on new debt? If you refinanced your home right now, would you use the extra money to go on a spending spree or would you eliminate as much other debt as possible and "wait and see". From moods around me, the answer would be to take the bunker mentality approach, so it appears the euphoria of spend and pay later has collapsed, along with the changes in liquidity perception.
The Fed can do what they wish with rates, but until the prevailing feeling is that it's safe to get back into the water, the economy will sit on the sand and wait for more inviting surf, smaller waves, less risk.
Perception change.
I believe where most are miscalculating this deflationary pressure is looking strictly at the hard asset - the house falling in value or the CDO with no bid - what is neglected is the fact that layers of paper assets have been utilized as real assets, and piled atop those are more layers of leverage, creating an inverse and unstable pyramid of debt. Anyone who has traded the markets knows how fast paper profits can disappear.
Imagine those paper profits leveraged 5, 10, 20 times to further incease the position size - how much downward pressure on the papaer profit would cause a systemic collapse?
If this inverted debt pyramid starts to unwind seriously, a squadron of Ben's B-52s won't be able to drop money fast enough to keep up with the collapsing debt.
And that is what has the Fed spooked.
Posted by: Winston Munn | Jan 30, 2008 7:45:59 PM
C. Tomahawk:
"When was the last time the DOW closed down on the day of a Fed rate cut????"
Uh...a week ago Tuesday?
Posted by: Michael | Jan 30, 2008 7:47:02 PM
OK, a couple of drinks -- I can vote for this.
Buffet's Hair Trigger quote becomes more important every day IMO.
Posted by: PeterR | Jan 30, 2008 7:48:43 PM
This market is trading on technicals only... It's like flying instrument only. I don't like it, but it is the only thing trustworthy when looking at the indices... Yes, individual stocks have given head fakes...mmmm, like financials, but if you started from macro, then worked to micro, you would have been extremely cautious and borrowed those stocks only for a trade.
It really didn't matter what the Fed did today. The indices had run up to massive resistance and did so on very week internals. The sum of the parts would have led you to believe the risk was all to the downside and take some chips off the table...
We have a long way to go, a lot more head fakes, a lot more volatility, and a lot more blood to leave on the street. Believe it or not, what we've experienced so far is only a "flesh wound".
Good luck to all. If you are reading Barry, you are at least feeding your brain good discourse.
Posted by: JasRas | Jan 30, 2008 7:52:52 PM
Someone take the bong away from Zed.....
What Winston said and redoubled.
Posted by: Ross | Jan 30, 2008 7:54:21 PM
I think the market continues to be weak and down on the continued need to raise cash and unwind carry trade, and will be punctuated by short covering. As long as the AMBACs, MBIAs and ACAs are in need of hundreds of billions of dollars, so will the banks...
Watch out below...and put on a pair of Ultra-shorts.
Posted by: Pierre Daillie | Jan 30, 2008 8:04:18 PM
ADP is foreboding a pretty good number for payrolls. Besides Bill Ackman who is talking crap about ABK and MBIA is a short seller. The market will sooner or later realize that too. And then of course there are the negatives that readers have been pointing out. Bottomline to me is that market is going to have huge swings either side. So I say my money is on the sidelines for intermediate term trades but am putting my money on extremely short term trades for extremely short term waves.
Posted by: StocksRider | Jan 30, 2008 8:13:20 PM
There is nothing worth financing out there.
Maybe if there is no need to ever pay it back, and the fed pays interest to use their money, people might find something to borrow money to acquire.
The suckers are no longer solvent, if they ever were.
Dow 7500...........
Posted by: ilsm | Jan 30, 2008 8:14:27 PM
NEXT BUBBLE: The farm bubble is a couple of years old and not strong IMHO. In other words it might be too late to make much money by buying farm assets.
Cost of putting in corn this year went up
60-70% in my part of the world. Either farmers are going to get $4.00 plus for corn or the party is over fast.....
Posted by: Farmboy | Jan 30, 2008 8:14:36 PM
"Just one comment about the "rampant inflation." Not any more. For the last year or so? Absolutely. Going forward? No way."
Kraft said today that the cost of dairy products has increased by 40%. They are letting margins take a hit rather than passing on the increase to consumers due to the poor economy.
The dollar took another hit today, thanks to another rate cut. Oil, then eventually gas is priced in dollars so expect it to go up accordingly.
IF the FED manages to reinflate the old economy,corporations postponing increases to consumers will pass them on.
Food and energy inflation are a given. Your dollar being worth less six months from now is too.
Posted by: Pat Gorup | Jan 30, 2008 8:15:04 PM
NEXT BUBBLE: The farm bubble is a couple of years old and not strong IMHO. In other words it might be too late to make much money by buying farm assets.
Cost of putting in corn this year went up
60-70% in my part of the world. Either farmers are going to get $4.00 plus for corn or the party is over fast.....
Posted by: Farmboy | Jan 30, 2008 8:15:15 PM
(1) Everyone I talk to about the market who is "a layperson" regarding it, says "Good time to Buy"...so I'm skeptical about the lack of further downside.
(2) It feels like the central banks are going for the scenario where we eventually get much higher equity prices but only nominally and that in essence things are not good vis a vis purchasing power but the average Joe looks at the Indices and sees higher prices and doesn't understand whats so bad about it...
***For instance the DJIA has gone from 1,000 to 14,000 but the cost of living is so much higher that economic life is worse not better than it was with the DJIA at 1,000***
Posted by: SINGER | Jan 30, 2008 8:16:35 PM
