Fed: Sorry, Our Bad.
FOMC minutes were released at 2:00pm this afternoon.
Upon reading the release, Candide Dr. Pangloss suffered a fatal heart attack.
The reset of the cheerleading squad of pollyannas simply lost their arguments -- along with their lunch -- that growth is fine, inflation modest, the credit crisis contained.
The FOMC lowered their growth forecast, raised their inflation and unemployment forecast. The only omission in the announcement was their new policy, for the first time ever, of buying Index Puts to pay for all of the new Credit Lending Facilities.
Markets, which were positive, rolled over and fell 250 points.
>
Source:
Minutes of the Federal Open Market Committee April 29-30, 2008
Federal Reserve, May 21, 2008
http://www.federalreserve.gov/monetarypolicy/files/fomcminutes20080430.pdf
Fed Signals Rate Cuts Are Done
BRIAN BLACKSTONE
WSJ, May 21, 2008 2:11 p.m.
http://online.wsj.com/article/SB121138451480710941.html
Most Fed Officials Saw April Rate Cut as `Close Call'
Craig Torres
Bloomberg, May 21 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aYj1lICzRiEs&
Wednesday, May 21, 2008 | 02:55 PM | Permalink
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Comments
Goldilocks was just sodomized by all three bears.
Posted by: shoeless | May 21, 2008 3:35:09 PM
Hold It! Does this mean all the prognosticators on CNBC that told me to buy stocks the last 4 weeks were wrong? I thought it would be impossible for so many people who were so united to be so wrong.
Posted by: Donny | May 21, 2008 3:40:42 PM
“…the cheerleading squad of pollyannas simply lost their arguments -- along with their lunch -- that growth is fine, inflation modest, the credit crisis contained”
Don’t underestimate that determination of Kudlow and crew.
Posted by: DL | May 21, 2008 3:42:03 PM
Fed to market: The punchbowl has been taken away from the party. Time to sober up.
Market fell a little short of my 1454 target as the 61.8 retracment, which I had been calling for since the March lows. The price action last few days looks really bad. The S&P 500 has broken down out of a rising wedge pattern. This is not good. We may get a retest of the backside of the uptrend line which was broken today....that would be a great time to sell.
-AT
Posted by: Andy Tabbo | May 21, 2008 3:42:51 PM
watch 1390.....
and then watch it get bought back above...
Ciao
MS
Posted by: michael schumacher | May 21, 2008 3:43:15 PM
My memory tells me that Pangloss lost his lunch. Candide is out in his garden with the love of his life, la belle Cunegonde, and most likely not thinking about the economy or the stock market. He is, after all, off the grid, so these matters are of no concern to him.
Posted by: Scott Frew | May 21, 2008 3:45:27 PM
Hey Luskin,
I got your recovery right here!
Posted by: ARISTOTLE33 | May 21, 2008 3:50:59 PM
and closes on the line in the the sand....
how surprising!!!!!
Not really
Ciao
MS
Posted by: michael schumacher | May 21, 2008 4:00:59 PM
MS- I'll take it.
Posted by: Vermont Trader | May 21, 2008 4:03:24 PM
Got an apology call from Kudlow yet? Let him leave a message.
Posted by: JS | May 21, 2008 4:04:15 PM
FOMC Minutes Hint at End of Rate Cuts
The minutes from the April 30 FOMC meeting were released Wednesday and - surprise, surprise - they held a few surprises.
There was an acknowledgment that the decision to cut the fed funds rate 25 basis points at the April meeting was a "close call."
Additionally, there was the most telling revelation for the market that the "...risks to growth were now thought to be more closely balanced by the risks to inflation" and that several members noted it was "... unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook."
Altogether the minutes seemed to suggest that there was more attention to the inflation situation among Fed members than market participants previously believed.
Mindful of that, the understanding that oil prices have risen approximately 17%, that the dollar index has declined 0.7% and that the TIPS spread - a measure of long-term inflation expectations - has widened from 228 basis points to 254 basis points since the April 30 meeting have all played into the stock market's negative perspective on the FOMC minutes.
The prevailing message of the minutes for the stock market is that we have very likely seen the end of this rate-cutting cycle. You can never say never, but that thinking helps explain why there was a sharp move lower immediately following their release.
Separately, the Fed revised its GDP, unemployment and inflation forecasts for 2008, 2009 and 2010.
Posted by: Briefing | May 21, 2008 4:13:32 PM
MS:
Dead on. Forgive the ignorance.. why 1390? I'm intrigued. I've seen your theories on 1400 before. Explain a little?
Posted by: CPJ | May 21, 2008 4:15:16 PM
"Got an apology call from Kudlow yet?"
LOL
however, do you really think Kudlow and/or CNBC
are going to stop playing their one string banjos.... ;)
Posted by: MarkTX | May 21, 2008 4:15:31 PM
I recommend an old book for both Kudlow and Don Luskin...there was a book called the Peter Principle written many years ago now that stated, basically, that you advanced until you finally reached a position that you were incompetent....
Most of the cheerleaders I remember had better legs than either one of these bubbas..
Bruce in Tennessee
Posted by: Bruce | May 21, 2008 4:20:11 PM
Posted by: Bruce | May 21, 2008 4:20:11 PM
“I recommend an old book for … Don Luskin...there was a book called the Peter Principle …”
I’m not a big fan of Don Luskin … but he’s been correctly bullish on energy stocks for the last few years.
Posted by: DL | May 21, 2008 4:39:51 PM
Has Kudlow ask you to come back on?
Posted by: pikertrader | May 21, 2008 4:42:05 PM
Speaking of Goldilocks... where's Larry's buddy Anne Coulter lately. Aren't they gonna trot her out so she can help John McCain get elected? She can bring her baseball bat and show McCain how to talk to liberals with it.
Posted by: Bob A | May 21, 2008 4:45:04 PM
Is the market still a leading indicator? I'm starting to have doubts.
Posted by: Mike M | May 21, 2008 4:45:31 PM
The Fed minutes may have been the catalyst, but the actual reaction that brought about the past two days declines was the mix of vastly higher treasury borrowing needs combined with primary dealers' impaired balance sheets.
Posted by: Winston Munn | May 21, 2008 4:48:17 PM
Buying those puts is the job of the PET (Plunge Exploitation Team).
Posted by: Roger Bigod | May 21, 2008 4:49:56 PM
Hey Dick, banks still a generational buy?...
Posted by: Stuart | May 21, 2008 4:55:24 PM
CPJ-
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p78883885343
1390 (or so) is the recent support level. Just technicals ( which have become increasingly unreliable) in a market that has money thrown at it.
They have to follow some sort of pattern...otherwise it looks obvious that there is "tinkering"........
I do not claim to have any answers...it could have kept going down which is the far likelier scenario however technicians seldom factor in the massive amounts of money that is being used to prop it up. Just think where the market would be if the Fed were not creating yet another bubble via the 'auctions' and various other operations we have no idea about.
Something to ponder.
Ciao
MS
Posted by: michael schumacher | May 21, 2008 5:00:02 PM
The market is never a leading indicator Mike. If the market had the ability to predict the future and it was good in the back half of 08 it never would have started coming down in Nov 07. It also never would have went up so much in summer 07.
Posted by: John Borchers | May 21, 2008 5:00:17 PM
It is a "healthy" pull-back and nothing more folks. Market is in consolidation mode now :)!
Posted by: Nihilism | May 21, 2008 5:12:53 PM
Any one interested in OTC tulip bulbs? I'm long.
Posted by: JT | May 21, 2008 5:20:40 PM
