“A Whiff of Panic . . .”

Tuesday, January 22, 2008 | 10:01 AM

Welcome NYT readers:  The What's Online column linked to the wrong commentary -- the post Dan was referencing was this one: So Much for the Decoupling . . .   

There were several other issues with the Times piece, and our response to the column is here: The Bulls, The Bears, & the Media.


The Fed slashes rates 75 bps – and another 75 bps are implied for next weeks meeting. There is a none-too-faint whiff of panic about today's actions.

What does this mean for investors. Quite a number of things – none of which are particularly good over the long term:

1) Why Cut today? What was the motivation for today’s cut? Would waiting 7 days have done anything. other than allowing some of the excesses to get wrung out of the system?

2) Equity Market Dysfunction? Is it that the equity markets are not working properly? Likely not. Are rates too high? I doubt that's the reason for any of our economic woes. Then what is it – are lowered equity prices a problem?

Globally, equity markets have been in the process of “Repricing Risk” – why is the Fed disrupting that? Further, there is now a recognition that S&P500 earnings were priced way too high – especially in the event of a European and Asian slow down. That lowered “E” in the P/E adjustment is also under way.

3) TANSTAAFL:  The free lunch crowd (a/k/a Long & Wrong) has been chanting for Fed cuts. However, these are not with0out consequences, as Inflation remains a pernicious threat.

Here’s a question: What goes to $5 a gallon first – Milk or Gasoline? How about $6?

4) How Independent is the Fed? The Fed is supposed to be an independent entity, whose mission is a) price stability (inflation) and b) maximizing employment (growth).

However, today’s action reveals an apparent third obligatory goal – protecting investors and market prices. I had no idea that back-stopping speculators and hedge funds was part of their mandate...

Global_bourses_200801211940385) Capitulation? The Market gapped 400 points, and is now climbing higher (off 300 as I type this). My second biggest concern is that the Fed merely delayed the inevitable. This market saving cut prevented a thorough, 5% wash out. In other words, all the Fed did was prevent a healthy capitulation.

6) Pushing on a String?  My biggest fear is that we close down 500 points anyway. That would be the worst of all worlds: A compromised, political Fed, working on behalf of speculators, to the detriment of ordinary taxpayers, is proven to be a paper tiger. That scenario would but the “F” in Fugly.

7) Decoupling US Equities from Global Slowdown? Other markets were down much more than the US. But that makes sense, seeing as they have been a whole lot more than the US over the past 5 years . . .

This was a shot of penicillin to a cancer patient.

Tuesday, January 22, 2008 | 10:01 AM | Permalink | Comments (117) | TrackBack (2)
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Listed below are links to weblogs that reference “A Whiff of Panic . . .” :

» Is the Fed a Paper Tiger? from The Big Picture
Yesterday, we listed 7 concerns with the Fed's confusing emergency 75 bp rate cut. We said we detected a “A Whiff of Panic . . .” Amongst the other issues, our biggest concerns were twofold: That the Feds' independence will now be questioned, as they a... [Read More]

Tracked on Jan 23, 2008 7:21:18 AM

» Media Appearance: CNBC's Morning Call (1/23/08) from The Big Picture
This morning, I'll be guest hosting Morning Call on CNBC, from 11:00am to 12 noon. On today's agenda:- The unholy trinity: Slowing Economy, Credit Crunch, Financial woes - Yesterday's emergency FED cut, and today's opening drop, leads us to ask: Is the... [Read More]

Tracked on Jan 23, 2008 9:57:34 AM


I'll take door number 4 Barry....
Until we get that or it is allowed to occur we are just marking time and will drift lower over time instead of completing the washout of crap that is sorely needed.

A 5% drop would have shortened the recovery time. The stupid people at the Fed are continuing to trade the perception of short-term gains for another term of four years-at least for them.



Posted by: michael schumacher | Jan 22, 2008 10:09:00 AM

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