To Mr. Bernanke: BE STRONG!
A: The fed meets and decides the next move in the fed funds target rate on Wednesday. We also get plenty of economic data this week, which I'm sure the fed will get early access to before making their final decision on rates! The biggest reports will be GDP on Wednesday, ISM Manufacturing Index on Thursday, and the Employment Situation report on Friday. With the fed funds target rate at 4.75%, I wonder, is that really restrictive to economic growth? While the US dollar tanks, oil surges to $93/barrel, stocks just off record highs, and other commodities trek higher, it's hard to imagine that Big Ben will be aggressive with rates on Wednesday. But we all know he will because thats what the market wants! I say, be strong Ben! Show us you own a set of cahones, support our dollars, tell the markets you are not their bitch, and surprise us with your inner strength!!
Free market capitalism, HA! What a joke! It's clear that Ben Bernanke and the fed is a printing press for the tradable markets and will do everything in their power to keep the game going a bit longer and help bail out all those that made bad bets. Only it won't come out like that. It will come out as if the fed is acting to, "...forestall adverse effects to the US economy", or some similar jargon. Meanwhile, expect your dollars to be worth less soon.
With that said, there are problems here. The problems are a direct result of bad bets and bad loans that never should be made in the first place. So, to fix the problem the fed is pumping liquidity into the financial system, at the expense of our US dollars' value and future inflation in the pipeline. Companies are trying to team up and get this super conduit called MLEC up and running so that those holding bad assets can get bailed out and don't have to be forced to sell at distressed levels. Gone are the days where bad bets are penalized by the tradable markets, because if they were it would cause financial distress to our economic system that maintains afloat from interventions from government and private institutions. That is why free market capitalism is NOT AT WORK HERE!
If it was, the markets would have to work themselves out and stocks of banks, lenders, and others who hold these assets would have corrected significantly more; and that is obviously not happening. We have become a society that fears recessions rather than understand them for what they are; healthy and normal disruptions in economic growth necessary to ensure longer term sustainable growth. We need to shake out the bad bets and weak players, let the markets fix themselves, and move on with the lesson learned.
The US economy is slowing and jobs growth is decelerating, no doubt about it, but what happens if the US dollar continues this freefall? What happens to our immediate future if oil prices jump to $120/barrel; which will occur if the fed maintains an easing policy? Won't that hurt us even more down the road? Do we really need to keep cutting rates BEFORE the economic data clearly shows that they are needed at this stage of the game? Is 4.75% fed funds rate really that restrictive?
I think Ben Bernanke needs to stand tall, tell wall street he is NOT THEIR BITCH, and NOT CUT TARGET RATE AT ALL! Instead, I think they should leave the door open for more cuts if need be, and they should cut the discount window so that it comes down to where the fed funds target rate is now at 4.75%! If they do cut, at most cut rates 1/4 point and be clear in their message that future rate cuts are not a certainty!Right now, banks are announcing major losses in write downs and wall street is treating those acknowledgments fairly positively. I mean, UBS comes out today, warns of losses that will extend to future quarters filling the air with uncertainty, and the stock is down all but 0.71%! Are you kidding me! The reason why the free markets are not working properly right now is because they are waiting to know how many shots of heroin their pimp is going to give them!
Here are facts:
- Stocks are 1.5% or so from Record Highs
- Oil is at Record Highs
- Problems lie in credit markets; cutting rates will NOT cure this problem
- Rate cuts will help cushion any slowdown that may come down the road
I would LOVE to see the fed do NO CHANGE with rates on Wednesday, but I doubt that will happen. The credit markets are still in distress, there are more losses yet to be reported, we still do no know who holds what, and if the fed does nothing the markets will selloff and correct. Awww, cry me a river. I wonder if Big Ben can handle a little selloff on wall street?
Am I alone here in this way of thinking? The fed funds futures are actually starting to predict a slight chance of ZERO CUT at the meeting. Bill Pimco says we need a fed funds rate of 3.75%; might as well burn our dollars for heat! Here are some other thoughts around the blogoshpere:
Fed Calls: Quarter-Point Consensus (Real Time Economics - WSJ Blog)
Wall St Wants 50, Fed May Give Zip For Now (Bloomberg)
No Free Lunch: Ongoing Ramifications of an Easy Fed (The Big Picture)
The Fed's Dilemma (Econoday - Simply Economics)
Fed Meeting Wednesday Keeps Pressure on US $ (FXView)
Countdown to the Fed (Think BIG: Bespoke Investment Group)
Posted by Charleston real estate blog
Mon Oct 29th, 2007 06:37 PM
"Am I alone here in this way of thinking?" Noah, no, you are absolutely on target as always.
Nice pic of helicopter Ben, a friend of mine would love to borrow it, actually, I would too.
Posted by Noah
Mon Oct 29th, 2007 07:13 PM
Thx!! Glad to see Im not alone. Isnt that pic great? Found it on Google images. Take it!!
Posted by Them
Mon Oct 29th, 2007 08:55 PM
Definitely not alone, I'm with you man.
Bill Gross (Pimco) has been in a frenzy calling for the fed to cut rates since day 1. But Bill Gross has an agenda, just like the rest of us.
Meanwhile Jim Rogers has been lambasting the Fed for being, as you so poetically put it, wall street's bitch. But he's short the financials, so he has an agenda too.
As for me, well it pisses me the fuck off that a trip to Canada has just become a luxury. But that's the least of my worries. Inflation will hit us hard, and not just at the grocery store and gas stations. You can count on foreign buyers to swoop in on our assets like vultures. A declining dollar combined with foreign countries' surpluses means we will be selling everything off - resources, real estate, NYC (Seattle, San Francisco, LA...). The worst part is that we won't be able to compete in the bidding.
Alarmist? Sure, but damn likely. The only thing that'll protect us is, well, protectionism (and CFIUS). That sounds like an awful scenario.
Posted by MCH
Tue Oct 30th, 2007 04:18 AM
The real solvable problem is getting the government to mandate a national interest rate ceiling on credit card companies. After crying to Congress about bankruptcies by over extended borrowers, the lawmakers made this route more difficult for borrowers. So what did the credit card lenders do? They raised rates to levels that would make a shylock blush with envy.
The average Joe turned to his home for money, doing whatever it took to get it. Now the mortgage lenders are faced with the same problem the credit card lenders had but on a much bigger scale.
Americans are big spenders no matter how much they really have. Banks made it very easy to borrow. Add real estate speculators to the mix and you had the perfect storm forming: Higher valued assets and easy credit. Why borrow at 19+% when you can get 10% or less on your home?!
The real shame is the greed of the credit card companies. Take Sears for instance. They seduce homeowners into buying new appliances with no interest for 1 year. After 1 year, if any part of the loan/purchase is not paid, the borrower gets hit with 25% interest on the full purchase retro to the date of purchase.
In general macro terms, these companies are killing the goose that lays the golden egg. They should have just encouraged their customers to make purchases at lower , more reasonable rates and thereby increase purchases of goods - preferably made in the USA. Instead, they have stuffed their own coffers with high interest loans that do nothing but add to their own bottom lines. Bad econokmics.
America is just now starting to pay the price in lost jobs and bank insolvencies. Bankruptcies are just starting. It will get worse especially as most Americans will no longer be able to use their homes as ATM's and small businesses will have a difficult time borrowing funds to sustain their growth.
Posted by Them
Tue Oct 30th, 2007 10:45 AM
Looks like Paulson (surprisingly) gave Bernanke political cover today to hold rates.