Okay, we know the FOMC ends their 2 day meeting tomorrow, and at 2:15pm, the announcement gets released.
What are they likely to do?
a) No cut at all — 75 bps oughta hold the little bastards;
b) 1/4 point — that makes 100bps in 8 days;
c) 50 bps — oh yah, give it to me big boy!
4) 75 bps, just like last week — daddy likes his sweet sweet junk — Hmmm, thats the spot
And, what do they say:
a) The risk to the economy remains balanced between slowing growth and inflation;
b) Inflation? Trichet is mad! The risk is to growth;
c) Market turmoil is proof that the mechanical gears of finance are seizing up — we gotta grease the cog wheels;
d) Run for your lives!
Well, what say ye?
(b) and (a) with Poole dissenting.
They have no idea…
My vote:
First question: b.
Second question: a.
That seems to be to be the safest hand to play. This is the hand I would play.
I know what I will be doing tomorrow at 2:15…
Based on the auction I say Big Ben goes .25, he has to convince himself his balls have some weight. I cannot see him going .50, go with a .25 and wait it out. If the market crashes again, he can alway do another emergency cut.
Bernanke will cut 75bps (that will take the Dow to 13,500). As to what they say, does it even matter as long as the Dow goes to 13,500?
Suge aka “Bernanke’s boy”
Here’s what happens when the Fed does what it usually does–rob from the savers to save the lenders & borrowers:
From Money Magazine re WaMu:
“For one, the CEO said further rate cuts by the Federal Reserve would increase WaMu’s net interest income, or a chunk of its revenue made up by subtracting how much it costs to borrow money from how much it charges to lend money.
Killinger estimated that every quarter-percent rate cut by the Fed will add $150 million to the thrift’s net interest income.
“We are encouraged by aggressive actions by the Fed,” and by the Bush administration’s proposed economic stimulus package, Killinger told analysts. However, he said, “It’s too early to assess how these particular actions are going to impact housing prices.”
http://money.cnn.com/2008/01/29/news/companies/washington_mutual_branches.ap/index.htm?postversion=2008012917
IMHO 55% chance they cut 50 bps and 45% chance they cut 25 bps. i thought 50 bps was a hammer-lock until the market rallied, oil down a bit, and the not so bad durable goods number today. that may lead the fed to cut only 25 bps and save some ammo and try to appear they aren’t totally OWNED by the markets. who knows, we’ll see. I’m not positioned for anything radical, just invested with goal of my longs to perform > the market, and my shorts < the market.
Did you see where CNBC (Gasparino) is suggesting Fitch Moodys might downgrade the monolines as soon as tomorrow?
Would that change anything?
Would Ben know that ahead of time?
Is it all scripted?
I never would’ve thought we’d go into January with a 3-handle on the FFR.
Here we are still a couple of months away from the first wave of resets, with the Option ARMs and Alt-As still 2 years out; yet, 50 tomorrow would have us halfway to our own ZIRP.
Folks, this is how I see it, “You can’t fight the Fed”, HOWEVER, at some point you will get a correction BUT not because of Housing, Homebuilders, etc., but because the market will be overbought again so hang in there and wait for the next correction, give the recession talk a break, it doesn’t matter right now, everything is fine, perception is reality. Bernanke can not even cut tomorrow and the market will rally.
Suge aka “Bernanke’s boy”
Suge I’m with you on 75 and still long. Feels better everyday.
Barry’s chart was pretty darn close to the bottom I think. What finally did the market in was China’s real estate trouble starting to come in. I wouldn’t touch the emerging markets with big money anymore as they likely have housing trouble too.
I honestly think the Fed could go 0-75 points tomorrow and it wouldn’t matter to the markets.
0 means we see no trouble. Durable orders are good, GDP is likely better than expected – markets move up
75 means the Fed is backing the banks and housing trouble – markets move up.
Even if it goes down tomorrow I don’t care. The best chance for our US market to crash was after globals sold off bigtime and it didn’t happen.
Two handle? Last Wednesday the July Fed Funds future traded at 98.115 (implying a 1.885 Fed Funds rate).
Do “a)” and Say “a)”
The news is full of the so-called stimulus package, AKA “The Splurge,” which will allow the Fed to pause and, oh babe, do they EVER want it all to slow down (imagine Locomotive Breath by Jethro Tull playing in the background).
I was thinking 25 on account of getting punk’d by SG last Monday, and also to signal that the Fed isn’t just the sidecar to the Street’s motorbike.
But after reading this article: “A Crash Course for Central Bankers, By Ben S. Bernanke”
http://www.foreignpolicy.com/story/cms.php?story_id=3272 (link stolen from Minyanville) I’ve changed my opinion to 50, with holding back the other 25 for the next Jim Cramer meltdown.
I say 25 bsp and risks to economy remain and credit market deteriorated further. Future action will be provided on incoming data.
Market/collective greed psyche response:
No rate cut: I am not waiting till tomorrow to get out! Back to 1280 by Friday.
Quarter Point: I will watch what others are doing and may be wait till tomorrow/ month-end before I start dumping! Let’s at least try to “dress things up” for the “investors” till January 31st/ month-end.
1/2 point: Boy, with fed on our side; and the ongoing stimuli & bail-out packages and liquidity/ psychology shoring measures announced every week, we can start a new bull market that can last for a few more months! I think we have a trampoline, and not a floor, below us – no worries even if we were to go down a little bit! Let’s keep fooling more people till it lasts. We can squeeze out quarter-end fees at higher marked up prices, may be for the 1st quarter and…second quarter too!! I am not selling my shares at such low prices.
3/4 point: May be we are the next Japan? We will soon reach 0%!! How I am going to get more steroids after that? Depression starts setting in? We have not more asset/toys that we can keep playing with. The fed model is our only saving grace.
John,
Too many stocks breaking out at this point, there is no way, no way the market is crashing tomorrow regardless of what Bernanke says or does. I wouldn’t even consider shorting the market until the Dow hits 13,500 plus. As you mentioned, the time for the market to crash was during the holiday period and it didn’t so you have to move on and go long for a while. I can’t honestly think of anything that would cause the markets to crash at this point. A better topic would be what would cause the markets to crash at this point?
Suge aka “Bernanke’s boy”
Instead of guessing, how about simply asking the source?
From a 2002 speech by Ben Bernanke:
Quote: “Irving Fisher (1933) was perhaps the first economist to emphasize the potential connections between violent financial crises, which lead to “fire sales” of assets and falling asset prices, with general declines in aggregate demand and the price level. A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks. The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly. And at times of extreme threat to financial stability, the Federal Reserve stands ready to use the discount window and other tools to protect the financial system, as it did during the 1987 stock market crash and the September 11, 2001, terrorist attacks.
Third, as suggested by a number of studies, when inflation is already low and the fundamentals of the economy suddenly deteriorate, the central bank should act more preemptively and more aggressively than usual in cutting rates (Orphanides and Wieland, 2000; Reifschneider and Williams, 2000; Ahearne et al., 2002). By moving decisively and early, the Fed may be able to prevent the economy from slipping into deflation, with the special problems that entails.” End Quote.
Let me re-emphasize one line: “A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks.”
According to the latest report, banks now hold a negative amount of reserves and the capital markets aren’t begging for more CMBS.
25bps would be shocking restraint.
I think they do 25 bps and point to balanced risks of growth and inflation just to try to show the market who’s in charge. The markets would then promptly tank and retest recent lows, begging like an addict for just one more hit…
only .25 for now – for reasons cited in prior posts, as well as global markets quieted somewhat. language will remain balanced.
I believe the Jan 28 TAF closed at 3.123%. If the fed cuts 50 and drops the funds rate to 3%, the winning bids got a raw deal. With limited understanding of such matters, I’ll speculate that the cut will not exceed 37.7 bp.
federalreserve.gov/newsevents/press/monetary/20080129a.htm
If I totally misunderstand whats going on, please enlighten me – I don’t work in finance.
Ben goes .5 and forgets inflation exists. He’ll be very subdued about it, though. No panic, no panic. At least 2 dissenters, quietly.
“no cut! run for your lives! we understand the enormity of the problem before us, and after careful consideration there’s not a goddamn thing we can do about it. we sincerely hope that most of you make it out alive. as a group we’ve decided to take up goat farming in Oregon. but the yurt is full. so dont come looking. particularly you two, cramer and kudlow. you have been most unpleasant.”
I’ll get more specific, Dow will rally 400 to 500 points tomorrow! Put yourself in the shoes of someone who is long right now, wouldn’t you love Bernanke? Some stocks are so oversold even at these levels that I can’t even contemplate a crash.
Suge aka “Bernanke’s boy”
I can’t honestly think of anything that would cause the markets to crash at this point. A better topic would be what would cause the markets to crash at this point?
Suge aka “Bernanke’s boy”
Gee, just a week ago a 20 year old french guy crashed everything.
Auto Mechanic Guy,
He didn’t crash anything at the end of the day. Bernanke bailed out the market, unless another French guy crashes the market again, markets are going up. Bernanke pulled it off.
Suge aka “Bernanke’s boy”
I expect 0-25bp and growth/inflation balanced.
But regardless, I don’t see the market rallying too far. The cut is a given with time and place to show up while we have too many uncertainties ready to jump into action. Maybe the first large failure won’t be American after all.
I’m going to go with 25bp. To take the rate lower might be to cross a psychological barrier (the reverse of $100/bbl Oil, or $900 Gold) which Bernanke just may not be ready to do — yet.
If he cuts more than 25bps, then Bernanke’s taken the bit the Street’s put in his mouth and accepts it. So much for being different from AG, and for limiting the Fed’s role to monetary policy, inflation and growth…
Then, who da hell knows?
A 25bps cut also takes into account the (IMO, justified) criticism B took for a “panicked” 75bp rate cut that may have been triggered more by the SG unwinding.
Bernanke bailed out the market…Bernanke pulled it off.
I don’t know Suge, postponed might be the word I would use. If he had really scored with the markets, I would have expected much more of a rally than we have had. As it is, people are just waiting for more cuts.
“when the losing side of the special performance contract called a derivative fails to perform, as is the case now, notional value becomes full value.
If you fail, defined as going belly up because your debits have eaten all you have, say on soybeans futures, on the day of delivery what is it that you owe. That amount is determined by the market value of all the soybeans being delivered to you. No one on the profit side of the OTC derivative can see it coming because there is no clearing house that pays in to the winner and takes money from the loser daily as in the listed commodity futures markets. Notional value then becomes real value out of the blue, which is now expressed as the marking down of a losing position. Then as Societe Generale is attempting to do, the next step is to be taken over quite quickly or as in the US investment bank’s case, selling yourself to China, Singapore and the Middle East to stay afloat.”
516 TRILLION…not too much
ergo, “c” and “c”…. and perhaps then “d” as they realize they’re pushing on a string.
I don’t care what he does – it’s going to bounce off of the economy like a bullet off a freight train. And he don’t have many bullets left. Any rise in the stock market will be more than offset by the declining dollar and increasing inflation.
to follow-up on my previous post: bernanke wants durable investment and needs it to come from foreign sources as much as domestic. so if there is wild uncertainty in foreign markets then orders originating overseas do not materialize. the insanity overseas has abated somewhat, so bernanke won’t feel the need to go beyond a quarter point.
Actually it better by 75 bps…. YOU’VE GOTTA BE KIDDING ME… and MS is getting away with this????????
MARKETWATCH FIRST TAKE
A new way to hide losses: ‘reclassify’
Commentary: Morgan Stanley’s fine print suggests deeper woes
By MarketWatch
Last update: 12:43 p.m. EST Jan. 29, 2008
Print E-mail RSS Disable Live Quotes
Corrects the amount of Morgan Stanley’s reported write-downs in the sixth paragraph.
NEW YORK (MarketWatch) — Imagine a Morgan Stanley broker telling his or her client about some assets that are nearly worthless because they can’t be sold. Would that customer feel any better that the brokerage was simply “reclassifying” that investor’s losses?
That seems to be the question facing investors in Morgan Stanley (MS:
49.46, -0.13, -0.3%) today after the brokerage and investment bank said it reclassified $7 billion of funded assets and $279 million in unfunded assets from Level 2 to Level 3. See full story.
The levels are a new kind of accounting parlance Wall Street instituted last year. The bigger the number, the harder it is to sell or value the securities in question. In other words, Morgan Stanley no longer knows how much these assets are worth because no one is buying.
Morgan Stanley says the “reclassification” affects commercial whole loans, residuals from residential securitizations, interest-only commercial mortgage and agency bonds as well as commercial and residential credit default swaps. These are the kinds of subprime derivatives that some firms have written off.
Just as troubling for investors is how Morgan Stanley announced the move: It was buried on page 64 of its 191-page quarterly report. It’s been a long three months since the firm won kudos for taking an aggressive $3.7 billion write-down that many thought would represent the worst for the firm.
A few weeks later, that loss had grown to more than $9 billion. Now, it appears those losses are going to be reclassified higher, and to top it off, the brokerage is being investigated by regulators over its role in the subprime crisis.
No broker who wanted to earn his client’s trust would try to hide a loss behind slick words. What does Morgan Stanley think of its investors?
‘Spanky’ B would probably like to give it a rest, but the W monkey that calls the game has other ideas. George will want half at a minimum to show how fierce resolute he is, being the decider and all that. But without blood in the air and the headlines, he may let B call the shot.
Make no mistake, the control center for this op is 1600 Pennsylvania Ave. It’s way to big for some f’ing egg head.
http://theswoop.net/sys/index.php
“the insanity overseas has abated somewhat”
Not it hasn’t, not at all, in fact it’s worsened.
ECB secretly rescues Spanish banking system
Matches Northern Rock Rescue
By Ambrose Evans-Pritchard
The Telegraph, London
Monday, January 28, 2008
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/28/bcnspa…
Spanish banks are issuing mortgage securities and asset-backed bonds on a massive scale to park at the European Central Bank, using them as collateral to raise money at favourable rates from the official credit window in Frankfurt.
The rating agency Moody’s said lenders had issued a record E53 billion (L39 billion) in the fourth quarter, yet almost none of the securities have actually been placed on the open market. Most have been sent directly to the ECB for use in “repo” operations.
“The market has shut down,” said Sandie Arlene Fernandez, the author of the report.
Winston,
Low inflation? You need to get out more. Buying groceries for yourself instead of your mother doing all of the purchasing is a life changing experience. Try ir big boy!
I don’t know what they will do…they are committee of obscure appointees that set the critical market interest rate in secret meetings. Whatever they do, it will be worse over the long term than if markets set the rate.
Make no mistake, the control center for this op is 1600 Pennsylvania Ave. It’s way to big for some f’ing egg head.
http://theswoop.net/sys/index.php
Posted by: TulsaTime | Jan 29, 2008 10:18:27 PM
__________
Your statement is self-contradictory.
Ladies love the long ball. We are going at least .50 and he could swing for the fences and go .75. The hell with inflation. It just makes our debt cheaper.
Get ready for the lost decade. Somewhere around 2018, we should begin to recover.
How much do you think Ben will cut now… BR, I think you need an “(e”
CalculatedRisk
Tuesday, January 29, 2008
CNBC: Bond Insurer Downgrades Could Come Tomorrow
From CNBC: Bond Insurers Face Downgrade Despite Call for Delay
Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA … the downgrades could come as early as Wednesday.
A downgrade would lead to significant write-downs on Wall Street, and more losses for investors, but it’s unclear how large the write-downs will be.
c) c) its what we wan/need/require anything less and Beijing would be unhappy
The’ll do (c), they’ll say (b), and gold goes to $1200 by inauguration day.
Here’s an effective little summary of the backdrop Ben is facing.
“The banks effectively/collectively are reserve negative. The monolines are effectively bankrupt and about to be downgraded, possibly tomorrow.”
I’ll leave all with those thoughts. Rate cuts, ya right…
G’ Night all. Tomorrow will be an interesting day.
abc 4? what the?
Lets see ,who is the greatest beneficiary of lower rates? Let us think now…ow the USA HAS ABOUT 10 TRILLION IN DEBT.With normal rates on treasuries you would have 500 billion in interest WITH a balanced budget.
“The’ll do (c), they’ll say (b), and gold goes to $1200 by inauguration day.”
And silver goes to $25. That’s 30% upside for gold and 40% for silver. That doesn’t include the 11% and 13% respectively, that they are already up THIS MONTH. Bernanke can cut all he wants.
If the Fed had any spine whatsoever (which they don’t) they wouldn’t cut rates at all….if the Fed has a bit of spine they will cut by 1/4% and say that inflationary risks are a definite worry…iff the Fed has a decent amount of spine, they will cut by 1/4% and say that barring any bankruptcies in the financial sector this is the end of the rate cuts. “Inflationary risks persist and the Fed must obey it’s mandate about maintaining price stability.”….if the Fed has no spine whatsoever, they will cut by 1/2% or 3/4% and watch gold roar to $1100 and oil to $110 in 2 or 3 weeks time.
My view is the best course of action is cut by 1/4% and draw the line in the sand there , and tell the markets they have done all they can to rescue the economy without lowering rates to grossly irresponsible levels.
Speaking of grossly irresponsible, Jim Cramer suggested yesterday the Fed should cut the FFR tomorrow by 175 basis points to 1 3/4%. Good idea, Jim !! What other bubbles can we create so that eventually when we finally have economic collapse we become Japan !! How about $200/barrel oil, Jim? Would that be a nice bubble?
50bps – what the market is expecting…. otherwise you can expect tankage. And we all know the fed will do anything possible to guarantee stock prices!
50 bps and some kind rhetoric… nothing to upset the markets, because the markets own Bernanke…..
I’m going with a .25 cut . . . gold to $1000 silver to $20, oil back to $100, maybe $110 in the next 3-4 months then a nice correction in commodities with gold down to 820-850, silver down to $16, and oil to $100.
If the correction doesn’t happen, please buckle up ‘cuz its going to get real interesting this year. If the correction happens, it means the a few more years of prolonging the inevitable.
I think they should do 0–the dollar has gone down too far and prices have gone up too far.
I expect that they’ll do .50 or even .75 b/c this fed seems more concerned with stock prices than inflation.
Granted, I’ve done pretty well: When they hired Bernake, I went short the dollar. Likewise, a lot of folks may refi…
75bps tomorrow and we get a 400 point rally for the Dow with enough fuel to 13,500 plus. We then get a correction (the usual) and back to 12,000 LOL!!!
Suge aka “Bernanke’s boy”
c, then nonsensically, a.
Beard Stroker B views himself as one who brings the dissenters together–like he did with those bad-boy Princeton empiricist and theoretician professors. Same game, different players. And I think he likes to be liked. 1/4 is not bold and handsome enough. 1/2 is rather dashing; a nicely designed wool scarf insouciantly thrown against the great headwind, and noticed across the quad by attractive Ph.D candidettes. Let the old ways pass and welcome the new. I shall cut with lust and fury.
http://www.cnbc.com/id/22900574/from/ET/
“Wall Street bond rating agencies are poised to downgrade two big bond insurers, Ambac Financial Group and MBIA, even though New York state insurance regulars would like to get a postponement until the state can develop a bailout package, CNBC has learned.
Losing a Triple A rating could be devastating for the bond insurers, preventing them from drumming up new clients — and possibly forcing them out of business.
Barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday.”
If this is true it will really rattle the markets again. Does anybody find it suspicious that this story was leaked on the same day the FED will decide about rates??
Election year!
He will do whatever it takes to make this a “pretty” picture.
Wall Street needs to be happy. Screw the savers. They are stupid anyways if they are saving so …
bottomline…long term dollar sinks…
good for exports…etc
long term inflation……..could be a possiblility
if you have a house be ready to refinance, if not be ready to buy. Time for cheap money is coming again!
0,25 because Bernanke is a pussy.
There should be no cut at all after what happened last week.
It is interesting that the comments seems to be disconnected between topics. It hasn’t been long that the topic was 5 stages of grief…
All I am seeing now is “bargaining” stage. Because you can’t bargain with the market, you are bargaining with Ben…
This too shall pass, and Ben will be irrelevant, because we will be in the depression stage. Even some bears are trying to time the market short term by going long, thinking (hoping) that they will be able to switch at the right moment (13500 seems to be the number).
People are trying to make a quick buck for a few hundred points…I know it would have been great if I could time every day and week, but I know I can’t..
So what I am saying? I don’t know what will happen tomorrow and I don’t really care but I am quite certain the market WILL find an excuse and be lower than it is before too long, say end of Feb if not next week.
The bear is just catching his breath, don’t try to get close and poke him thinking he is dead.
The recent uptick is just the optimistic nature of American public. Optimistic people stay optimistic for long but when trouble is undeniable they become willing to take huge losses in a short time(aka “ok, let’s get done with it, so we can start our slow but upward climb”).
This market is fooling people in, playing the players, hustling you…and when it is time it will not allow you to move quick enough to profit from the fall. There is a reason the blog is called “the big picture”
and that’s the way I see it.
Mr. Bernanke has got to show who’s the boss. A quarter point is higher than enough and if markets aren’t satisfied, let them tank.
You see, the FED was too criticized in Davos to support another 0,5% cut. World leaders are already looking at the bright side of a global meltdown and many respected brains also support the end of FED bailouts.
larry,
Are rising costs of food and energy due to monetary policy?
Home prices have lost 10% of their value, the stock markets have lost over 10% of their value, retailers are discounting deeply while margins and profits are shrinking, capex is scaled back, banks have negative reserves, and debt is contracting – and then, of course, there is no market at all for mortgage backed securities, and credit spreads are widening on commercial backed as well, the credit card companies are beginning to suffer loan losses….
But neither one of us should worry about the cost of a box of Wheaties – when we are both out of a job we won’t be able to afford them no matter what they cost.
By the way, I don’t have to send my mother for groceries – not since she died – and besides, they have pretzels and a dandy fondue at the piano bar, and the bartender, Joe, gets me my drinks for free, to boot.
Mich,
13,500 is not the number, it’s more like 14,000. Sure we’ll get a correction here and there, but we’re not touching 11,600 again, look what it took to get down there, a global sell off! How often do we get one of those? 11,600 was a gift, too bad it didn’t last long enough, the Fed wins. I tell you what, give me a scenario that would bring the Dow to 11,500 given current market sentiment. Let’s see Countrywide going out of business (not happening), homebuilders with tons of unsold inventory (we all know that), consumers defaulting on credit card debt (hmmmmm, might work but not at this time)…….
Bernanke will cut .5, all of those waiting for something to happen will run out onto the exposed rocks and sea bed to catch the fish that are flopping around (free fish!) – oblivious to the tsunami that is coming to sweep them away.
Fools.
Strictly off the wall from someone who should know better and stay a lurker:
No cut, but an announcement that a Feb. FOMC meeting will be held, date TBA.
Reasoning:
Axiom:
Rule #1: The Fed does not make mistakes!
Rule #2: If the Fed makes what appears to be a mistake, see Rule # 1.
Thesis:
The Fed appears to have made a mistake in cutting for an apparent market crash when it turns out it was just a bank unwinding its positions in a number of illegitimate transactions. As a result, Mr. Bernanke will not want to burn any more powder. At the same time, he does want to reassure the markets, which an irregular FOMC meeting will do. If the markets react badly, then the meeting will be held early in the month, if the markets swallow this without a hiccup, then it’s held at the end of the month.
The proof for all of our theses will, of course, come tomorrow.
A wild card:
If the monoline downgrade happens before the rate announcement and the markets are tanking before lunch, I just don’t know.
At this point, I would expect the Fed to be focused on saving the banking system. Mish’s post on the $40B plug in US banking reserves is enough of a warning for how dire the situation is. Furthermore, the inevitable downgrades of MBI and ABK will result in additional impairments to the balance sheets of the major banks, and perhaps more importantly, will keep the yield curve flat despite continued monetary easing due to the movement of capital from formerly AAA-rated bonds into a diminishing pool of first-quality debt. He has to cut before the downgrades, or the funds rate will be behind the market, and at this point the one thing he cannot do — especially after last week — is to appear to be behind the curve, so to speak.
With that proviso, it’ll be 25bp with very watchful language, that further action could happen at any time.
So… my vote is for ‘b’ and something like ‘a’, but cautionary.
to me, bernanke’s made it pretty clear that the fed will take interest rates down as fast as possible in order to stave off a major economic recession in only his second year as fed chairman. the fed will cut interest rates tomorrow by 50 bp, citing downside risks as the biggest concern with the expectation that inflation will moderate as the economy continues to slow.
i believe bernanke’s plan is to reinflate the global asset bubble but try to reign in the beast before it gets to greenspanesque proportions. if you were in bernanke’s position, wouldn’t you rather try to wrestle with an over-exuberant market than maintain an irrational vigilance towards fighting inflation in an obviously slowing economy and become known as the man responsible for letting the world’s largest economy fall into its worst state since the great depression?
early to cut, early to raise…
PS. i think suge might be exhibiting some ben steinery if he can’t imagine a scenario that would bring about dow 11,500…
humanface,
Waiting for a scenario that would bring the Dow to 11,500. Have one or you can’t think of one because there isn’t one?
Whatever they do, It’ll look and feel like a firing squad aligned in a perfect circle.
I wrote about this too in my blog. I expect a 0.50% cut with gold and stock rising, but not the dollar
I’ll go) c and c)
you really can’t imagine what might cause the dow to fall 8% from its current level? i think if the fed were to not cut interest rates tomorrow citing stronger than expected durable goods numbers as evidence of a robust economy, then the dow would be halfway there by the closing bell.
suge is a colossal idiot
i hope you are long buddy
b) 25 basis point cut and a) the same story.
How do we get to 11,500 again? Well, there is too much doom and gloom out there, so here is a rosy scenario.
After the Fed announcement, the market rallies 400 points over the course of a day or two and Gold hits $960 in short order. The market then sells off again, and then overseas sell off again. Then everyone freaks and cries for another cut next week … and this time Ben says “No. Get real.” Then we get a tantrum with the VIX in unreal territory, margin calls galore, gold selling off adding to panic, and a solid bottom is finally put in. Then Ben has some credibility restored, and he can cut rates in an orderly fashion in 25 basis point increments at regularly scheduled meetings. Then over the next 6 months the dollar bottoms and starts to strengthen as the domestic market looks attractive relative to the unsettled overseas markets.
Unfortunately I don’t see this actually happening, as the bond insurance stuff could be very ugly. I hope Warren Buffet earns an honest buck off this and saves Wall Street from itself … sparing Main street in the process.
Imagine if some foreign entity was responsible for neutralizing a fifth of the U.S. nuclear arsenal… that would be a matter on national security, wouldn’t it? Well, this is pretty much what happened last monday when the Fed was fooled by SocGen into waisting 75 of its 425 monetary warheads.
Mr Bernanke and Mr Bush must be “real” mad at the French. This is why Mr Sarkozy has made it clear that heads should be rolling at SocGen.
What do this have to do with today’s Fed decision?
– The Fed needs to keep some ammo for the future.
– The Fed must send a clear message to Wall Street that their Pavlovian training failed.
Conclusion, expect no more that 1/4 point.
Anything above would mean that Mr Bernanke knows something that we don’t. Then we would have to hope that Mr Bernanke is right in believing in his great moderator theory… But what if he’s wrong?
lol @ josh pate
Bernanke really said he would cut rates agressively, so 0,75% could be in the script, just waiting to be used…
But 0,5% more now? I think this would send the message that there’s something bigger than we all know unfolding. Everyone expects the FED to have the decency to lower it 0,25% only, if they go for 0,5% is because they really need to.
BTW: stock market could fall even with a 0,5% cut, if Bernanke signals that’s the end of it.
I meant last tuesday.
25bp. Only the extremely risk tolerant should be in the market now — clearly it is not trading on fundamentals.
Fed cuts 1/4 on Fed Funds and 3/4 on Fed Discount to bring them to parity.
two-bits is all. Too soon for more, and ECB is tending to stick or go the other way. Sometimes less is better than more. Already Washington and mortgage cos. are pushing to fix the air pump. And that dog wont hunt.
Answers:
1. C
2. Run for your life and don’t worry about paying for them until you get your rebate check!
so looks like the consensus is for 25 pt cut.
my guess:
1. 50 pt cut
and 2 a) The risk to the economy remains balanced between slowing growth and inflation;
Why aren’t the talking heads on CNBC not talking AT ALL about the core deflator and core/headlin inflation numbers???
On the day the Fed made the “emergency” cut Bob McTeer was on some show and said that he was always a proponent of the thinking that (I’m paraphrasing) once the Fed knows what it is going to do, why wait until the meeting to do it.
So…the Fed was going to cut 75 (we get nothing today) — or the Fed was going to cut 100 (what?!?!) and we get 25 today.
Seriously, this IS an election year, Ben needs to save SOMETHING for later.
50 bps… maybe 75bps… Fed has said in many recent speeches that they cut to slowly during last easing cycle…
market trades through near term resistance (SPX 1365) immediately but then gets sold.
Next catalyst GOOG – tech sector needs a kick in the pants if we want a sustainable rally, financials cannot do it all by themselves.
PAyrolls – if we are going into reccession then it will show up in labor market. This will be the next shoe to drop.
Oil – here’s a secret, the market loves high commodity prices. It will be hard to have a sustainable rally if energy and materials don’t help
The Fed should cut 0.25%.
I believe that the U.S. equity market still “tests the bottom” in general market declines. Sure we dropped to 11,600 on the DJIA, but do you really believe this will be a “V” bottom?
Almost all major corrections (also bear markets) have averages that in some fashion test their bottoms at least once. This isn’t to say that it will fall to 11,600 again but it is naive to say that we’re off to the races now.
They’ll gather round the tea serving and sing “Easy”, by the Commodores. Fighting inflation, that’s the old girlfriend, time to drop her.
Shucks, you don’t need an economist to guide the Fed, just someone to select the appropriate lyrics about ease, easing, or easy — and lead the sing-a-long.
To finish off the meeting it is ritual to have a rousing rendition of “I’m Forever Blowing Bubbles”.
Winston
What are these people talking about, I’m no fan of the FED as an institution, but the more one researches the more one realizes that the goal is in fact to mitigate systemic risk of collapsing financial markets specifically securitized debt, any benefit to the equities markets is merely windfall. The emergency rate cut likely had zero to do with a rogue trader and more to do with a collapse in credit demand. No one wanted the money. Now the FED is stuck in a situation where they’re increasing the slosh and the EFF is still rising. Further cuts could get increasingly difficult to defend. This is quite the box they find themselves in. Till there is a new asset class to target precipitous rate cuts are simply Ben Steinery.
Suge said: Mich, ….I tell you what, give me a scenario that would bring the Dow to 11,500 given current market sentiment….
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Suge, as I said, what Fed does is irrelevant, what bla bla says or does is irrelevant, excuses will be found and the market WILL go down. Why? Because that’s what common sense dictates. The rest is just details.
Think of a dude on a motorcycle, he goes fast, he has fun. So, he goes faster, there is more fun…Spectators say “that is crazy, it is not possible, he can’t ride like that”..But here he is, riding faster and faster to everybody’s amazement. He starts to think he is the best, he is untouchable, his friends think the same way rooting for him….Then…unexpectedly, a patch of oil on the road, or a runaway squirrel, or whatever gets in the way, he loses control, starts to swivel…he is more horizontal than vertical, he is probably swearing at the oil patch or the squirrel, then he realizes he is losing control, he realizes he is not invincible…then he finds another oil patch, or another excuse, and the fun ends…
Many were bearish for years, for months, but you can’t explain it to the market unless the market is ready to listen. as of January 08, they heard it, now the fear is in, the perfection is gone, the perfection is no more…it took 5 years…5 years!!! it were extended, and extended, the day of reckoning is here, and it doesnt care if Barry himself turns bullish now, it will go down and there is not a damn thing anybody can do it now..
See you at Nasdaq 1881.