Fed Cuts to 0-0.25%; Target Range, Not Funds Rate
Huge rate cut . . .
We are no longer using federal funds rate as the Fed’s primary policy tool.
This is new phase of Fed policy — their many lending programs aka quantitative easing is the new primary policy tool (hence, the range)
Press Release
Release Date: December 16, 2008
For immediate release
The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.
Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.
Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.
The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.
The focus of the Committee’s policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve’s balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.
December 16th, 2008 at 2:24 pm
This is a disaster. They tried really hard to keep the comment positive. But with saying they will keep the funds rate so low for a long time = long recession.
December 16th, 2008 at 2:26 pm
It’s called a depression my book. Fire up the printing presses. Complete desperation is upon us.
December 16th, 2008 at 2:28 pm
In the end, this will go down as one of the biggest mistakes and a horrible response! But for now, enjoy the feast on the taxpayer tit! I honestly can’t believe this kind of crap is happening! How bad do things have to be for them to respond this way?
December 16th, 2008 at 2:30 pm
you guys should be grateful!
get your money for nothing and your chicks for free!
December 16th, 2008 at 2:30 pm
If they are willing to admit flooding the system with money they expect things to be terrible.
December 16th, 2008 at 2:33 pm
Viva la Weimar!
December 16th, 2008 at 2:34 pm
John:
I agree completely. On the Bruce N Tennessee truthvision the headline says:
Bernanke admits our goose is cooked. Says this is the kitchen sink, and by God, this better work, or we are up SCWAP….
December 16th, 2008 at 2:35 pm
Saved by zero… almost.
Man, we are finally below Japan.
Let the reverse carry trade commence !!
December 16th, 2008 at 2:36 pm
But if history is any guide they will be wrong. I’m buying when I get to my targets 810-820 SPYish.
December 16th, 2008 at 2:36 pm
It’s a race to the bottom. Who can debauch their currency the most and quickest……
December 16th, 2008 at 2:37 pm
You can bet the Fed is goosing the futures to help this along.
December 16th, 2008 at 2:39 pm
But the markets love it! At least at 2:38PM. It is like dealing with a Meth head, there is no concept of reality.
December 16th, 2008 at 2:39 pm
Without a doubt, JB. Bailout of autos is next. Gotta pretty-up those year-end fund statements. The Santa Rally is true! I love Santa……..
December 16th, 2008 at 2:43 pm
There is no limit to the debuachery. You know that by now.
F*** it, this is not the best day to be short the 10-year, this yield spike down had better be brief.
No bailouts for leftback or Soros.
December 16th, 2008 at 2:43 pm
I keep hoping my monopoly money becomes legal tender in the next few months. I could really use those $500 bills to buy that Sony Z Big Screen I’ve had my eye on.
December 16th, 2008 at 2:45 pm
@Mann: Need to leave Auto Bailout for another day when the pump is most needed. If they do this right, and trickle the money out over time then maybe the market can reach new heights. What if there was a recession and no one in the market acknowledged it? Believing is reality, it works with Santa… Everything is dandy here.
December 16th, 2008 at 2:46 pm
not sure why they bothered. the only ones that get these rates are banks, and they aren’t passing them on to any body else. it has little (mostly none) affect on any retail, or commercial loans if any are even being made. its gotten to the point that this more of psychological affect than any thing else
December 16th, 2008 at 2:46 pm
Take the deepest breath you can take – we’re going down.
December 16th, 2008 at 2:47 pm
I love Santa. Maybe auto bailout next week, say 12/24 further proving Santa’s existence?
Sadly, no bailout for my SRS. Thanks Ben and Hank! Still not selling though. Actually buying more on any big dip and holding firm until the real carnage begins next year.
That’s OK, my longs are keeping me level or better during this la-la land rally.
December 16th, 2008 at 2:50 pm
Big shock – everyone on CNBC “loves” it.
December 16th, 2008 at 2:51 pm
Wally is right, now we begin an even darker chapter of this tale of woe:
I’m not sure some of the younger kiddies at TBP realize this, but:
From some point not too far from here, both BONDS and STOCKS can go down at the same time.
STAG-REFLATION, ain’t it grand???
of course that is commodity bull heaven
December 16th, 2008 at 2:53 pm
I’m long food.
December 16th, 2008 at 2:55 pm
Could this be the sign of the start of another commodities boom cycle?
December 16th, 2008 at 2:59 pm
No screaming rally… no shorts to cover, no buyers??
December 16th, 2008 at 2:59 pm
“Could this be the sign of the start of another commodities boom cycle?”
They only get pricing power from demand, so what do you think?
December 16th, 2008 at 3:00 pm
But what end-user needs commodities?
December 16th, 2008 at 3:02 pm
I really hope Ben is having fun…dude gets to actually carry out his theory in real time. No models, no algorithms. Turned out great for Greenspan, right?
December 16th, 2008 at 3:07 pm
I’m long ammunition and cigarettes.
December 16th, 2008 at 3:07 pm
@ leftback 2:59pm
I too find this a little strange; in the old days this would have been good for a half dozen handles. Not sure what the technical guys are saying but S&P def’n seems to have a lid on it at 900.
Maybe this is just setting up for a good dump for options expiry week.
December 16th, 2008 at 3:08 pm
Another piece of bubble gum in the dam. Speaking as a trader, I greatly appreciate it. The lack of volatility in the last week has been a drag.
December 16th, 2008 at 3:15 pm
@ Short Man:
No shit.
SPX should be tickling 1000 after this monster rate cut if there weren’t selling pressure. I am just itching to short the financials using the new triple ETF. Wait for it….
December 16th, 2008 at 3:18 pm
@lb: Which triple ETF is that again?
December 16th, 2008 at 3:19 pm
GOLD! Good luck in getting any.
December 16th, 2008 at 3:19 pm
That would be FAZ
December 16th, 2008 at 3:20 pm
some weird bids and offers in options market… maybe madoff positions being unwound? i’m going to have to hit some of these
December 16th, 2008 at 3:23 pm
Yup. FAZ it is – there is XLF resistance at 13 and 13.5, 14 worst case scenario.
Think I will go long FAZ at the close with a 15% stop and maybe double down tomorrow.
Patience… not ready yet. A lot can happen in the last 15 minutes, as you know.
December 16th, 2008 at 3:24 pm
karen @ 2:30
Money for nothing, yes.
But chicks for free?
December 16th, 2008 at 3:29 pm
Mannwich:
Is Cramer still saying Real Estate is a golden opportunity right now? He was about 30 minutes ago.
December 16th, 2008 at 3:30 pm
The action today was meaningless – real world FF have been 0-25% for the last month. The more important meaning is the signal that the Fed has no more rate options and will have to utilize more extreme measures.
Overall, this is extremely negative Fed sentiment.
December 16th, 2008 at 3:33 pm
Bernancke to retirees- you’ll like cat food.
December 16th, 2008 at 3:33 pm
sheesh… seems I’m making more $$ being unemployed
Not sure what all this means, and I’m not greedy, so dumped 1/2 of my DGP (almost+40%) and let the rest ride into the next year.
December 16th, 2008 at 3:37 pm
You people are all wrong as usual, especially my friends Mannwich, lefty, and karen without the capital K.
Let the nominal value of the Dow Jones False Prophet Index guide your path to salvation. Embrace it, let it dictate your monetary policy. Flog the dollar to keep Bob Doll and Larry Kudlow employed. Enjoy the Apocalypse, and stop worrying so much about data. Leave reality to dolts like Ritholtz (hey, that rhymes!). Don’t be such weanies. The Dow is almost at 9,000 – NINE THOUSAND. With the Dow that high, you can pretend we were in a booming economy. Breathe in the illusion of wealth…AAAAHHH! And sing:
Happy days are here again!
December 16th, 2008 at 3:39 pm
@Calvin: Yes, of course. In fact, he urged people to buy real estate again. Said rates would probably go to 3.5%. And he was screaming and carrying on like a drunk madman.
Good times. No, wait. Not good times. Just what we need to solve the original problem – get it going again X10. I don’t think it will work though. People know that game is so 2007. If it does get going again at all, we’re selling our home during the run-up. Anyone interested? Nice location in SW Mpls?
December 16th, 2008 at 3:40 pm
I now think Bobo the Clown should be the next Fed Chairman.
December 16th, 2008 at 3:43 pm
I put some FAZ on and some TBT, we’ll see how it works out.
Getting some crap about this one from my trading buddy….
C’mon suckers, take those profits in XLF on your way home.
Hey, it’s still a bear market… let’s use that volatility while we have it.
Before it all drains away and the market grinds along at SPX 650 for a year…. ah, the 70s…
December 16th, 2008 at 3:45 pm
Sorry for the double post, but I was struggling to find the proper analogy, and it came to mind just after clicking “submit”. If you have ever seen “Beneath the Planet of the Apes”, the DJIA is the Alpha-Omega bomb, and we are the mutant humans. That is our future unless we let economies drive capital markets again rather than the other way around.
December 16th, 2008 at 3:45 pm
Finally they admit reality. After 10 weeks of keeping rates lower than the target, they tell us the gig is up.
Hey anyone have any idea what the new “Term Asset-Backed Securities Loan Facility” is all about ? sounds like the Fed is going to start writing mortgages, can I get a refi ?
December 16th, 2008 at 3:48 pm
They can pore all the money in the world into this hole and it won’t do any good. There is no demand anywhere. Everyone I know already has more credit than they can handle.
December 16th, 2008 at 3:48 pm
This is turning out to be one of the more bizarre days I’ve seen. I would never have guessed a powerful rally in stocks coupled with a strong move in the Yen and the Ten Year. Ben Bernanke and Co. are basically telling people to go forth and put on risk and yet the long US debt is rallying hard and the Yen is trying to go back to last weeks highs. It’s all very interesting. I’m hugely bearish the Ten Year Bond and the Yen right now, but I am not short yet. I need to see some peaking action first. The Dec Ten Year is now trading in my 129-131 yearlong target range right now, so I’m expecting to see peaking action very soon.
- AT
December 16th, 2008 at 3:49 pm
That’s “pour”. Or “poor”
December 16th, 2008 at 3:51 pm
Check out those currencies….wow! back to the future…?
December 16th, 2008 at 3:55 pm
My pile of JPY is looking good. Shorted the financials, there might be bad news overnight, eh??
AT – currency and economy go to hell and everything rallies…?? Beautiful.
December 16th, 2008 at 3:56 pm
Bernanke-san. Lates so row and me so holny, me so holny. Me rove you rong time.
December 16th, 2008 at 3:58 pm
@Mannwich:
He’s already been chairman once…isn’t he getting a little old?
December 16th, 2008 at 3:58 pm
People are still dead keen to click the buy/sell button furiously sending the currencies and index’s rocketing this way and that. I mean really…the effective rate has been what it is for weeks hasn’t it? We already know things are bad and getting worse. Whats new?
Couldn’t this just be a correction for the USD before it resumes it’s new trend? Deflation is the order of the day so whats the big deal…? Do people have their minds in the 70’s? We DO NOT have a wage price spiral and are very unlikely to get one.
Or is this a forecast for war?
December 16th, 2008 at 4:00 pm
@leftback: Absolutely agree about the Yen… FXY, FXF (Swiss Franc) and GLD/DGP are propping up my portfolio right now, while my tiny amounts of SKF, EEV, and FXP are taking a beating. I’m just thinking a bit intermediate term here, but how the hell is the Fed action GOOD news? Our central bank is either insane or incompetent. I’m not sure which one would be more reassuring…
HCF
December 16th, 2008 at 4:01 pm
@ AT:
Yeah, I-Man had to reverse course on that short the yen call from a few weeks back…
That one didnt work out so hot.
On the other hand… this has been a really fun market to trade. The intraday price channels have been oh so fun for the short term swing trade.
I’ve been playing the cheap seats: DRYS, AKS, UYG… just map out the channels and buy at the bottom, sell at the top. Not catching any huge moves per se because I’m keeping position sizes small, but in percentage terms, they are nice trades for sure.
@ Left:
Commodity lift off imminent… What say you upon the DYY?
December 16th, 2008 at 4:04 pm
Kudlow: “That’s a 50 pointer!”
Cramer: “75. 3% up day from her.”
Brody: “We’re gonna need a bigger boat.”
December 16th, 2008 at 4:17 pm
Euphoria is back.
December 16th, 2008 at 4:19 pm
@karen…chicks are never free. On that score, I just bought my wife a one-ounce gold pendant for Consumermas.
I figure it has a better chance of being worth more this time next year than just about anything else I coulda bought.
December 16th, 2008 at 4:19 pm
Things that make you go mmmmmmmm… oil ended up down on the day.
December 16th, 2008 at 4:24 pm
CNBC Sucks @ 3:37
Hey, how about a prediction of your own now and then?
December 16th, 2008 at 4:24 pm
@lb. be very careful with that long yen trade, if that’s what you have on. it seems headed for the 1.1350 “double top” or maybe a marginally higher high into 114, but man, i would be treading very carefully there. I’m so bearish the Yen and Ten Year right now that I cannot even see straight. Those markets finished near highs, so probably more follow through overnight, but I just can’t overstate how bearish I am at this point. If the yen can decisively take out 114 (87.7) then I would change my tune and would be forced out of shorts. If the 10 yr can take out 131′15, then I would be forced out of shorts there as well. I tried to short the 10 yr today and got quickly stopped out. I’ll try it again tomorrow.
If the S&P can hurdle that 918 level we should see some fireworks. There is a ton of money parked in US debt and money markets and out of stock/commodities/corporate debt. Price action will follow the path of greatest pain for most investors.
- AT
December 16th, 2008 at 4:41 pm
If you are keeping score at home, here is a link to the Bernanke Deflation playbook: we are almost to the point of drawing new plays in the dirt.
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm
December 16th, 2008 at 4:42 pm
I don’t know why everyone’s down on Ben. You all know the writeoffs took away fictional liquidity that most investors and businesses believed to be real. The servicing of debt in real terms was increasing and killing trade. To stop deflationary psychology, we have to replace the fictional liquidity with real liquidity.
We aren’t Japan or Weimar Germany, because we hold the printing press to the world’s reserve currency. The USA controls its own destiny to a much greater extent than those countries. We can fight deflation. It doesn’t necessarily take spending more of GDP than in the Great Depression. It will help a lot if we avoid Smoot-Hawley measures.
No, I like giving the newly minted real liquidity to the jerks that knowingly created the fictional liquidity. I agree that’s a big deal and won’t defend that.
People used to say “why blow serial bubbles on the way up and not let nature take its course on the way down?” As I started to observe deflation, I “get it”: Because we all become RICHER when we work and exchange goods and services with each other — when the velocity of money is higher — than sit at home. We are no longer an agrarian people. For most people, there is no practical path to self sufficiency.
When business cycle turns and activity picks up again, hopefully regulators in the new administration don’t take the “look-the-other-way” approach when reports of fraud come their way. That way, the twists don’t have to be so gut-wrenching.
December 16th, 2008 at 4:42 pm
Start of 3rd paragraph should read: “No, I don’t like…”
December 16th, 2008 at 4:43 pm
Tomorrow should be interesting. S&P tried real hard to break 920 last week and failed. Failed again today.
In the meantime TBT is down 4.2% for a new 52 week low. Wow.
December 16th, 2008 at 4:44 pm
AT: Thanks. It’s not exactly a trade. More an actual pile of physical currency. I was paid in JPY on a trip a while ago and I have a beer bet on that it will appreciate 20% since then. I am almost there. Agonizingly close in fact… just 0.5% more – and I really like beer. I am also so short the 10-year that it hurts.
Anyone else expecting a big short-term rally in corporate debt, maybe after the EoY rollover? No way that cash stays parked in Treasuries after January 1. But I would get short corporate credit again after the rally, mind you.
I-Man: I am liking the UYM and the DYY on the next pullback, which seems overdue. Good work on DRYS. That was a terrific squeeze to jump on, nice going. I am still long COP, VLO, GDX and some uranium stocks that Karen thinks are rather eccentric.
December 16th, 2008 at 4:47 pm
€/$ is above 1.40 right now and this is the fastest 10+ cents pumping up as I have ever seen.
Lets hope it will climb to 1.80 on this pair in a short time so at the FED they finally understand what it takes to get the trade imbalance down and get those obese Americans to work again…
December 16th, 2008 at 4:52 pm
I’m confused. According to the theory of the Plunge Protection Team, the Fed has been doing all of this for 21 years. Where’s the news?
December 16th, 2008 at 4:56 pm
wunsacon @ 4:42
Wait until foreigners start demanding that Treasury bonds be denominated in GBP, EUR, CAD or JPY.
December 16th, 2008 at 4:59 pm
$xjy going to 120+ probably, so lb will get his beer (maybe the chicks, too)
AT, look at a 20 year chart of the yen… 12o was in the cards a few years ago but untold leverage came along and reshuffled the deck.
I am shorting nothing at this time (except the USD via gold.)
December 16th, 2008 at 5:00 pm
The fed is out of ammo…I feel like Superman now.
December 16th, 2008 at 5:04 pm
@ karen:
I’ve been cautiously loving GLD since it fooled me around that 73 level when it broke that Head and Shoulders pattern… cautiously, in the sense that I’ve been scared to go long it for some bizarre reason.
If GLD can clear the downtrend for real this time its on like donkey kong.
That said… I dont trust it until it trades back down to 80 and bounces off the downtrend it poked out of today.
This is the year of the false breakout… I’ve learned my lesson.
December 16th, 2008 at 5:06 pm
Banks will lend/invest when they recognize that the value of their cash will depreciate. Changing investor/consumer/business psychology from deflationary expectations to inflationary expectations will force people to put existing capital to work.
In deflation, investors with cash should just hold onto it to earn a rate of return.
In inflation, you have to put your money somewhere other than cash. Some will put it in gold. (Okay, not productive.) But, some will invest it in businesses in hopes that those businesses churn off more cash later. (E.g., biotechs.)
…
If you think deflation is good, think of all the biotechs that were going to shut down because no one wanted to take risk. Fewer biotechs = shorter lives.
…
To be clear, I favor printing checks to people — everyone — over almost any other kind of bailout. I also would like to see Fannie/Freddie wound down and the removal of tax incentives/distortions in the housing market.
…
I’m not sure who I’m responding to. I guess I’ve seen a tremendous level of “Bernanke-bashing” on other blogs. (A little less so here.) I’m guessing MANY of those bashers weren’t vocal/critical years earlier during the bubble and now want to vent at the cleanup effort. Bernanke is now “damned if he does, damned if he doesn’t”.
December 16th, 2008 at 5:07 pm
@ Steve Barry:
I thought you WERE Superman…
December 16th, 2008 at 5:07 pm
Steve Barry @ 5:00
They still have the printing press.
They could use it to buy houses, cars, boats, anything.
December 16th, 2008 at 5:08 pm
“People used to say “why blow serial bubbles on the way up and not let nature take its course on the way down?” As I started to observe deflation, I “get it”: Because we all become RICHER when we work and exchange goods and services with each other — when the velocity of money is higher — than sit at home. We are no longer an agrarian people. For most people, there is no practical path to self sufficiency.”
My, it seems we are all monetarists now.
Demand is collapsing because it was a monetary-fueled illusion to start with.
Trees do not grow to the sky, no matter how many dollars they are fertilized with. We can’t continually grow richer. The simple math of biological organisms, of which human economies are a subset, just don’t work that way. Even so, if we are to be good monetarists, we must realize that money is nothing more than a representative of something else. That something else is value. Printing more and more of it, while real values stay the same or declines, demands the money become less valuable.
Now we thrash about attempting to recreate the illusion of value-creation that drove us off this precipice in the first place.
December 16th, 2008 at 5:10 pm
DL:
Thay have had the printing press for 25 years…but they never had rates to zero before.
December 16th, 2008 at 5:10 pm
I guess I should collect my last few thoughts and post it under an entry to my own blog entitled “Sympathy for Bernanke”.
Woo! Woooo!
December 16th, 2008 at 5:11 pm
We are freaking Japan now…except without the savings and 359% debt to GDP…we are Japanzilla…any money printing will be vaporized.
December 16th, 2008 at 5:16 pm
What created the precipice was the massive amounts of liquidity created through FRAUD. The liquidity was taken away leaving us to discover we’re no longer on a precipice but in freefall.
The “illusion” was in the details. Fraudulent mortgage appraisals, income statements, ratings, etc. created debt instruments with face value but no real value. That was the illusion.
While the bad debts have already been written off, the good debts have not. But, when so much liquidity is taken away, even the “good” debts become unservicable, leading to cascading defaults. Recreating the original liquidity levels mitigates the damage. It keeps trade going and keeps people employed.
December 16th, 2008 at 5:19 pm
I would not fight this fed action.. They want to drive down rates.. especially mortgage rates. Get ready to refinance. They are inviting investors to take on more risk by making the risk free t-bills so untenable that one has no other option but to stop hoarding cash. Looks like they are OK with Gold moving up. I guess they can’t manipulate everything. They also want to slam the shorts into year end.
December 16th, 2008 at 5:20 pm
So there you have it, in the small dimly lit poker room, the game goes on for days.
Bernanke: ” I’m all in.”
The players are huge and the pot is up to $7trillion US. Bernanke isn’t worried, he can make more at any time. The Chinese have been winners to date, but they are sweating since it appears Bernanke has the machine to make their winnings worthless. The tax payers are shell shocked, they are in way over their head and they are starting to figure out they are the mark in the game, it’s either the taxpayers or the Chinese and maybe both.
The players in this little poker game:
Bernanke (He’s all in but he has the printing press backing him up)
Hank Paulson (Have to wonder who he’s playing for, it isn’t clear, the banks, himself who???)
The Tax Payers (They’re in way over their head, really 99.9% haven’t a clue of what happened)
Bush (He is the glad hander, telling jokes about his college drinking days and not paying much attention)
The Chinese (Talk about nervous they have been the winner to date, but they have figured out Bernanke has the machine to make more and make their winnings well not worth a Chinese nickel)
The Banks (aka friends of Hank, so far they have been taken care of but they are sweating)
As the maid brings more drinks she is thinking: How can this end well, she seems to be the only one that sees the folly.. She has made $23 in tips but figures it won’t go far when the inflated big pig blows.
Stay tuned………………………
December 16th, 2008 at 5:27 pm
@farmeral…what’s the maid wearing? Just trying to get the complete picture here…
December 16th, 2008 at 5:32 pm
Looks like Steve Jobs has had a cancer relapse. Now he’s not at Macworld and AAPL is taking it hard.
December 16th, 2008 at 5:32 pm
Thats my opinion though.
December 16th, 2008 at 5:35 pm
So I guess there is no demand for ” sub-prime mortgages” now?
What do you call it, a sub zero-subprime?
December 16th, 2008 at 5:38 pm
Wunsacon,
I can appreciate you sympathies but the devastation of jobs and the economy is a result of misallocations of resources – there is no monetarist solution – there is only monetarist blame.
December 16th, 2008 at 5:39 pm
I-Man: “on like donkey kong” is classic. Well done.
Remember it’s still a bear market out there, don’t chase…
Opportunity will knock soon enough.
December 16th, 2008 at 5:39 pm
To advertise the new mortgages, they can use “Subzero” from the Mortal Kombat franchise.
Hmmm….Bernanke reminds me a little of Kano…
December 16th, 2008 at 5:40 pm
Well, I suppose in the following quarters we will officially find out if D Kass was right on his call of the consumer being “spent up” not “pent up”. Living in a neighborhood that is a good cross section of the economy (blue collar, white collar, low, med, and high income…), I know of no one that is doing anything but pulling back on spending. Too much unknown. People are looking at budgets–and saying the word “budget”, a word that I’ve rarely heard in the past 5-7 years. People are quietly paying down helocs, visa, mastercard, store cards. Banks are still repairing their balance sheets. I will be shocked is there is any long term increase in lending.
I am dubbing the current rally the “Hope Rally” It got a continued breath of life when Barrack’s Saturday fireside chats caused traders to fear flattening out on Fridays. This is a notable change. Since then, Barrack has announced cabinet members and stimulus plans over the weekends. It is great strategy! But it fixes nothing. Now the Fed is going to kick it up a notch–maybe. Technically, 1100 on the S&P is extremely possible and likely, but it is a wicked bear market rally. I wouldn’t stand in the way of the rally. Respect it, but like a house with a bad foundation, you can plaster and caulk the cracks in the wall, sand and paint, but the foundation is still bad. The fed is still addressing symptoms, not problems. What follows hope is dispair. When the economy doesn’t right itself fast enough, the “Dispair selloff” will occur.
I saw a report that shows it is better to be 6 months late to the bottom than to be 6 months early… There is no point in being the hero storming the beach. Let the beach head be taken by someone else. Be a General and survey the damage after the battle. Privates get killed. I don’t know of too many Generals meeting that fate any way but from natural causes…
Do I speak metaphorically too much? Does it make sense?
December 16th, 2008 at 5:43 pm
I have a couple of things that occured to me..what about Paul Volcker…is he wondering why he took the job? Follow me here…his reputation was already made…he saved his country once from stagflation…now Ben and Hank are working at something quite different…how do you tell if they succeed?
I mean, if there is no depression, well, there wasn’t going to be one anyway…(right?)…and we will be some far in deep debt do-do, our eyeballs will be brown..so then he is remembered as being right once and wrong once since there was no depression and every man, woman, and child in
America owed the Chinese 4 billion dollars each.
What if there is a depression? Well, damn old Paul Volcker must have just been lucky the first time…right? He didn’t save us from a depression and we still owe the Chinese 4 billion dollars each…
And what about the Chinese here? How are they going to keep their currency the most undervalued in the world so that they maintain their export oriented economy? Can they send us stuff for free? Can we sell them Ben and Hank and Paul?
And it is time to eat the evening meal…here in the south that would be supper…back later..
December 16th, 2008 at 5:43 pm
Winston, the misallocation happened. We can’t fix what happened. We can prevent the sudden disappearance of the illusory IOU’s from destroying the rest of the economy.
I like capitalism’s promise of creative destruction. Really. Just not so violently. A lot of people get hurt in the process.
Please take this monetarist salve and apply directly to the forehead!
December 16th, 2008 at 5:47 pm
Winston, that reminds me…:
http://www.truveo.com/Theodoric-of-York/id/3366775194
December 16th, 2008 at 5:47 pm
Today the Fed did exactly what a standard Seinfeld episode did.
Nothing.
1) The rates were already trading at this level.
2) The Fed has already been holding crap for banks.
December 16th, 2008 at 6:01 pm
Several other things today that make me go mmmmmm… Why did the 10 year treasury yield drop like a stone? I mean if everything is going to be honky dory in 6 months, shouldn’t you be selling your long bonds and buying stocks? If the economy is on the mend, why didn’t crude participate in the rally today?
December 16th, 2008 at 6:04 pm
@ Borchers: Well said. Fed has crap for banks and shit for brains.
Where exactly do they plan to go from here? Rate cut from 0.25% to 0.15%??
As Todd Harrison said, the FED’s last bullet will be pointed inward.
I am net short tomorrow, but not by a lot (~2:1 short:long), I think it’s time for a little reversal.
Could be wrong, but this market has had a habit of spanking those who come late to the rallies.
Trees don’t grow to the sky – especially in the middle of a bear market.
December 16th, 2008 at 6:16 pm
Left what they said today means at any time they can put the rate at 0% without an emergency meeting.
December 16th, 2008 at 6:18 pm
Now stop it jmborchers. You’re taking all the fun out of this fed-bashing. Especially since you’re right. None of the fed governors ever got an official vote. It’s been a done deal since the TARP.
December 16th, 2008 at 6:21 pm
SteveC,
You are wittnessing a liquidity trap. All that money and free loans to financial institutions is going to deal with the derivatives deleveraging. It is NOT going to house, boats, land or anything of real value. There was way too much debt. So the end result is that “we the people” are still in a deflationary environment. Things will go on sale but with jobs disappearing even faster, the tide won’t turn back to the “prosperity” illusion we’ve experienced. Bernake is pushing on a string. He’s to cheap and greedy to understand that it’s time for a reverse income tax based on the size of your capital. Social Security payments should have been jacked up 30 or 40 % instead of the TARP bailouts. I think that greed is a state of mind that destroys logical thinking.
How about this?
“So why do we need more jobs? Only because we are too cheap and so poorly informed that we fail to realize that a cash payment to everyone, at least at a subsistence level, should be viewed as a dividend. It’s something everyone should receive as the benefit of our incredible producing economy. It should be treated as a HUMAN RIGHT.
The situation does not require that someone else should be taxed in order for that dividend to be provided. This is not a transfer payment. It is not a share-the-wealth scheme. It is the acknowledgement by the economic system that the universe is bountiful and abundant. Modern industry has tapped into that abundance. Today the abundance is being stolen by the bankers and their debt-based monetary system. This is what must be taken back by, and on behalf of, “We the People.”
If you want to read the history of dividend-economics, study the history of the worldwide Social Credit movement. I am not going to repeat that history here. I have written about it in many articles over the past two years, most of which can be found at http://www.GlobalResearch.ca . It’s one of the basic themes in my new book, We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008). You can find a lot of information about Social Credit on the internet, including the website for the Michael Journal in Canada at http://www.michaeljournal.org . “
December 16th, 2008 at 6:22 pm
The Fed. has stated it’s actions have been ineffective. O.K. – that’s settled. Now, with it’s back against the wall, anything goes. Very reassuring! They are going to buy up everything? Who are they kidding? There will be more things coming on the market- the tidal wave that will absorb the quantitative approach. Their final fiat will be to request legislation that prohibits selling not realizing that by then there will be no selling since buying has stopped.
December 16th, 2008 at 6:27 pm
I can give you one thing, that if enacted tomorrow, would make things brighter….
Tax certificates of deposit at a lower rate than earned income….you need money to lend…here it is…might as well…there ain’t a hell of a lot of capital gains gonna go on many tax returns next year anyway.
December 16th, 2008 at 6:29 pm
Splain to me … What happens to the Money Market Funds?
December 16th, 2008 at 6:32 pm
What happens to people on fixed incomes here? What if you are 75 and been retired for 10 years…do you step in front of a bus? Does Ben realize what these extremely low rates are doing to the elderly?
Does anyone speak for them?
December 16th, 2008 at 6:35 pm
Bruce at this time $1 earned yesterday is more powerful tomorrow as long as prices keep coming down.
December 16th, 2008 at 6:39 pm
@ Bruce:
Only debt and leverage has a voice in the halls of the armed camp that is The Oligarchy of America.
Savings sit silently, by the flickering camp fire, in the chill stillness of the long winter night.
December 16th, 2008 at 6:40 pm
In monetary economics, a liquidity trap occurs when the nominal interest rate is close or equal to zero, and the monetary authority is unable to stimulate the economy with traditional monetary policy tools. In this kind of situation, people do not expect high returns on physical or financial investments, so they keep assets in short-term cash bank accounts or hoards rather than making long-term investments. This makes a recession even more severe, and can contribute to deflation.
From Wikipedia…and AGG is so right.
December 16th, 2008 at 6:40 pm
If the SubPrime brigade can’t afford mortgages at these rates, perhaps we may live in hope that the Fed/Treasury will now get it that these folks shouldn’t be in these houses because they can’t afford to buy? Prices WILL revert to the mean irrespective.
So what next? The Democratic Fed prints money, buys houses and pulls them down?
December 16th, 2008 at 6:44 pm
Has it really been about “affording a mortgage” vs “why the hell get a mortgage, even at 1%, if the value of the underlying house keeps plunging?”.
Cramer is on telling the booyah brigade to buy real estate.
December 16th, 2008 at 6:57 pm
Cramer is the best sign I’m doing it right be being mostly in the opposite direction.
December 16th, 2008 at 6:58 pm
I personally can’t wait to pawn off our house on one of Cramer’s ditto-heads at an inflated price. We’ll take the equity and get the heck out of dodge for a while. Thanks Santa!
December 16th, 2008 at 7:01 pm
I think the rally continues tomorrow. At least I hope it does. Then I might bail for a quick pullback. I think we get the end of the year window dressing on low volume though. Gotta get above 920 and hold.
December 16th, 2008 at 7:02 pm
I’m begging for DOW 10K and S&P 1-1,100K so I can get out of my longs for a while can call it a day. Please Santa…….
And, yes, if that happens, I’ll owe karen that case of wine. Start picking it out now.
December 16th, 2008 at 7:04 pm
It’s pushing on a string because huge amounts of debt/credit was written off very quickly. The economy doesn’t turn on a dime. These efforts will have an effect. Slowly and to one consumer at a time.
Everyone always says there will be years of pain but then why wring our hands over the obvious fact that these measures won’t, for instance, make the Hummer business unit viable again?
A lower mortgage rate means that in *rationally* priced markets — not where I live, unfortunately– I can now afford to buy a small house instead of rent a smaller apartment. No, I’m not following Cramer’s advice. I’m looking at my own situation. If I lived in one of those rationally priced markets, I probably would buy now from one of the weaker hands — who can take my place in an apartment.
December 16th, 2008 at 7:10 pm
Well, if the whole world tries to cut rates simultaneously….who wins? Who exports to whom? Who imports from whom? If every country’s currency is pushed to AWAP..(as worthless as possible)..how does a rational investor make a long term decision? Will we have worldwide ZIRP next week?
…stay tuned…
December 16th, 2008 at 7:13 pm
@Bruce in TN: That was sort of my point in my post above:
Mannwich Says:
December 16th, 2008 at 2:36 pm
It’s a race to the bottom. Who can debauch their currency the most and quickest……
Wouldn’t we “win” because the dollar is still the world’s reserve currency or am I off base here?
December 16th, 2008 at 7:18 pm
Car deflation.
16 million cars sold 2007..
9 million 2009.
http://www.marketwatch.com/news/story/Car-deflation-looms-2009/story.aspx?guid=%7BCE5E35EB%2D250B%2D4F6E%2D91B8%2DA06F4AAEF8A9%7D
December 16th, 2008 at 7:22 pm
I wonder what the car numbers look like if you break out leased vehicles vs purchased and how much of this car situation all comes right back to credit rather than lack of demand. Not to imply the demand reduction isn’t real, but it isn’t the whole picture either.
December 16th, 2008 at 7:24 pm
ZIRP speed ahead Scottie. Aye, aye Captain. Notice the free fall in the dollar today? More to come. But you could figure where they would eventually lead us from the direction of their actions. It’s beginning to be a question of solvency. The cost of protection against deteriorating government creditworthiness is surging for every nation. Five year swaps on the U.S. trade at about 66 basis points, a six-fold increase in six months. Do the math.
December 16th, 2008 at 7:28 pm
Peter Schiff is putting on an epic performance on Kudlow as I type.
December 16th, 2008 at 7:32 pm
Mannwich:
As usual, I agree pretty much with your thinking…now for you, that could be bad….
December 16th, 2008 at 7:45 pm
To bad I missed Schiff’s performance but Kudlow just talks over his guests that he doesn’t agree with. So why invite them on Larry? Oh, to claim that you are providing contrary opinions. Right…
December 16th, 2008 at 7:48 pm
THe video will be up on cnbc later tonight I am sure. Actually Kudlow and Schiff agreed on quite a bit tonight. Schiff really smacked that puppet Wayne Angel like a red headed step child, it was a must see.
December 16th, 2008 at 7:53 pm
I’ve been reading these boards for a long time and I have never seen as many opinions that are all over the place. Obviously the FED and Treasury have succeeded in giving market participants what they hate the most – uncertainty.
December 16th, 2008 at 7:57 pm
Thanks Ventura2012 for the heads up. I’ll check cnbc later for the video. Maybe Kudlow’s beginning to see the light? Yeah, Wayne Angel is another has been.
December 16th, 2008 at 8:01 pm
http://www.rttnews.com/CorpInfo/economiccalendar.aspx
In follow up of my car deflation note above…new car registrations for November were down 26% in Europe…were down 15% last month…see page 1.
The car business will deflate no matter what next year…and the painful changes will have to come.
December 16th, 2008 at 8:08 pm
@ JustinThe Skeptic
Uncharted territory… that’s why I sold 1/2 of my gold stock today. If gold tanks [for a few weeks] then I’ll buy more.
There are answers on this thread to questions that haven’t even been asked yet :/ Very hard to connect the dots when new dots keep popping up, dots keep moving… or just completely disappear.
December 16th, 2008 at 8:09 pm
Somebody above suggested that Bobo the Clown should be the next Fed chair. I’d like to point out how ridiculous this suggestion is. Bobo would have handled this completely differently.
First, Bobo would have come into the arena in a car with 10 or 12 other clowns and driven wildly around, abusing the car until it started to chug, miss and finally quit running.
Bobo would have stayed in complete denial while everybody in the audience knew what was happening. Then he would have jumped out with a completely inappropriate tool – let’s just say a fire extinguisher that said “interest rate cuts” and start spraying everywhere. This would have no effect, but Bobo would have continued to spray. Another clown, let’s call him Hank, would decide the car was out of gas and run out of the arena, returning with big buckets of gasoline which he would use to douse the car, getting it everywhere but in the gas tank. Finally, Bobo’s fire extinguisher would be empty and at that point the car would burst into flames.
The difference between Bobo and Bernanke, of course, is that the crowd would applaud Bobo’s performance because they would know he was trying to be funny.
December 16th, 2008 at 8:20 pm
wunsacon, you are spending a lot of time with a rah-rah for how we can beat deflation. Remember that until 2 month ago Benny was not fighting deflation. He thought he was fighting a business cycle recession and thought he would create liquidity by giving massive amounts of cash to Wall Street because they were the hub of our economy and to support them would be to save Main Street.
He was, and is, wrong. He was so convinced that the government helped worsen the Great Depression that he had to hammer that nail to death. Next, he’ll be wanting to start a world war because that’s what it took last time.
December 16th, 2008 at 8:23 pm
wunsa-
take a peek at this, from the archives of the ’30s:
http://www.youtube.com/watch?v=99Dzdc1H0wM&eurl=http://www.itulip.com/
December 16th, 2008 at 8:54 pm
Wunsacon,
Are you saying that Bernanke has a dwarf in his belly? Well, that would explain a lot.
Borchers,
I agree that nothing much changed today except this: the Fed now has openly declared war on deflation.
December 16th, 2008 at 9:25 pm
Most cars in the US and UK, especially Mom’s SUV (aka Chelsea Tractors in UK) were purchased for many years using MEW/0% Finace/Incentives/All of the above. It’s all part of the same consumer de-leveraging. Perhpas in the next cycle we can think about sustainable growth? Not a hope as long as short term incentives remain the norm.
December 16th, 2008 at 9:27 pm
Effective Fed Funds Rates From the St. Louis Fed Reserve (hope the links work,they have graphs
going to the mid 1950’s):
Monthly on the 1st of each month: Jul 2.01, Aug 2.00, Sep 1.81, Oct .97, Nov .39
http://research.stlouisfed.org/fred2/series/FEDFUNDS
Weekly: 11-12 .28, 11-19 .36, 11-26 .56, 12-3 .49, 12-10 .13
http://research.stlouisfed.org/fred2/series/FF
Daily: 12-8 .12, 12-9 .13, 12-10 .11, 12-11 .14, 12-12 .15
http://research.stlouisfed.org/fred2/series/DFF?cid=118
December 16th, 2008 at 10:14 pm
Yen watchers –
It is nearing completion of an 18 month rally – http://kevinsmarketblog.blogspot.com/2008/12/long-term-view-of-japanese-yen.html
December 16th, 2008 at 10:34 pm
gregh: on yen chart there….
I love how this guy is saying “It’s amazing how it’s sort of identical….” in price movement and duration. This guys needs to study a little Elliot Wave….that is an ABC pattern up from the lows and we’re near an A=C target. We’re also near the 78.62% rebound of the ENTIRE decline from the 1995 highs to the 1998 lows. The 113.50-114.00 is a VERY critical resistance for the Yen in my view of things.
- AT
December 16th, 2008 at 10:57 pm
Mark E Hoffer, that video is gold.
The masses still believe in that Keynesian bullshit today. The Austrians were right all along.
December 16th, 2008 at 11:58 pm
Jono,
here’s EJ’s take that he fit around that YouTube:
http://itulip.com/forums/showthread.php?p=66592#post66592
December 17th, 2008 at 8:55 am
Excess of clarity. Apparently Gentle Ben thought there would be excess clarity if he announced rates were cut to zero so he mumbo-jumoed about ranges. So here we are folks, no effective solution to the RE disaster yet, unemployment zooming, consumers on strike, TARP tapped out, and Bush mulling formally starting another great depression by pushing the auto industry into BK. Happy days are here again…
December 17th, 2008 at 3:39 pm
>> in short-term cash bank accounts or hoards rather than making long-term investments. This makes a recession even more severe, and can contribute to deflation.
>> From Wikipedia…and AGG is so right.
Who says the lower rates make a recession more severe? One branch of economists, who appear to be legion in the blogosphere and in wikipedia. Imagine the hoarding if Treasuries were paying higher interest rates.
The complaining comes from one school of economists who hate anything and everything FDR ever did. I don’t think that’s the sole motivation at all. But, I think it explains part of it.
I don’t mean to disrespect the view. Often, the FDR critics are wonderfully intelligent, well-meaning people. But, for instance, Mark Hoffer, yes, I watched that video when Barry posted it in the Cafe. And, I AGREE with it. All the “scoffing” that I read of people putting it down doesn’t persuade me it’s the wrong policy.
A wrong policy at the time was Smoot-Hawley. Anything to lower the velocity of money worked against the re-inflationary measures. That’s what we must avoid this time.
>> wunsacon, you are spending a lot of time with a rah-rah for how we can beat deflation. Remember that until 2 month ago Benny was not fighting deflation.
What people like Bernanke say behind closed doors is hidden from us. They say cheery things because of this: who wants leaders to tell us how bad things are or are going to get? If he made dire predictions earlier on, people would say he’s throwing the election.
>> Bruce in Tn Says:
>> December 16th, 2008 at 7:10 pm
>> Well, if the whole world tries to cut rates simultaneously….who wins? Who exports to whom? Who imports from whom? If every country’s currency is pushed to AWAP..(as worthless as possible)..how does a rational investor make a long term decision? Will we have worldwide ZIRP next week?
Yes. But, it’s not to “beggar-thy-neighbor” if we’re ALL cutting in unison. You might ask: what difference does it make then? It’s this: to reduce — in real terms — everyone’s debts the world over. Because when the fictional liquidity of all that fake mortgage debt was taken away, it made everyone else’s “good” debt unservicable. By convincing every CB to cut in unison, we avoid cascading defaults.
December 17th, 2008 at 3:42 pm
(Muttering to self: Sh!t…I really have become the FDR/Bernanke apologist/public defender.)
“Okay, now, boys, be fair…one at a time…”
December 17th, 2008 at 9:34 pm
wunsa-,
you say: ” yes, I watched that video when Barry posted it in the Cafe.”
when, where was that?