Bernanke May Change His Tune On Wednesday

[Ivanovich]

There is no way they will cut rates. Again, as I've mentioned previously, they are all too aware that low rates got them to where they are today. The last thing they want to do is turn the faucet on again and start the flow of money going faster than it already is.

I also said in the thread right after the Fed statement was released that a day of reckoning would come soon where the market realized the Fed did not mean what the market hoped it meant.

That could be soon if that article is correct. But rate cuts are not happening, not unless a serious downturn to the economy overshadows the massive fear the Fed has of the liquidity bubble.

 

[ByLoSellHi]

Guys, get real for a moment.

If housing continues to plunge, taking construction employment with it, and equity markets start taking a hit, along with corporate profits, do you honestly believe the fed is going to hamstrung by a 2.5% to 3% inflation rate?

C'mon. The fed will cut rates to 2% again if it would stave off a recession.

 

[THE-BEAKER]

the fed are damned if you do and damned if you dont.
the last time the fed stopped hiking back in march/ april 2000 they waited until early jan 2001 to cut 50bp on an emergency meeting. - reasons were fallout from the dotcom collapse and very weak employment and housing levels etc etc.

this time if they start to cut there are no weak stock markets and no significant weak data.
they will only further increase the problems in housing and a runaway stock market fuelled by cheap money.

its a no win.

 

[blast19]

That's my point...the Fed will cut rates but they'll be useless. Imagine a guy who heard they were expanding Los Angeles into the desert so he went 80 miles out into the desert and built a bunch of houses cheap. Yes, people moved there because houses were cheap.

After a while his demand was good and LA's expansion was getting closer..so he raised his prices. Then the market got more heated and he built more and raised the prices more and more and as it progressed he built faster and faster. At some point, when Los Angeles was only 20 miles from his desert city, his prices were almost as high as they were in Los Angeles proper. There was a lack of buyers though and his inventory was piled sky high.

Unfortunately, our builder friend, realized that his houses were the same as in Los Angeles proper, almost as pricey, but the ONLY reason people had originally moved to his oasis was due to the affordability factor. Unless he CUTS prices drastically, who will want to pay his prices if they're not even paying those prices in Los Angeles proper?

This is the reality of most of the bubble's worst offending markets...Sacramento, Inland Empire, Bakersfield, San Diego(which could be an exception), Bonita Springs, Cape Coral, and some areas in Nevada and Arizona.

There's going to be a glut of empty houses in those cities in my opinion when this is over. Those cities ONLY presented vantage points of affordability when they were growing bubbles...and now they're deflated and unaffordable shitholes.

The truth hurts sometimes.

 

[Ivanovich]

Quote from ByLoSellHi:

Guys, get real for a moment.

If housing continues to plunge, taking construction employment with it, and equity markets start taking a hit, along with corporate profits, do you honestly believe the fed is going to hamstrung by a 2.5% to 3% inflation rate?

C'mon. The fed will cut rates to 2% again if it would stave off a recession.

That's a lot of "ifs" right now. I think currently, the idea of cutting is not on their minds. I think the market believes it is, and that it's at the front of their mind. I think the market will find out otherwise and be disappointed.

 

[deviltrader]

Quote from ByLoSellHi:

Guys, get real for a moment.

If housing continues to plunge, taking construction employment with it, and equity markets start taking a hit, along with corporate profits, do you honestly believe the fed is going to hamstrung by a 2.5% to 3% inflation rate?

C'mon. The fed will cut rates to 2% again if it would stave off a recession.

I agree. People underestimate the scope of the housing market. And there's more to it than just housing construction jobs too.

When you sell your house and buy another one, what do you do? Hire movers, hire people to fix/clean up your existing house, maybe stage the house, pay comissions to the RE brokers. You get a loan for the new house (thereby paying a mortgage broker, title company, an appraiser, a property inspector). After moving, you buy drapes for the new house, maybe replace the carpet or repaint the exterior. You buy new furniture, maybe do some landscaping, buy new tools, repair little odds and ends. Now multiply this by two because the people who bought your house probably will do the same. The low volume of existing home sales means all of the people in the above industries take a hit.

The economy will recede in 2007 or 2008, and it might happen even if the Fed cuts beginning in June.

 

[kashirin]

Quote from ByLoSellHi:

Guys, get real for a moment.

If housing continues to plunge, taking construction employment with it, and equity markets start taking a hit, along with corporate profits, do you honestly believe the fed is going to hamstrung by a 2.5% to 3% inflation rate?

C'mon. The fed will cut rates to 2% again if it would stave off a recession.

there is no way they can help with rate cuts. If they move to 2% again dollar will crash
Oil will be $150 and all chinese staff will double. Inflation will burn all savings left.

They just can't do it.

What must be done is forbidding all Asia import and encouraging factories back so people could earn money here at factories and not in Walmart
If they can't do it then USA are done. Doesn't matter what rates are

 

[Pa(b)st Prime]

Very good post. You hit on a point I've made often. Builders and NEW HOME sales are being slammed not by the fallout in sub-prime lending but rather by unrealistic pricing in sub-prime locations!

The good land is taken. As for shit.....well there's still no shortage of it.

Quote from blast19:

That's my point...the Fed will cut rates but they'll be useless. Imagine a guy who heard they were expanding Los Angeles into the desert so he went 80 miles out into the desert and built a bunch of houses cheap. Yes, people moved there because houses were cheap.

After a while his demand was good and LA's expansion was getting closer..so he raised his prices. Then the market got more heated and he built more and raised the prices more and more and as it progressed he built faster and faster. At some point, when Los Angeles was only 20 miles from his desert city, his prices were almost as high as they were in Los Angeles proper. There was a lack of buyers though and his inventory was piled sky high.

Unfortunately, our builder friend, realized that his houses were the same as in Los Angeles proper, almost as pricey, but the ONLY reason people had originally moved to his oasis was due to the affordability factor. Unless he CUTS prices drastically, who will want to pay his prices if they're not even paying those prices in Los Angeles proper?

This is the reality of most of the bubble's worst offending markets...Sacramento, Inland Empire, Bakersfield, San Diego(which could be an exception), Bonita Springs, Cape Coral, and some areas in Nevada and Arizona.

There's going to be a glut of empty houses in those cities in my opinion when this is over. Those cities ONLY presented vantage points of affordability when they were growing bubbles...and now they're deflated and unaffordable shitholes.

The truth hurts sometimes.

 

[blast19]

Quote from Pa(b)st Prime:

Very good post. You hit on a point I've made often. Builders and NEW HOME sales are being slammed not by the fallout in sub-prime lending but rather by unrealistic pricing in sub-prime locations!

The good land is taken. As for shit.....well there's still no shortage of it.

Yeah...the sketchy lending has been done everywhere...the sad thing is the subprime fallout is mostly actually from poor people who would love to have houses.

The Alt-A shit is a bunch of greasy car salesmen and those dreaming of SUV and Latte dreams flipping properties and wanting to live beyond their means...they're the ones I think will really come out looking like idiots...I think the lenders, regulators, banks, and builders all deserve to get handed their asses for not only helping but prompting much of the bullshit. The fucking CEO of Coldwell bank was on CNBC yesterday pumping real estate.

Angelo Mozilo, CEO of Countrywide, decided to skip the Senate hearings last week, and instead called into Mad Money to talk about how great this is going to be for Countrywide...it's fucking disgusting what these guys are doing and have done for their own personal benefit. They MUST have realized that this was a timebomb...they're not stupid, they must have known that "subprime location" lending was going to fall apart....and yet, almost all of them did it.

I'm so disgusted by the whole thing...I don't own a house and I'm not poor...but I think it's pretty disturbing what these guys did to boost their profits in a hot market to make themselves richer. Angelo Mozilo has garnered about $140 million in stock sales in the last 14 months.

 

[TM_Direct]

a rate cut now will have all the effect of greenspan cutting rates 1/4 point on the morning the markets opened after 9-11.....

all it will do to housing is delay the inevitable and keep a couple afloat for awhile