Clueless Bernanke Blows It Again

[riskymove]

No expert here but have been following this stuff for several years so will give my thoughts.

I was surprised that the discount rate wasn't cut by more than it was yesterday. Not terrible surprising that the ff was only 25 bps. But I started thinking last week, when ECB didn't cut, that maybe the Fed just doesn't matter as much as it did. I mean, here we have everyone preaching globalization in goods, services and money, assets are bought/sold round the world, and the forex market is huge. And our Fed cut rates to help us out earlier this year. And while it did alleviate a little pressure near term, it hasn't really in the intermediate term. Why? Imo, because we are the only one cutting rates. Maybe the Fed is watching our currency, knows how big our IOU to the rest of the world is and sees that no other central bank is going to help out - it which case Libor remains as tight as it is and everyone suffers. Thus, if this is the case, all lowering more would have done would be to help out our equity markets more over the short term while putting additional pressure on our dollar. So why do? If we are global, the other CBs need to take on some of this risk but they aren't - and the US should not and cannot shoulder this burden alone.

And I am actually relieved to see what the Fed did. All the tv pundits, and money managers out there have been bred over the course of the last 20 years to expect that the Fed always rides to the rescue. Cutting rates more only delays the inherent problem - that we are still in an asset bubble, carried over from 2000 through ridiculously low rates. Bernanke showed he and the other Fed members are not going to sacrifice the long term outlook for our country by trying to appease everyone short term. And why should he - this isn't his crisis. If you want to be pissed off, be pissed at Greenspan. He is the one that got us here. And we will be better off the sooner we deal with the real issue rather than trying to rob peter to pay paul like we have done for so long.

Anyway - this is a traders forum - good trading. This allows great opportunities for us all.

 

[Ivanovich]

Quote from Pa(b)st Prime:

Why should a working family pay one penny higher for a loaf of bread while Bankers get rich off risky loans. Inflation is nothing more than a TAX levied on workers/consumers for the benefit of asset holders.

In WHAT WORLD should the Treasury pay me lower yield than the rate of inflation. We reward asset buyers while punishing savers and holders of dollars. The market is wising up.

Rate cuts in this environment are like putting out fire with gasoline. As Keynes' said it's a game of Old Maid. Let the Fed help Wall Street pass that depreciating Queen around the party.

EXACTLY.

Unfortunately, in the end it won't work that way. The markets and bankers will cry to the Fed, and the fed will cave as they always do. Ten to one the Fed is meeting right now on what they can do to help in addition to the cut.

 

[Pa(b)st Prime]

Quote from Hombre:

To properly evaluate this situation, you must also know the total number of properties in your zip. My guess is that 1200 is less then 2 % .
According to Fisher Investments total subprime loans default potential is less then 1% nationally.

These aren't sub-prime. We're talking about 600k condo's ect.

 

[buylo]

Quote from Avid_Consumer:

does anyone around here believe in free markets?

anyone?

(besides pabst)

Apparently not Bush. He already gave people an artificial rate cut by federally freezing some ARM rates for 5 years. Next time somebody tells me we need a Republican to preserve the markets, I'll point towards him.

 

[Cutten]

Quote from AAAintheBeltway:

For once I'm in total agreement with Cramer. Bernanke is dangerously out of touch and has lost the market's confidence. The Fed has been behind the curve this entire credit crisis, and they fell further behind today. The government will have a huge financial meltdown on their hands soon.

This mentality is what helped cause the Asia crisis, the dot.com bubble, and the current housing bubble. If the Fed follows it this time then we will see a crash in the dollar and a bubble in commodities. Rate-slashing creates future bubbles and economic distortions. The very crises you are concerned about are caused by your "solution" to the prior one. So, if you want prices of food, energy, and other necessities to soar into the stratosphere in the next 2-4 years, then sure, let's cut rates to 0%. If you want to avoid the endless cycle of bubble & bust, then you might want to consider taking the medicine in the short term, letting the markets clear by themselves, and then allowing the economy to operate unimpeded by socialist central-planning of the money supply and the subsequent government manipulation of interest rates.

 

[FanOfFridays]

Quote from Pa(b)st Prime:

These aren't sub-prime. We're talking about 600k condo's ect.

I don't think subprime refers to the quality of the property. It refers to the quality of the loan, doesn't it?

 

[Pa(b)st Prime]

Quote from traderNik:

I don't think subprime refers to the quality of the property. It refers to the quality of the loan, doesn't it?

Not a lot of people Nik can afford to pay the "sub-prime"extra vig on size. If you look at Countrywide's REO list you'll see it's 99% "sub prime" locales. Crap homes in dubious communities.

As the low end stagnates (do to tighter lending standards) the trickle up in valuations is arrested.

In SoFla more and more traditional prime stuff hitting the market......

 

[Cutten]

Quote from AAAintheBeltway:

Not at all. It is simply a question of which risk do you run? A financial meltdown with several large banks going belly up with attendant bailout costs, or a speculative future issue with inflation or dollar weakness. Most of the inflation is in areas that the Fed has no effect on. Take grains for example. Or the entire ag complex. Are they signaling the Fed is too lax, or are they simply responding to overseas demand and an idiotic domestic ethanol policy? Energy, same story. Will Fed rate policy influence medical costs? I don't think so.

You want market evidence that the Fed is behind the curve, look at the TED spread.

No serious commentator nowadays would dream of claiming that a government committee is the best way to decide the appropriate price for something. Yet for some bizarre reason, we have a situation where the price of short-term money is decided by exactly that - a government committee. The clearly foreseeable, obvious, and unavoidable consequences are going to be the same as in any other socialist experiment - they will get it much more wrong, over time, than if the market was left to set the price.

So if you and Cramer complain about the current Fed policy, you really ought to be saying the whole institution should be abolished (or at least its role in setting interest rates). Go to a fixed money supply, or one that is increased by annual GDP growth each year. You will then have long-term currency stability, and prices will rise and fall purely on supply & demand factors, not because the number of dollars is now much higher than it was a few years ago.

 

[mokwit]

Quote from Daal:

according to fisher investments homebuilders were a excelent buy in late 06

This is also the Fisher who published a paper saying that debt was good and the US consumer was not using enough of it

 

[buylo]

Oh and by the way........Overnight the Fed didn't like what the markets did, so they are "set to revamp liquidity support." As seen in FT i.e. screwing with the discount window in other ways since the markets did not take kindly to the 25 bips cut there either.

I think Bernanke and the Fed are daytrading the indicies.