Fed funds futures suggest 75 basis point rate cut by March 18 now a certainty

[mokwit]

This is why they will cut. They are using cuts to try and maintain balance sheet solvency in the banking sector in the hope that a major bank won't reach a situation where it can't deny it is anything other than technically insolvent (negative equity).

http://www.markit.com/information/products/category/indices/abx/history_graphs.html

If banks or hedge funds get margin called they have to sell stocks or other assets to cover the margin call. Most non agency bonds can't be sold right now. It is also why they are defending the stock market so aggressively. Many large Hedge Funds are multi strategy, multi asset class and have been confusing leverage and a bull market with ability as we are clearly seeing. Likewise, broker prop desks are real top of bull market stuff as evidenced by SG, Citi traders losing $100m on multiple days. BAC similar pattern but lesser amounts. Watch as the IB prop model is wound down. Remember Bankers Trust? Fell into the arms ofpeople with moustaches who wore green felt hats.

My guess is that the downside catalyst will be a major hedge fund failure with a knock on effect to prime brokers who are already teetering on the brink of insolvency. LTCM was small. We are looking at a "contained" meltdown of the financial system.

 

[Ivanovich]

Quote from nazzdack:

Commodities seem to decline before Fed meetings. We'll see if history repeats itself.

It's just profit taking. There's no reason commodities should ever decline in an environment where the Fed is so keen on lowering. This, of course, is just my opinion.

 

[makloda]

The Fed is simply following the market. 2y is yielding 1.61% currently. I'd say 2.0% Fed Funds is where we're headed by Mid/End of 2008.

 

[kashirin]

Quote from makloda:

The Fed is simply following the market. 2y is yielding 1.61% currently. I'd say 2.0% Fed Funds is where we're headed by Mid/End of 2008.

the market that requires attention now are commodities and Fed simply doesn't follow the market

 

[mokwit]

Noe does Bush, although he did hear that gasoline was quite exensive now.

 

[makloda]

Quote from kashirin:
the market that requires attention now are commodities and Fed simply doesn't follow the market

Debt markets - in their current state - are far more vital to the stability of the economy than commodities.

 

[limitdown]

Quote from nazzdack:

1) The math in that article is wrong.
2) The expected aggressive easing in the next few months is probably an attempt to ease the pain of mortgage resets that are indexed to short-term interest rates.
3) Put on your "steepeners".

too many mortgage rates are set to the LIBOR rates, as they were targets for overseas sale in the first place, and are not subject to US Fed Funds rates or TBill/TBond rates...

wow, caught the vapors there for a moment, just think, in our lifetimes we actually retired the TBONDS....and caused the country to be a net creditor......

wonder where that administration is, and whether or not we can do that again after these last 8 years of ......

also,

current pressures on the EURO and the ECB are forcing them to consider lowering their interest rates, not to spur growth, which would normally be the reason, but to lower the steep incline of currencies against the US Dollar,

as a direct result of those current discussions going on overseas, even currencies that never really counted:

Austrailian Dollar
Swiss Franc
Canadian Dollar
Brazilian Real
a few other currencies

are having a field day in increased Forex trading as well as international spotlight as alternatives to the US economic woes...

 

[Aaron Copland]

Quote from makloda:

Debt markets - in their current state - are far more vital to the stability of the economy than commodities.

Spending is what drives the economy. When the consumer has less to spend due to higher energy and food and medical cost, I would say commodity prices are indeed vital.

The debt market is just correcting from a drunkin orgy.

 

[makloda]

Quote from Aaron Copland:
Spending is what drives the economy. When the consumer has less to spend due to higher energy and food and medical cost, I would say commodity prices are indeed vital.

Point taken. But what about major banks defaulting and withholding funds from clients. What about consumer spending then?

 

[flyingiguana]

Quote from makloda:

Point taken. But what about major banks defaulting and withholding funds from clients. What about consumer spending then?

i don't think this will really help. there will be more downgrades and defaults in the financial space and commodities will cause inflation to soar. at some point banks will fail along the way. they need to start preparing and not trying to bail out. it will just make things worse in the long run.

central banks will need to intervene to prop up the USD or else the ponzi scheme in the global economy might collapse like the ponzi scheme in the financial industry.