Fed is F@%#ed

seasonedpro · Dec 1, 2006

I'm not an economist and I'm sure there probably aren't many on ET, but can someone shed some light on how the Fed isn't totally screwed here: with the past few numbers coming in notably weak the economy is clearly tipping, slowdown is a given if not an outright recession. But at the same time the dollar is getting crushed. So if the Fed eases trying to add some more liquidity to the markets the dollar's descent will snowball. On the opposite side, we clearly cannot support the dollar through anything but jawboning as a tightening will really send this economy into a nosedive.

Real estate bubble is collapsing, is the credit bubble to follow. Seems like we are heading for the worst of all worlds; stagflation. I saw an interesting article on safehaven.com that even suggested a liquidity infusion wouldn't work at this point because capital would just go towards commodities, hard assets, and foreign currencies.

Anyone have an idea on how low long foreigners entities will let the USD go before imposing price increases.

What hath we sown?

kashirin · Dec 1, 2006

Dollar goes down in anticipation of steep rate cuts
If Ben won't cut rates then dollar will stabilize. Although it can take 3-6 months of freefall before that

Voodoo-king · Dec 1, 2006

Given how Bond yields and the dollar have already fallen, I think much of the move lower is already anticipated and reflected in current prices. I donât think stagflation is very likely since I think stagflation is mainly caused by supply shocks. Like labor or oil shortage. I can see oil going a little higher but only if the economy grows. With stagflation I canât see why liquidity infusion would not work, if people buy gold or foreign currencies, the dollar gets weaker, weaker dollar means more export and less import thatâs more domestic demand witch helps the economy.

seasonedpro · Dec 1, 2006

Did I read this right that old Ben said nothing today about monetary policy or the economy? guess we won't be hearing from any of the other fed officials today if BB is mum.

there is no way they can cut now. Greenspan got out while the getting was good. this mess will be his legacy but at least he doesn't have to take credit for the decisions that come next.

do you think BB and co. will be sleeping well this weekend?

seasonedpro · Dec 1, 2006

Quote from Voodoo-king:

Given how Bond yields and the dollar have already fallen, I think much of the move lower is already anticipated and reflected in current prices. I donât think stagflation is very likely since I think stagflation is mainly caused by supply shocks. Like labor or oil shortage. I can see oil going a little higher but only if the economy grows. With stagflation I canât see why liquidity infusion would not work, if people buy gold or foreign currencies, the dollar gets weaker, weaker dollar means more export and less import thatâs more domestic demand witch helps the economy.

at some point though if the dollar keeps sliding or an all out run ensues, we'll either have reduce liquidity through monetary changes or rate hikes. Foreigners are the Visa card that fuels our lifestyle, without them we grind to a halt. But rate hikes will have serious implications to every aspect of our economy, mostly housing.

dac8555 · Dec 1, 2006

dont know if the fed is screwed...i think they are right todo what they have done.

They were pausing to ait for more data...now they have more data to make their decision.

PohPoh · Dec 1, 2006

Quote from seasonedpro:

Did I read this right that old Ben said nothing today about monetary policy or the economy? guess we won't be hearing from any of the other fed officials today if BB is mum.

there is no way they can cut now. Greenspan got out while the getting was good. this mess will be his legacy but at least he doesn't have to take credit for the decisions that come next.

do you think BB and co. will be sleeping well this weekend?

I think you are wrong about that..
What did Jack Welch say in his book "The success of my tenure here is determined by how GE does AFTER I leave"
Same goes for Papa G, in some respects, the worst central banker in the history of mankind....

dhpar · Dec 1, 2006

Quote from seasonedpro:

at some point though if the dollar keeps sliding or an all out run ensues, we'll either have reduce liquidity through monetary changes or rate hikes. Foreigners are the Visa card that fuels our lifestyle, without them we grind to a halt. But rate hikes will have serious implications to every aspect of our economy, mostly housing.

I think you are right with your analysis above. 3 things though:
A. I do not believe that housing will feel impact of hikes that much because by the time they start hiking (say March/May the latest) housing will have the worst behind.
B. I do not believe economy is as bad as ISM suggest. Data on consumption suggest 2%+ GDP growth in 4Q only from this section of aggregate demand. Then add export which should fare again pretty well and all in all we go for 2% growth at least.
C. And most importantly - where does everybody live when they say that the manufacturing is the pillar of the economy? It is a service based economy for quite some time - and interestingly those sections of mfg that are "closer" to services were up in ISM today! I do not remember what is the portion of mfg but it must be less than 25% - anybody?. In addition basically all drag is due to housing and autos sectors, i.e. healthy corrections/restructurings which we need to bite through one day anyway....

Let's see if BB is up for the job - but one thing - he seems to care less than AG to be viewed as a wise father christmas - maybe he will ultimatelly put the house in order, i.e. low inflation, less asset bubbles and less bullshit!

myminitrading · Dec 1, 2006

Quote from seasonedpro:

I'm not an economist and I'm sure there probably aren't many on ET, but can someone shed some light on how the Fed isn't totally screwed here: with the past few numbers coming in notably weak the economy is clearly tipping, slowdown is a given if not an outright recession. But at the same time the dollar is getting crushed. So if the Fed eases trying to add some more liquidity to the markets the dollar's descent will snowball. On the opposite side, we clearly cannot support the dollar through anything but jawboning as a tightening will really send this economy into a nosedive.

Real estate bubble is collapsing, is the credit bubble to follow. Seems like we are heading for the worst of all worlds; stagflation. I saw an interesting article on safehaven.com that even suggested a liquidity infusion wouldn't work at this point because capital would just go towards commodities, hard assets, and foreign currencies.

Anyone have an idea on how low long foreigners entities will let the USD go before imposing price increases.

What hath we sown?

I would say you got it right on the money, but did you see the stock market come back late today, it likes the ISM numbers showing contraction, everything is good as far as the market is concerned.

But we all know it money managers trying to keep the balls in the air so they can get their fat bonuses. Cant have the stock market falling to much.

myminitrading · Dec 1, 2006

Quote from seasonedpro:

at some point though if the dollar keeps sliding or an all out run ensues, we'll either have reduce liquidity through monetary changes or rate hikes. Foreigners are the Visa card that fuels our lifestyle, without them we grind to a halt. But rate hikes will have serious implications to every aspect of our economy, mostly housing.

Rate hikes will raise yields and people will save more, thats what we need in america I say fuc$ the stock market, its had its run let the son of a bitch fall.