Fed Rate Cut on Monday / Tuesday ?

[ASusilovic]

I don´t know whether some of ET members recalling the FED cutting rates in former times just after weekends in light of bad NFP numbers ? Has it been in the 90´s or the new millenium - I don´t remember exactly anymore.

Fact is, pressure on FED to ease is culminating in politician´s and former FED governor´s demand to "react". =>

``I don't think the Fed can possibly afford to overlook the fact that the economy is weakening,'' said former Fed Governor Lyle Gramley, now a senior economic adviser at Stanford Group Co. in Washington.

Representative Barney Frank, the Massachusetts Democrat who heads a congressional committee that oversees the Federal Reserve, called on policy makers to cut interest rates after employers reduced payrolls in August.

`To ease or not to ease its key interest rate is no longer the question for the Fed,'' Democratic Representative Carolyn Maloney of New York, chairman of the House subcommittee on financial institutions and consumer credit, said in a statement. ``The question now is how soon and by how much?''

So, how soon willl it be ?

 

[makloda]

Next question: Are too many anticipating a quick bounce on a cut?

The discount rate cut took many overnight shorts by surprise; many were badly hurt. Nobody feels good holding ES futures short overnight now with the Fed potentially acting any minute.

Here's my best guess: Too many are waiting to cash in the risk free way on in a fed induced bounce. The market will present traps along the way so these "Fed funds rate cut quick bounce players" will get shaken out or hurt one way or another.

 

[austinp]

Next question: does everyone expect interest-rate cuts to mark a years'-long bottom in stock markets?

The latest rate-cut cycle from 2001 saw stock index markets fall into a bear market the entire way. Fed kept slashing -50 basis to -25 basis, stocks would quickly ramp and promptly dive to new lower lows with reality of a slowed economy.

If the housing market remains slumped, credit any kind of concern and food / energy driven inflation crimps the consumer from discretionary spending, interest rate levels at 0 won't save the market.

This economy needs credit-worthy homebuyers with stable to increasing incomes. The economy needs consumers who aren't already buried & maxed out beneath credit card and mortgage debt.

All smoke & mirrors attempts to keep propping up a debt crisis by encouraging even more debt is not a solution. Everyone with a smattering of common sense knows that... but like junkies are jonesing for the quick-fix pipedream.

Maybe the market bottoms on a retest of lows and soars upward for years to come. Maybe it has begun the inevitable stage of sequential lower lows for months or years to come. Impossible to say. One fact that is possible to assert: interest rate cuts cannot fix everything. Nor are they a long-term solution.

Time is the only long-term solution, when everything plays out according to plan. Fed intervention never negates this process, only delays it in long, drawn-out fashion.

 

[Spectre2007]

Quote from austinp:

Next question: does everyone expect interest-rate cuts to mark a years'-long bottom in stock markets?

The latest rate-cut cycle from 2001 saw stock index markets fall into a bear market the entire way. Fed kept slashing -50 basis to -25 basis, stocks would quickly ramp and promptly dive to new lower lows with reality of a slowed economy.

If the housing market remains slumped, credit any kind of concern and food / energy driven inflation crimps the consumer from discretionary spending, interest rate levels at 0 won't save the market.

This economy needs credit-worthy homebuyers with stable to increasing incomes. The economy needs consumers who aren't already buried & maxed out beneath credit card and mortgage debt.

All smoke & mirrors attempts to keep propping up a debt crisis by encouraging even more debt is not a solution. Everyone with a smattering of common sense knows that... but like junkies are jonesing for the quick-fix pipedream.

Maybe the market bottoms on a retest of lows and soars upward for years to come. Maybe it has begun the inevitable stage of sequential lower lows for months or years to come. Impossible to say. One fact that is possible to assert: interest rate cuts cannot fix everything. Nor are they a long-term solution.

Time is the only long-term solution, when everything plays out according to plan. Fed intervention never negates this process, only delays it in long, drawn-out fashion.

the 2000 debacle was different in that you had unprecedented participation by the public in the equity markets, and prices even after the initial decline were still extremely overvalued.

the pyramid/last man standing/musical chair effect can't be applied to a market that is just gaining a ressurgence post debacle. If a pessimistic cycle does gain a foothold, then the opportunity will be unsurpassed historically, to enter some long term buys and holds for the future.

 

[ASusilovic]

Quote from makloda:

Nobody feels good holding ES futures short overnight now with the Fed potentially acting any minute.

Did you notice the short covering in the last 30 MIN on Friday´s close in Mini-ES Futures ? Over 278k contracts traded although a "short-biased" day ! Supports your suggestion...

 

[austinp]

<i>"Nobody feels good holding ES futures short overnight now with the Fed potentially acting any minute."</i>

That's exactly why the Fed offered a faux rate-cut placebo three weeks ago. Shock the shorts, on option expiry Friday for max effect.

Expect this sideways pattern to linger into 9/18. Once the Fed announces from there, we should see sharp directional movement onward.

If the Fed lowers rates, a number of scenarios can happen. If no rate cut is offered, it's reasonable to expect new recent lows in all stock markets that same afternoon or by the close of trading next session.

*

As for the long-term setup, this financial market is every bit a bubble as 1999-2000 was. Forget current or projected PEs... need to see actual earnings over next two cycles for the real view.

The market is up right now ONLY due to cheap money before and current hopes of a return to cheap money conditions past 9/18. An end to cheap money = an end to current stock market levels, all else is moot. Indexes would not be where they are, not even close if it weren't for a liquidity flood. When that flood recedes, so will stock market levels.

Liquidity always seeks its own level, high or low tide equally

 

[ASusilovic]

Quote from austinp:

Next question: does everyone expect interest-rate cuts to mark a years'-long bottom in stock markets?

The latest rate-cut cycle from 2001 saw stock index markets fall into a bear market the entire way. Fed kept slashing -50 basis to -25 basis, stocks would quickly ramp and promptly dive to new lower lows with reality of a slowed economy.

If the housing market remains slumped, credit any kind of concern and food / energy driven inflation crimps the consumer from discretionary spending, interest rate levels at 0 won't save the market.

This economy needs credit-worthy homebuyers with stable to increasing incomes. The economy needs consumers who aren't already buried & maxed out beneath credit card and mortgage debt.

All smoke & mirrors attempts to keep propping up a debt crisis by encouraging even more debt is not a solution. Everyone with a smattering of common sense knows that... but like junkies are jonesing for the quick-fix pipedream.

Maybe the market bottoms on a retest of lows and soars upward for years to come. Maybe it has begun the inevitable stage of sequential lower lows for months or years to come. Impossible to say. One fact that is possible to assert: interest rate cuts cannot fix everything. Nor are they a long-term solution.

Time is the only long-term solution, when everything plays out according to plan. Fed intervention never negates this process, only delays it in long, drawn-out fashion.

As I understand, this is your point of view in relation to the U.S. markets. If you think globally, you have to admit "this time it is different" !

China, India, Asia, newly entered countries into Eurozone, South America are still in transition and helping more then stabilizing an otherwise utterly worse bleeding US economy !

Take a look at this survey => Source : International Monetary Fund July 2007

Global Growth Seen at 5.2 pct in 2007

I believe we are in a short term contraction regarding US economy, but the US economy is NOT equal to global economy !

 

[dhpar]

why cut rates? who does it help to?
maybe 25 bps to buy some time and let the market settle but that's it. any aggresive cutting kills the dollar and therefore US.

don't think that financial trouble will disappear with cuts - there will be new problems to come (e.g prdc's)

 

[thriftybob]

The rate is used to determine the reset rates on many of the ARM loans that will be crucifying foolish homebuyers, thus it must be cut to help reduce the deflationary effects of the housing crash.

 

[dhpar]

Quote from thriftybob:

The rate is used to determine the reset rates on many of the ARM loans that will be crucifying foolish homebuyers, thus it must be cut to help reduce the deflationary effects of the housing crash.

why do you want to help people with ARM and hurt people with fixed rate mortgages, 5Y, 10Y or whatever?

i know you think style che guevara...