I really don't see any happy ending possible for the dollar or the nation.
Gold will still be gold, no matter what.
Gold will still be gold, no matter what.
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Fed Rate Cut on Monday / Tuesday ?
- Thread starter ASusilovic
- Start date
A Fed cut telegraphs an increase in sytemic risk and yet does very little to address it (widens spread between Fed and LIBOR). Any rally on a rate cut is to be shorted. I agree with the earlier poster though who stated that the likely reaction to a 25 basis point cut will be a very modest rally if any rally at all. To get a nasty rally to hurt shorts a 50bp cut will be required. My money is on no cut or 25 bp cut with market to sell off and am looking for at least a retest of the low and probably a lower low before end of Oct.
Friday the spreads between treasuries and CP widened. The credit crunch is far from over and the effect it has on the economy is severely underestimated.
Friday the spreads between treasuries and CP widened. The credit crunch is far from over and the effect it has on the economy is severely underestimated.
In many ways the FED has already lowered rates. The Target Rate; which is the rate used by most news broadcasts and publications, is the rate in which the FED will maintain throughout their open market operation. But the Effective funds rate is the real FF rate, and this changes slightly day to day. This rate is currently weighted near 5%. Also, the FED has already begun the Repurchases with $31 billion credited to banks on Thursday alone.
I'm beginning to expect a 50bps point cut as oppose to a mere 25. And, in reality, the FED really should go 75bps in order to correct this interest rate adjustment and prevent the cash hoarding.
I'm beginning to expect a 50bps point cut as oppose to a mere 25. And, in reality, the FED really should go 75bps in order to correct this interest rate adjustment and prevent the cash hoarding.
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.
I couldn't agree more with what you say. Great post
Quote from thriftybob:
The real problems are the debt levels and additional twin deficits. They aren't EVER going to improve and at some point the world will not want payment in dollars for anything.
If fed cuts now; we will see all taxes go up in coming years.
Inflation are going to kill the economy anyway.
And the big IF; somehow; Oil price drops back to low 40s. I don't see that happening soon.
Austin, I agree with most of your points regarding the psychology and setup for the Fed meeting. However, I strongly disagree with the portion quoted above. Here are some of my thoughts:Quote from austinp:
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
a) I am not sure what market you speak of comparing "this market" to 1999/2000. If you speak of e.g. buyout activity or leveraged speculation, then yes, there is/was a bubble that we saw in the last couple years especially in buyouts/M&A. I never understood why they had to buy out REITs or Steel companies in 2006/2007 when they traded at $60 when they could have gotten the same companies with similar price/cash flows for $10 in 2003/2004/2005. The entire M&A buying looked like a frenzy, with paranoid buyers trying to snap up everything they can "before" its gone. This indeed reminded me of 1997/1998/1999. So, a bubble in certain portions of the finance markets like Private Equity - Yes. We will always have those. But a gigantic stock market bubble like in the late 90s? No.
On a different note, many seem to confuse the main drivers for the last bear market. It wasn't only driven by a recession. In fact, the recession we saw in 2001/2002 was very mild compared to historic proportions. It was driven by overvaluation of stocks compared to other asset classes (Bonds, Real Estate, Commodities (both physical stocks). And let's not forget a few key events that made the bear market worse than it "could have been":
1. Sept 9/11
2. Argentina default
3. Accounting scandals with multiple bankruptcies (Enron, Worldcom etc.)
IMO we need more of the same to drive the SP500 down 30%, 40%, 50% from here with the current valuation and interest rates.
b) The actual stock market valuation/psychology/price action is in no way comparable to the bubble years. I think right now stocks are neither expensive nor are they dirt cheap. I agree with you a lot depends on future earnings - but that's always the case. If I can buy an oil company for 6 x cash flow or an insurance company for 5 x cash flow then this is nowhere close to a bubble or to stocks being overvalued.
c) In fact, I find a lot of bargains in stocks compared to what I find in other asset classes. What other asset class is cheaper than stocks right now? Real estate? Commodities? Bonds? Precious Metals? If stocks are so overvalued as you say they are, let's hypothetically assume we're long only investors looking to deploy capital for 5 years. According to your thesis, surely there must be better opportunities in other asset classes. Where'd you put your play money?
<i>"However, I strongly disagree with the portion quoted above. Here are some of my thoughts:"</i>
Excellent points, makloda. As usual fom you.
Proof of why the future will always remain unknown... both sides can be debated with seemingly equal merit.
And, it's always a pleasure to enjoy debate with many people here in mature, intelligent fashion. :>)
Excellent points, makloda. As usual fom you.
Proof of why the future will always remain unknown... both sides can be debated with seemingly equal merit.
And, it's always a pleasure to enjoy debate with many people here in mature, intelligent fashion. :>)
Quote from JSSPMK:
Yes, that's what I am thinking also, 1 Global market.
I am hearing this alot and have heard it before. Its different this time and the Global market is not as susceptible as before to US downturns. I think this thesis will be proved incorrect in the next downturn. I was proved correct in the last dip and my opinion remains the same. EEM is what you want to be short, FXI too.