The Credit Crisis Financial Stocks Short Journal

[S2007S]

Quote from ralph00:

I would suggest that a stock market that goes up every single day is not exactly normal. I would suggest commodity prices that are through the roof despite fundamentals that show plenty of spare capacity is not normal. I would suggest that a return of game-show like antics on CNBC (the bunny racing around the track to 11K and the appearance of our Treas. Sec. on Cramer's 5 year anniversary show, to name 2 recent examples) shows a return to late 90s type euphoria.

Are we at 2000 levels of absurd pricing - of course not. Something is growing here. I believe Bernanke does not want the blood of a third massive bubble in 10 years on the Fed's hands.

Everything is being pushed to its limits, I would believe that the economy is near absurd pricing due to the fact how weak the economy really is, its only showing this kind of upward momentum due to intervention in the market place.

 

[ralph00]

I don't think he will solely target stock or commodity prices. However,markets make opinions. What stocks and commodities are doing clearly make rate hikes more likely. No one would be talking hikes if the djia were 8500 and oil was at $50.

Quote from Daal:

Dude, this Fed is only beginning discussing the targeting of bubbles, there has been no speeches(to my knowledge) where Bernanke says the fed should address bubbles by using the fed funds tool. The only mention he did was back in Oct or Nov 2008(if my memory is right) where he said the fed would have to look more carefuly at asset prices when making decisions(or something like that). But to think that they will go from thinking asset markets are normal to call them a bubble and try to prick with 100bps of hikes in a few months is crazy. Yes its possible, but its also possible they will announce a -1% IOR to get banks lending again

 

[Martinghoul]

Quote from ammo:

so they are over for now, thanks mh,my simple logic was , they(banks) wouldn't let the equity market tip before the auctions

I lied, ammo, sorry... I didn't check properly. There are still 3s, 10s and 30s priced to go this week (3s happening today). Sorry about that, I should have been more careful.

 

[ammo]

might explain why we are just sitting here

 

[S2007S]

Wall Street will be paying attention to the 1 p.m. ET Treasury auction after the yield on the 10-year note breached 4% on Tuesday for the first time since last June. The higher rates are a sign of diminishing appetite for government debt as the economy improves and inflation remains a concern. On top of Tuesday’s $40 billion auction, the U.S. will attempt to sell $21 billion in 10-year bonds and $13 billion of 30-year bond auctions later this week.

 

[ammo]

the weekly chart posted earlier reduced to daily ,1190

 

[Ghost of Cutten]

Quote from ralph00:

At some point, central banks are going to peek outside the tunnel vision of employment and look around to the massive rise in speculation that their policies (combined w/fiscal) have wrought. The market is in late 90s mode. Does Bernanke really want a repeat of that, and of what came after? Does he really want the growth and popping of another asset bubble? We're certainly well into the growth stage here. I could see them hiking a 100bp over the summer just to calm things the fuck down.

Did you just go short?

 

[Daal]

Heres what I found that stood out
"A number of members noted that the Committee’s expectation for
policy was explicitly contingent on the evolution of the
economy rather than on the passage of any fixed amount
of calendar time. Consequently, such forward guidance
would not limit the Committee’s ability to commence
monetary policy tightening promptly if evidence suggested
that economic activity was accelerating markedly
or underlying inflation was rising notably;"

This is funny given that Bernanke speech from 2002 makes it quite clear that is IS about a time table. Thats what will drive longer rates down and provide stimulus(whereas uncertainty will keep the longer rates with a big premium), apparently 'a number of members' want to have the cake and eat it too. They collected the stimulus in 2009(how come they werent saying back then that it wasnt about a time table?) but now they want the uncertainty of the statement

"conversely, the
duration of the extended period prior to policy firming
might last for quite some time and could even increase if
the economic outlook worsened appreciably or if trend
inflation appeared to be declining further."

With extended period duration correlating with 'trend inflation' it appears that we will see 'extended period' for an extended period

"A few members
also noted that at the current juncture the risks of an
early start to policy tightening exceeded those associated
with a later start, because the Committee could be flexible
in adjusting the magnitude and pace of tightening in response
to evolving economic circumstances; in contrast,
its capacity for providing further stimulus through conventional
monetary policy easing continued to be constrained
by the effective lower bound on the federal funds
rate."

So they are saying they rather be late then early as they can play catch up with 50bps 75bps hikes but if they screw up they cant go lower than 0bps. I have no idea why the front end is not going ballistic on this, this is great news for people long the front

 

[Debaser82]

The Fed will tighten when oil hit's new all time highs again or when every single bank and pension fund is solvent and in the green again.

Untill then, no incentive to tighten!

Even the opposite really as the Euro downturn has harmed US policy of reachieving higher levels of competivity trough currency readjustment.

 

[Daal]

Bernanke 2002
"There are at least two ways of bringing down longer-term rates, which are complementary and could be employed separately or in combination. One approach, similar to an action taken in the past couple of years by the Bank of Japan, would be for the Fed to commit to holding the overnight rate at zero for some specified period. Because long-term interest rates represent averages of current and expected future short-term rates, plus a term premium, a commitment to keep short-term rates at zero for some time--if it were credible--would induce a decline in longer-term rates."

Funny, he doesn't mention keeping rates low depending on some factors. Dudley apparently agrees when he said 'most fomc members think its at least 6 months' but some hawkish folks are trying to come up with a new system: over promise and under deliver