All stock markets correct or crash hahahaha...... not his market. The stock index futures will prevent that, thats what their for.
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the upcoming fed move .. Whatever happened to INFLATION?
- Thread starter scriabinop23
- Start date
All stock markets correct or crash hahahaha...... not his market. The stock index futures will prevent that, thats what their for.
I agree. In fact coined the term "6L cycle" and posted in another forum some time ago. Here it is defined:Quote from scriabinop23:
I find it very fascinating the entire market is absolutely gung ho that a rate cut WILL occur, ...
$5.00 gasoline is probably like an effective 2%+ rate hike. It'll hurt the consumer (and the rest of the foodchain) much more than a lousy 25bp will help business. ...
Can't we just acknowledge I-banks are going to lose billions more, some might even go out of business (god forbid!!!), and take the pain on the rest of this housing boom deflation ?...
Either the market is reading Bernanke very very wrong, or we are all fucked.
The "6L Cycle":
LIQUIDITY caused the âdot.com bubble.â When it burst Greenspanâs FED, fearful that the world was heading into recession, possibly becoming a depression, pumped out more money. This lead to:
LOANS to unqualified people, who could not afford the house they bought, but both buyer and lender were confident that rising home prices would bail them out of any trouble, and it did for several years. The buyers refinanced their mortgage at lower rates provided by the FED and often for longer terms with lower monthly payments once they had some unrealized capital gain. This put cash in their pockets, which they quickly spent. This lead to a:
LINKAGE between increasing home price and the general economic prosperity, but jobs were being exported and âMac âJobsâ replaced the lost higher-paying factory jobs. Joe Americanâs real wages went down for a several years and his ability to carry his mortgage decreased. That is his home became a:
LIABILITY, not an asset that he could borrow more against to live better but business, importing more services and goods from cheap Asian sources was prospering as never before, even when selling less in many cases. The US might have been able to avoid depression and only have mild recession if it were not for the
LEVERAGE, which pooled many of these low quality mortgages together in packages (diversifying the risk, while keeping their high rate of returns, especially as the ARMs in the package reset to higher rates). These packages were very attractive and supposedly âsecureâ because of this diversity so banks and brokerage firms allowed large investors to buy them with only small fraction of the face value. These investors and private equity firms resold the packages among themselves and to ETFs and used them as collateral for other bank loans to buy more. Perhaps at the end of the chain, only one dollar was buying 25 dollars of face value assets. But then the âfailure to performâ (mortgage default rate) went up and exposed the last buyers in the chain to bankruptcy and the:
LIQUIDATION that is happening today, not only in the US, but in EU also. A large French firm, tied to the US mortgage market, just went under and hundreds of billions (if not trillions?) of stock values have evaporated over night around the world in one day. High leverage means that only a few percent drop in homes values or increase in the default rates completely wipes out all equity of the investors holding the bag at the end of the re-sale chain. It threatens the entire banking system, e.g. Northern Rock, but I expect that it will still be possible for central banks to save the system one more time with more:
LIQUIDITY (starting this â6L cycleâ again) before this house of cards all comes crashing down in historyâs worst depression with the dollar collapsed to pennies of current value. Here we go again, (with FED's 0.5% cut) but this is the last time, I predict, before the dollar run induced crash.
Posted originally at:
http://www.sciforums.com/showpost.php?p=1502039&postcount=1
I am physicist active there in many threads (as Billy T). In one, couple of years ago, made earlier vague prediction very specific: I have predicted a "6 year window" for the dollar run to start: (Oct 2008 to October 2014.)
In another, back when DOW was at about 12,000 I predicted that it would be "flerting with 15,000* by end of first quarter of 2008," perhaps too "cocky" about two months ago, when it neared peak, I moved the end date to "first 50 days of 2008." ("Flerting" defined as coming with in 3% and falling back at least once.)
I based this several years old prediction on the dropping dollar - I.e. DOW is measured in dollars and it takes more of them to "buy the DOW" as value of each drops.
What do you "traders"* think of my predictions and "6L cycle" summary of why US is in such a long term mess?
-------------------------------
*I'm a "buy and hold" guy - Five years now with assets in ADRs of India and Brazil, where I live. The local water / sewer company (may be world's largest as serves STATE of Sao Paulo) SBS is up 1000% and Indian Bank ICICI ticker IBN up about 750%, my two largest holdings. I foresaw all this 5 years ago - posted it at the sciforms site. GWB has made the coming depresion in US and EU unavoidable, IMHO. I became active back when it still could have been avoided by more policy like Clinton had (No war, balanced budgets etc.)
I also have stock in about 40 early stage drug developers as their risk is very high compared to dollar dropping risk and "priced in." - Most will not exist on my time scale (decades) but a few will grow 10,000% and compenstate. Several are also non-US (For example, SPHRY and NVGN, two of my largest more recent buys, are Australian and some others are in Israel and EU.) Plus generic TEVA and BRL as "big Pharma" is losing patents on big sellers now and for a few years - in bad shape - I own only the early stages high risk developers except for these two.
Things look so screwed up now that nothing make sense anymore. Either the bond market or the stock market is wrong. Which one is it? I agree with those 6L's except that they will probably find another way to divert the free money into another bubble. The commodity bubble perhaps?
Quote from scriabinop23:
Yea its looking like the market is going to be strong into the fed.
Why the hell should they cut here now? We could correct from 1550-1570 easy.
Sell those ZQs...
they aren't cutting. If I'm right, this may be a great dip to buy the USD.
Summary: If they cut, they do anything to defend credit markets and stock markets. If they hold, they actually care about inflation.
i think the fed has already shown its hand. it will do whatever makes the market stand up and clap for them.
that will not be good for the dollar.
Quote from canuckrookie:
Things look so screwed up now that nothing make sense anymore. Either the bond market or the stock market is wrong. Which one is it? I agree with those 6L's except that they will probably find another way to divert the free money into another bubble. The commodity bubble perhaps?
commodity bubble? watch what happens when rates get cut again...
Quote from flyingiguana:
i think the fed has already shown its hand. it will do whatever makes the market stand up and clap for them.
that will not be good for the dollar.
Thats what the market perceives. Thus everyone piling out of the dollar into gold, oil, and every other currency.
But I am in total disbelief that the talking heads, hedge funds, and powers that be are betting so much on the fed cutting here (even 25bp) despite their past move being 50bp. Remember they did that last cut after a dismal jobs report, and during commercial paper crisis which resulted in a flight to 90 day bills not seen since the crash of 87!
What's different now? We aren't in credit crisis anymore. The commercial paper market, despite not being what it was, stabilized somewhat. The unknowns of subprime asset writedowns are much more known than before (despite being worth 18 cents on the dollar versus 38-42 cents at mid august).
The oil, gold, and currency wildcard [essentially the USD index] is the key issue here. The currency and particularly the oil/gold markets are testing Bernanke in a way he hasn't been tested before. And honestly, I don't think the fed has showed its hand yet.
This meeting is key - I think its the most important in determining the direction of the dollar from here on out. I read today China was putting rations on diesel fuel due to the high cost of oil. Don't you think in an effort to relieve their fuel input costs, they might be motivated to quickly strengthen their currency so they have more buying power in the oil markets? The ramifications of that are pretty obvious with logical deduction: higher cost of imported goods from China (thus an inflationary pressure).
Furthermore an accelerated dumping of the dollar will likely result in a flight away from long bonds. Thus higher interest rates for business and individuals (for mortgages). The fed knows this too. While the bond market is being supported at the moment by a 'flight to quality' and preoccupation with predicting a final destination for the short end of the curve, there WILL be a turning point when logic will prevail and people will not be willing to receive 4%-4.5% for 10-30yr notes/bonds amidst a reaccelerating environment of inflation.
I find it impossible to believe the fed is not considering dollar weakness as a huge inflationary pressure that will backfire on its policy making. Furthermore, the seasonal weakness in crack spreads is providing an obvious buffer where oil-induced inflation will not show its ugliest head until next spring. Is the market willing to assume the fed will wait to react instead of preempt a move in CPI data that may not show until 2-4 months? The credit markets are stabilized enough to basic functionality (the fed's own purported goal in cutting 50bp) and there is NOTHING that 50bp did to support the price of subprime tranches. Why would further rate cuts do anything more? Subprime tranches are down 50% since they cut 50bp!!!
If $90+ oil is here to stay, we're only at the beginning of the food commodities rally. Watch corn go to $6.00/bu, soy to $13.00, and forced out wheat acres will repeat this past season's ascent to an even more ridiculous level. Then comes the more expensive to feed pigs, cattle, and resulting milk.
I'm not sure of an equity prognosis (I will be lightening up considerably on my position longs), but I'm short fed funds here at 95.5 november.
Can someone tell me, in the light of all of this, besides some temporary equities market exuberance, what are the benefits of cutting 25bp or 50bp here? I simply can not find one.
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This should further my point that the markets may be misjudging Bernanke.
This should further my point that the markets may be misjudging Bernanke.
We're so fucked.
I hope I'm wrong but it just seems the socialists are running us into the ground.
Typically the central bank does this:
raise, raise raise, pause for a while, cut, cut cut
So if they don't cut again I'm going to be very surprised.
Besides, Bernanke hates deflation anyway.
I hope I'm wrong but it just seems the socialists are running us into the ground.
Typically the central bank does this:
raise, raise raise, pause for a while, cut, cut cut
So if they don't cut again I'm going to be very surprised.
Besides, Bernanke hates deflation anyway.
I'm going to have to start my own thread in this part of the ET world, one with actual economic ideas in them. The simplistic slogans that fly around here make me very impatient. I've seen good threads everywhere else but here, in Economics. This part seems to be used as a proxy for everyone's politics. And I don't know about the rest of you, but I find politics to be both boring and irrelevant.