There will be no Fed rate cut
- Thread starter Bob Rowshan
- Start date
What is it that I'm missing about this thread? I just trying to understand the point.
Is it just Bond Bears praying the FED will not cut. Seems like a gamble to me but, I don't trade FF.
FED open market ops. have already taken place. Tuesday is just the official announcement.
However, not only should the Fed cut by 50bps., but, they should also lower the Reserve requirments as well. JMO.
Is it just Bond Bears praying the FED will not cut. Seems like a gamble to me but, I don't trade FF.
FED open market ops. have already taken place. Tuesday is just the official announcement.
However, not only should the Fed cut by 50bps., but, they should also lower the Reserve requirments as well. JMO.
only 25 basis...cut.... works inline with Bernies persona...
bond yields will drive up if he cuts more, then the 25, with 25 bonds will rally and continued debt financing can occur with less of a premium from inflation.
bond yields will drive up if he cuts more, then the 25, with 25 bonds will rally and continued debt financing can occur with less of a premium from inflation.
Here's the dark horse that NO ONE expects:
Ben's a creative guy. Maybe he'll start a brand new precedent and cut by only 10 or 15 basis points. It could happen.
Ben's a creative guy. Maybe he'll start a brand new precedent and cut by only 10 or 15 basis points. It could happen.
well, it is becoming a bit boring but for the last time and in a layman words.
Fed and Wall Street relationship is kind of similar to a relationship of a dad and his little son. The son needs to listen every day to an evening story - otherwise he is very scared and cries all night long.
One day the son is very naughty. Dad tells him to be nicer or he will not tell him the regular evening story. The son is still naughty. The evening comes and the son becomes afraid that he is not going to hear his evening story - he starts to be nice for the last few minutes of the day and apologizes to his dad in the bed "I will never do it again".
What is the dad going to do?
A. He will not tell him a story because they discussed the implication of his behavior several times during the day. But that implies cry in the house for the whole night - something the dad has to consider
B. He will tell him the story after a proper explanation of the situation and after giving him a "hard time"
C. He will tell him 2 stories
Well I think the pattern is starting to be clear here. A and B is a possibility here, C is just ridiculous. The most efficient is clearly A - after all every dad wants to have his son to play by the rules even in adverse circumstances (I can tell). B is possible - he is the dad after all.
Now some people will say "ok fair enough but the story addresses only moral hazard and not the economic conditions that fed should deal with". That's true but if fed should face only economic considerations it should more likely to raise than cut. The current economic situation was not much more bullish in the past 30 years than it is now: employment low, inflation not low, real rates extremely low, fed funds minus inflation the lowest in the past 30 years, equities at high, oil high, metals high, ags high, dollar low, wealth high, global economy in great shape, libor going down etc etc.
Then there are some smarties that say - fair enough with moral hazard, fair enough with current economy but what about economy in the future? omg
These people often comes from the research departments of big banks (like Hatzius, Rosenberg etc) which are clearly the less intelligent of the crowd. They predict 100bps cuts basically continuously and in harder times they become overnight stars. People have short memory - they do not remember that these and the same predictors predicted 100bps cut within the next 3-6 month about a year ago as well. Rosenberg does it for many years now. On top of that everybody knows how screwed up these research teams are (e.g. equity/sector recommendations from Merrill for the past few months). GS changing rate outlook in May/June after loading up with hundred thousands of short IR futures (the outlook which is by the way reversed back already)
The point of above is why we should believe these analyst at all. They have no clue and on top of that they calls are often morally questionable.
So to summarize it for the last time from me on ET:
A. or B. it is. I prefer no cut especially as the recent panic seems to recede. They could maybe secure it with 25 cut in the discount rate. 25 ff is ok - still I think fed will dents its reputation much more than if the dad in the story goes with B.
who argues for fifty has clearly no clue - 50ers please give us a single valid reason why the cut should be 50. To decrease reserve requirement is even more stupid - do you understand implication of that Dr. Greenback? Do you know what is an effect of that? And why/when this should be done?
No Chinese cuts either. 12.5 is pointless while 37.5 looks like bowing to ff futures expectations - which, by the way, do not reflect real probability of meeting outcomes for many many reasons.
For the full disclosure: I have positions that benefit from no cut, 25bps cut and even 50bps cut (e.g. homebuilders, investment banks). In fact I have most of stuff in commodities - and they will definitely benefit from 50 disproportionately more. Therefore I am not talking my book here - I just lay what I think is a good course of action.
Fed and Wall Street relationship is kind of similar to a relationship of a dad and his little son. The son needs to listen every day to an evening story - otherwise he is very scared and cries all night long.
One day the son is very naughty. Dad tells him to be nicer or he will not tell him the regular evening story. The son is still naughty. The evening comes and the son becomes afraid that he is not going to hear his evening story - he starts to be nice for the last few minutes of the day and apologizes to his dad in the bed "I will never do it again".
What is the dad going to do?
A. He will not tell him a story because they discussed the implication of his behavior several times during the day. But that implies cry in the house for the whole night - something the dad has to consider
B. He will tell him the story after a proper explanation of the situation and after giving him a "hard time"
C. He will tell him 2 stories
Well I think the pattern is starting to be clear here. A and B is a possibility here, C is just ridiculous. The most efficient is clearly A - after all every dad wants to have his son to play by the rules even in adverse circumstances (I can tell). B is possible - he is the dad after all.
Now some people will say "ok fair enough but the story addresses only moral hazard and not the economic conditions that fed should deal with". That's true but if fed should face only economic considerations it should more likely to raise than cut. The current economic situation was not much more bullish in the past 30 years than it is now: employment low, inflation not low, real rates extremely low, fed funds minus inflation the lowest in the past 30 years, equities at high, oil high, metals high, ags high, dollar low, wealth high, global economy in great shape, libor going down etc etc.
Then there are some smarties that say - fair enough with moral hazard, fair enough with current economy but what about economy in the future? omg
These people often comes from the research departments of big banks (like Hatzius, Rosenberg etc) which are clearly the less intelligent of the crowd. They predict 100bps cuts basically continuously and in harder times they become overnight stars. People have short memory - they do not remember that these and the same predictors predicted 100bps cut within the next 3-6 month about a year ago as well. Rosenberg does it for many years now. On top of that everybody knows how screwed up these research teams are (e.g. equity/sector recommendations from Merrill for the past few months). GS changing rate outlook in May/June after loading up with hundred thousands of short IR futures (the outlook which is by the way reversed back already)
The point of above is why we should believe these analyst at all. They have no clue and on top of that they calls are often morally questionable.
So to summarize it for the last time from me on ET:
A. or B. it is. I prefer no cut especially as the recent panic seems to recede. They could maybe secure it with 25 cut in the discount rate. 25 ff is ok - still I think fed will dents its reputation much more than if the dad in the story goes with B.
who argues for fifty has clearly no clue - 50ers please give us a single valid reason why the cut should be 50. To decrease reserve requirement is even more stupid - do you understand implication of that Dr. Greenback? Do you know what is an effect of that? And why/when this should be done?
No Chinese cuts either. 12.5 is pointless while 37.5 looks like bowing to ff futures expectations - which, by the way, do not reflect real probability of meeting outcomes for many many reasons.
For the full disclosure: I have positions that benefit from no cut, 25bps cut and even 50bps cut (e.g. homebuilders, investment banks). In fact I have most of stuff in commodities - and they will definitely benefit from 50 disproportionately more. Therefore I am not talking my book here - I just lay what I think is a good course of action.
I'm relieved to see that the level of economic analysis from the usual folks doesn't rise above bedtime stories.
The Fed will do 25, obviously. The real story will lie elsewhere. My guess is that initially the market won't like it, but that it will then warm up to the action.
Tuesday morning the real action starts with Lehman reporting. I'm almost certain that that will exceed expectations, because expectations for this sector are somewhere between zero and a negative number. After the close on Tuesday, the reports coming out of this sector will overwhelm the news from the Fed.
As for those useless fools, well, they'll cut more after this as well, because they have to. The 10 is 75 below official FF right now, after all. They wouldn't actually want to show themselves to be stupid as well as useless, after all.
The Fed will do 25, obviously. The real story will lie elsewhere. My guess is that initially the market won't like it, but that it will then warm up to the action.
Tuesday morning the real action starts with Lehman reporting. I'm almost certain that that will exceed expectations, because expectations for this sector are somewhere between zero and a negative number. After the close on Tuesday, the reports coming out of this sector will overwhelm the news from the Fed.
As for those useless fools, well, they'll cut more after this as well, because they have to. The 10 is 75 below official FF right now, after all. They wouldn't actually want to show themselves to be stupid as well as useless, after all.
@Trefoil:
I can agree with some of what you've said. Earnings next week are certainly more important for the equities picture in the short term than the Fed announcement. In fact, if you're right and LEH is ok, and there's a selloff after a 25 bps announcement, it'll be a great short-term buy op.
But PPI is also that morning, and CPI is the next day. What if Bernanke did nothing, and said explicitly he wants to get some more data, namely CPI and the rest of the reports? If he needs to, he can cut a week later. I don't really disagree with you, but I think the world is WAY too convinced that the Fed has to operate the same way it did under Greenspan. Same goes for where the TY is. Who knows, maybe Bernanke will actually let the market be wrong sometimes.
I can agree with some of what you've said. Earnings next week are certainly more important for the equities picture in the short term than the Fed announcement. In fact, if you're right and LEH is ok, and there's a selloff after a 25 bps announcement, it'll be a great short-term buy op.
But PPI is also that morning, and CPI is the next day. What if Bernanke did nothing, and said explicitly he wants to get some more data, namely CPI and the rest of the reports? If he needs to, he can cut a week later. I don't really disagree with you, but I think the world is WAY too convinced that the Fed has to operate the same way it did under Greenspan. Same goes for where the TY is. Who knows, maybe Bernanke will actually let the market be wrong sometimes.
Great post. Thanks.
Quote from dhpar:
well, it is becoming a bit boring but for the last time and in a layman words.
Fed and Wall Street relationship is kind of similar to a relationship of a dad and his little son. The son needs to listen every day to an evening story - otherwise he is very scared and cries all night long.
One day the son is very naughty. Dad tells him to be nicer or he will not tell him the regular evening story. The son is still naughty. The evening comes and the son becomes afraid that he is not going to hear his evening story - he starts to be nice for the last few minutes of the day and apologizes to his dad in the bed "I will never do it again".
What is the dad going to do?
A. He will not tell him a story because they discussed the implication of his behavior several times during the day. But that implies cry in the house for the whole night - something the dad has to consider
B. He will tell him the story after a proper explanation of the situation and after giving him a "hard time"
C. He will tell him 2 stories
Well I think the pattern is starting to be clear here. A and B is a possibility here, C is just ridiculous. The most efficient is clearly A - after all every dad wants to have his son to play by the rules even in adverse circumstances (I can tell). B is possible - he is the dad after all.
Now some people will say "ok fair enough but the story addresses only moral hazard and not the economic conditions that fed should deal with". That's true but if fed should face only economic considerations it should more likely to raise than cut. The current economic situation was not much more bullish in the past 30 years than it is now: employment low, inflation not low, real rates extremely low, fed funds minus inflation the lowest in the past 30 years, equities at high, oil high, metals high, ags high, dollar low, wealth high, global economy in great shape, libor going down etc etc.
Then there are some smarties that say - fair enough with moral hazard, fair enough with current economy but what about economy in the future? omg
These people often comes from the research departments of big banks (like Hatzius, Rosenberg etc) which are clearly the less intelligent of the crowd. They predict 100bps cuts basically continuously and in harder times they become overnight stars. People have short memory - they do not remember that these and the same predictors predicted 100bps cut within the next 3-6 month about a year ago as well. Rosenberg does it for many years now. On top of that everybody knows how screwed up these research teams are (e.g. equity/sector recommendations from Merrill for the past few months). GS changing rate outlook in May/June after loading up with hundred thousands of short IR futures (the outlook which is by the way reversed back already)
The point of above is why we should believe these analyst at all. They have no clue and on top of that they calls are often morally questionable.
So to summarize it for the last time from me on ET:
A. or B. it is. I prefer no cut especially as the recent panic seems to recede. They could maybe secure it with 25 cut in the discount rate. 25 ff is ok - still I think fed will dents its reputation much more than if the dad in the story goes with B.
who argues for fifty has clearly no clue - 50ers please give us a single valid reason why the cut should be 50. To decrease reserve requirement is even more stupid - do you understand implication of that Dr. Greenback? Do you know what is an effect of that? And why/when this should be done?
No Chinese cuts either. 12.5 is pointless while 37.5 looks like bowing to ff futures expectations - which, by the way, do not reflect real probability of meeting outcomes for many many reasons.
For the full disclosure: I have positions that benefit from no cut, 25bps cut and even 50bps cut (e.g. homebuilders, investment banks). In fact I have most of stuff in commodities - and they will definitely benefit from 50 disproportionately more. Therefore I am not talking my book here - I just lay what I think is a good course of action.