I agree raising rates now is not a good idea. Environmental concerns aside, speaking purely from a economic point of view: Lower oil (allow offshore drilling, stop reserve, etc..) -> market goes up (market currently has a inverse relationship with oil) -> start raising rates gently at 25 bps -> oil continues to fall, dollar strengthens, market remains weak but will not crash. I think this is the best approach to our situation. The financials government has no control over, the writedowns will be done when they are done. Housing is the same, government has no control over, people will start buying again when they choose to. The only thing government has control is oil, and it just happens to be in an inverse relationship right now with the market.
My 2 cents. The Market will crash either way. Low rates will kill discretionary consumption, and so to it, the Economy. Take a look at the Nikkie if Japan is the model we should emulate. They slid over 50% from 1990 onward, even when rates were near zero. You think Oil at 200$ or 250$ will somehow pull America out of this mess? Look at all the commodity indexes. Up 20% - 25% since Feb. Climbing fast. Discreationary spending is 72% of GDP. When iPODs and plasma stop flying off shelves, we'll see major state-side layoffs and then the fun will start. Theres no way to normalize prices except jacking rates. Japan is still messed, 15 years later? Is that what we want? And who will be Japans America to buy us out of our RE collapse?? It won't happen, folks. We're the top of heap. Theres no one to pull us up when we fall down.
I hesitate to post anything about the Great Depression because most traders would dismiss it offhand, but if you are interested read this speech http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm It shows the "box" the Fed is in and Bernake's study of the great depression. I believe it shows without a doubt that he will not raise rates anytime soon. The Fed of the early 30's did just that. And for the exact same reasons as today. They wanted to curb excessive banks and brokers. The films are in black and white, it seems so long ago. But it is the same story, history is repeating itself. Bernake wont make the mistake. He may not be able to stop what is coming, but he wont make a bad situation worse as they did in the past. Imo, They found the right man for the job. This is his calling, and what he has studied endlessly.
Let me ask you four questions. 1) What impact is raging oil and commodity inflation having on the global economy? 2) Has lowering rates and keeping them low in the U.S. stimulated banks willingness or ability to lend money? 3) Has lowering rates and keeping them low trickled through and lowered mortgage rates, or allowed ARMs to reset to lower rates (or even keep them at their existing rates)? 4) What is the trend in the unemployment rate in the United States? I don't think Bernanke is competent, let alone the 'right man.'
I agree, he didnât make this mess and every Fed possible action has a major downside. I think no matter what he does we are going down; itâs just a matter of how fast. Although I would prefer he raise rates aggressively, it wonât happen, there will be aggressive talk but only token increases. He his playing a glide slope rather than a crash and burn. Iâd rather have the crash and burn so we can begin to correct the big problems, also I am positioned for one.
And meanwhile, retired people on fixed income get reamed out of their hard earned savings. I guess somebody has to lose - why not sacrifice the people who were intelligent enough to stick to a sound financial plan instead of the banks who foolishly speculated on mortgages with ultra-leverage? Sure makes sense to me in bizarro world. Bernanke is clueless. Bring back Volcker and take the pain to clear the system.
The fed bumped the puppy - I know people who did not participate in housing speculation, or bought MBS - who are now starting to get in real trouble because of inflation. We're talking food up like 25% in one year and oil off the charts. These people were not in trouble vis a vis paying their mortgage, but will likely soon have troubles as making ends meet becomes harder and harder. So the Fed's lowering rates to save the banks and alleviate the housing crisis is actually GOING TO MAKE IT WORSE as people who were not in jeopardy before >>> become jeopardized and are added to the foreclosure statitistics, totally due to the higher costs of living and wages not keeping up.
Where there is massive inflation there is great opportunity. You better STFU and trade while there is still liquidity. I'm learning Russian as I type this.
Your getting closer. If you have to dummy it down to keep clients though I might suggest prospecting to a wee bit more sophisticated crowd. My next door neighbor runs money for high networth types and from what he tells me the key to keeping clients is to lay it on the line. Sounds like your trying to do the right thing though. For that I commend you.