crazy volatility this week ... of course i thrive on this and i had my best month of the year, up 17% (probably on behalf of goldmans global alpha).. anyway ... interesting stuff going on .. maybe even quite historic .. i don't like the fed move on friday ... the first one was expected ..but i smelled a bit of panic by the third .. just a weekend repo, so they may have to interject again on monday ... more bad news after the bell on friday .. citi loses 500m , gov't rejects FNM loan limit extension ...etc etc ... more and more people are calling for a rate cut ..however, i feel that a rate cut would be bad for the markets as our dollar would collapse... and most importantly , the yen carry trade would unwind at an unprecedent rate, ultimately causing lower equity prices ...(1998 or even 1987??) and ..would a rate cut really help ?? maybe on the short end ..but the long end may actually rise... as investors (china?) sell the 10 and 30 year seeking higher rates elsewhere ... the same conundrum greenspan was talking about while he was raising rates will probably happen if bernanke lowers...also ... lenders are repricing risk .. and mortgage rates are moving higher ..no matter what the fed does (they cannot save housing)... the fed is in a box and the markets are starting to realize this
the CB's have to inject massive amounts of liquidity to stave off the combined implications of loss of wealth in subprime. even with this, its a snowball rolling down the mountain, that gets bigger and bigger. The FED needs to be aggressive, but the inevitable will be hard to avoid, similar to a 29's style global depression. the problem is global and not isolated. Just look around where you live, who has the wealth, whos building, whos not, whats the common mans state of being. the common man is in a bind, no wealth, huge debt, making ends meet, not able to send kids to college. Even if kids go to college, no real jobs, since the talent and output their kids will be able to produce, will be outdone by half as cheap and mentally hungary individuals overseas.
good posts, will this be realized in market action? Eventually, but they can always wait if they can set a bull trap or two along the way to capture some fresh money.
i think sooner rather than later, the market will realize that the fed is losing credibility ... i believe the market needs to set precedence and ignore all the fed jawboning and intervention .. (of course that won't happen, lol) because, all they are doing is slowing down the inevitable outcome... but hell ..what do i know !
elections are coming up, you think the party in power wont try to pull a rabbit out of hat.... 1)look oil prices are coming down just in time for elections 2)low 10 year yields or roof placed with upcoming macro implications 3)stock market will be upward biased(don't fight the FED) 4)carry trade unwound (dollar actually up) the power structure needed this macro economic scare/correction, to push the FED just in time for elections.
The government only has the power to affect some variables, not all variables at all times. Eg, you can inject billions into the financial system, (perhaps this is a positive for stability), but cause greater inflation (perhaps causing a relative drop in real wages, depending on if the positive effects of the injection outweigh the negative inflationary effects; put simply is the $100 billion etc spent on the bailing out banks, reducing interest rates/increasing money supply/liquidity, or some other policy such as a $100 billion across the board tax cut, or of course doing nothing). If it was just as easy as making a couple decisions to create vast wealth instantly, governments would of figured this out ages ago. The one true way of creating wealth is through raising productivity, which typically is a result of long term macroeconomic policies more than anything. edit: I personally am of the opinion that trading one bubble for another down the road just delays the problem and typically makes the next crisis even more negative. At a certain point, you got to just bite the bullet and let market forces adjust. This often causes a short term mild or medium recession, but inoculates you against the risk of a more major meltdown later, as well as if done properly sets the stage for a rapid, and sustainable, recovery.
fed wont cut. Fed wants to stay in power, if they devalue the currency/lose control than all is lost for them. That is priority #1, keeping themselves in power, they'd rather have a depression than lose power. Ppl cant afford their houses even with 0 interest. Its not really going to matter what the banks do, thats why they have been trying to inflate away the problem (accelerating inflation) to partially offset the drop in housing prices (let wages catch up), ie in a perfect FED world housing prices would go sideways, while costs of everything would gradually go up 2x-3x, thereby using inflation to avert a catastrophe. However, they don't have enuff time to inflate that much, so it can't be done. (They have been inflating for some time already). In any case, markets go where they want to go. When its this extreme, I don't really think anyone can get in the way since the once psychology changes there isn't much anyone can do until we reach bottom. The FED is trying to smooth it out but its still going to be bad. On the plus side, when you understand the scam that they FED =IS=, perhaps a new currency not controlled by them is a fantastic idea although there is short-term pain getting there. Repatriate control of the currency to the government at least.
The Grim Reaper pays a visit to Wall Street: http://www.informationclearinghouse.info/article18156.htm