Problem w/Bernanke not moving is this: Productivity is my leading indicator; I did an intensive study of it a few years ago and figured out that it leads unemployment by about two years. It started dropping at the beginning of '06. At that time, I thought to myself that '08 was going to be a difficult year economically, and that Bernanke was setting up for a major rate-cutting campaign that year. So far, everything is happening as I thought, not in the particulars, of course, but in general: holding the FF over the prevailing yield curve had the usual effect of constricting credit, which is showing up in this instance as the subprime debacle. Employment is beginning to suffer. By next year, Bernanke will be in major rate-cutting mode. Recall that Trichet came out with a special press conference after the August meeting of the ECB to clearly state he'd be raising rates regardless, and was forced to backtrack, something which made him look utterly stupid. BOE head Mervyn King, just this past week, was forced to come off his high horse and rescue Northern Rock. Over in Japan, the BOJ was forced to backtrack on raising rates when it became clear the Japanese economy would not be able to support it. The only CB head who hasn't been made to look like a fool so far is Bernanke. I don't think he wants to put himself in the same embarrassing position as the others. If he does try to fight the markets, he will be made to look like a fool and will be forced to cut regardless. Reality beats macho fantasy every time.
Thx to everyone who contributed to this thread. I learned alot from many good opinions! I also learned that i'm probably out $20 bucks.
http://www.federalreserve.gov/boardDocs/speeches/2002/20021121/default.htm sound bite: Second, the Fed should take most seriously--as of course it does--its responsibility to ensure financial stability in the economy. Irving Fisher (1933) was perhaps the first economist to emphasize the potential connections between violent financial crises, which lead to "fire sales" of assets and falling asset prices, with general declines in aggregate demand and the price level. A healthy, well capitalized banking system and smoothly functioning capital markets are an important line of defense against deflationary shocks. The Fed should and does use its regulatory and supervisory powers to ensure that the financial system will remain resilient if financial conditions change rapidly. And at times of extreme threat to financial stability, the Federal Reserve stands ready to use the discount window and other tools to protect the financial system, as it did during the 1987 stock market crash and the September 11, 2001, terrorist attacks.
Did anyone see Kudlow calling for "shock and awe" and a huge fed funds rate cut and further discount rate cut ? LOL
Of course there are no guarantees, but normally when the second wave down exceeds the last pivot point you will get a full 100% retracement. It may take awhile, but it normally gets there. Now if it comes back and exceeds the previous pivot, then all bets are off.
Look, the bond market leads the Fed by the nose. I don't have a crystal ball so I don't know what will happen tomorrow. What I do know is that if the Fed doesn't ease, it will be a first! The first time they have decoupled from the bond market. I find that HIGHLY improbable.