As we wait for the Fed Announcement…

…which I’m sure has you on pins and needles, I got a big kick out of this:



UPDATE: September 20, 2006 5:48pm

No change in rates; Here’s the parsed statement:
click for larger graphic


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What's been said:

Discussions found on the web:
  1. Emmanuel commented on Sep 20

    They can print all they want; M3 is history. Let the helicopter drop begin!

  2. Michael C. commented on Sep 20

    Love that cartoon, Barry!

    So oil is still dropping like a rock. What’s this mean. Hedge fun liquidating? Hard landing? Weak economy?

    Or is it a dream come true for that Escalade-driving-PlasmaTV-buying family?

  3. Richard commented on Sep 20

    no change. surprise surprise. i expect the cuts to start soon the minute the consumer needs a flotation device.

  4. tjofpa commented on Sep 20

    Maria, get the party hats and ballons ready…

    and line up that guy who wrote DOW 36,000 for an interview.

  5. Mr. Beach commented on Sep 20

    Sometimes you just have to say WTF?

    The Fed didn’t get the depression.

    The Fed didn’t get stagflation.

    What is the Fed missing now?

    Consider this: Policy Arbitrage. It really doesn’t matter what the Fed is going to do anymore. What matters is the difference between the actions of central bankers in Japan / Euroland / Asia vs. the Fed.

    Imagine that a hedgie borrowed billions of Yen at the beginning of the year, converted to dollars and parked the money in treasuries. The hedgie would have made quite a bit of money in the rate differntial between the US and Japan. Macro 101 should tell you that sufficient trades of this sort should lead to a rising yen and/or rising interest rates in Japan — both killing the interest rate advantage of the dollar.

    Instead what has happened is that the Yen has fallen vs. the dollar. So the hedgie has come more ahead than planned with cheaper yen. Why? Perhaps because Japanese Central Bankers are the biggest, baddest bubble blowers in the world. They are flooding the market with yen.

    So the policy arbitrage folks made fantastic bank — while the Fed gets to pretend that inflation isn’t a problem. For many, it is an open question the flood of dollars being unleashed on the world will eventually lead to tears.

    Questions for Barry and the board:

    1. Do you believe in Policy Arbitrage?

    2. Where is Fed Funds in 12 months. (Is the futures market correct in predicting multiple cuts?)

  6. Michael C. commented on Sep 20

    The Fed will cut in 2007 in order to save the consumer and housing market.

    They will set the stage by lowering inflation expectations, citing that lower energy/gas prices is not enough to stimulate the economy, and lower global economic demand.

    I believe that the real fun in the markets will begin when people realize that rate cuts cannot keep up with the debt-burdened consumer and overbuilding that has taken place.

  7. tjofpa commented on Sep 20

    Absolutely agree, Mr. Beach. Big drop in $/Yen back in April from 119 to 109 precipitated the May sell-off.
    But don’t leave the Chinese out of this, as they are closing in on $1 Tril US paper tickets that they don’t know what to do with. I hear that MBS had their best months in July and August since Sept 2003.
    Can they keep the party going until the Olympics in 2008?

  8. Leisa commented on Sep 20

    I was surprised by E. Burnett’s (though I would give anything to look as fetching as she) blather several times today about the consumer not being as important to the economy as expected. Am I just missing something? Do I need medication? Are the numbers that I’ve seen about equity pull out and then subsequently back into the economy a dream? a lie.


  9. Mike B commented on Sep 20

    I have a simple question that I wish someone would answer for me.

    I keep hearing about the “carry trade” and how hedge funds borrow with cheap money in Japan, but at the same time I hear about how Japanese individual investors are buying US and European bonds since their bonds pay so little.

    Therefore, my question is this: who is providing the loans to the hedgies to fund the carry trade at such low interest rates? WHO? If the Japanese individuals are buying our treasuries, that means they are loaning our government money.

  10. Blissex commented on Sep 20

    «Can they keep the party going until the Olympics in 2008?»

    I think the question rather should be: can you have an unpopular and expensive war and go through a recession at the same time?

  11. tjofpa commented on Sep 20

    Fiat currentcy IS a beautiful thing, isn’t it Mike?
    What I don’t understand is – why is 1 US paper ticket worth 117 Jap paper tickets?

  12. Bob A commented on Sep 20

    Marketwatch and others…”Senate is warned of stresses from “exotic” and insufficiently understood mortgages.”

    The senate finally learns about snakeoil mortgages. Maybe someday even the Fed will be aware of them.

  13. tjofpa commented on Sep 20

    Here is the link about MBS performance; very last paragraph.

    I believe in Sept 2003 FNMA sold like $600 mil worth of paper to the Chinese; then went into the mrkt and bought up all the junk nobody wanted. Now, apparently, we don’t need FNMA or FREDDIE.

    Unpopular with whom? Not those who made their fortunes during wartime.

  14. calmo commented on Sep 20

    I don’t know what E. Burnett looks like but I like Leisa’s fetching phrase, tons.
    It’s the sailing connection where we say of a big sea (usually too big) that the chop (waves, people, usually their steepness too) has had considerable fetch (distance) to build given the wind direction.
    So to use that odd phrase “to look as fetching as E (not Ethel I bet).” gives some of us a different (slightly twisted/tickled but altogether distracting) impression.
    U B right with the “blather” too.

  15. steve commented on Sep 20

    Hate to sound like a broken record but a 5 and a half year high in the S&P while you say to raise cash. You joked about the trolls when the market went down big 1 day. It’s been up almost every day since.




    You are becoming quite the reliable contrary indicator. It is less than 24 hours later, and the Dow is off 105 points, with Nasdaq down .91%

    Please keep up the good work!

    -Sep 21, 2006 3:15:16 PM

  16. eli commented on Sep 20


    Currency is a funny thing.. try to sit down and diagram out where money comes from and where it goes. You start with the Fed and it’s counterparts printing money (how much?) and loaning it out to banks at a certain rate.

    The banks get this money from the Fed and from individuals who stuff money in accounts. They loan this money out to different people/organizations for various reasons.

    Now, where does the government of any country get money to operate? Taxes and IOUs. IOUs flow out, money flows in.

    What type of currency? US Dollar? Yen? Yuan? Ruble? ?? If China is buying IOUs from the U.S., where does it trade Yuan for US Dollar? Currency exchange? Is it from Chinese businesses selling goods to the U.S. and accepting U.S. dollars.. then China exchanges money directly to them?

    If Japanese citizens are paying Yen for U.S. IOUs.. and the U.S. is swapping Yen for US Dollar, would that mean Japanese banks are paying US Dollar for Yen so they can loan out Yen to borrowers at low rates? Is the Bank of Japan just printing money and loaning that out?? Or is BOJ paying U.S. Dollar for Yen, and loaning that out?

    I’m working on several diagrams that map the flow of money.. just to try and get an idea of where money goes.. during bubbles and the like.. to try and understand what it means.

    I don’t believe most people fully understand currency or much of anything to do with money (myself included).. we just accept that this is just how things are.

    Do you ever wonder what it means when people note that China purchases Treasury notes to keep the Yuan devalued? How exactly does the mechanism work? I assume that China buys up U.S. Dollars with lots of Yen and uses the dollars to buy Treasury notes.. this in turn keeps the US Dollar valued higher than the Yuan.. but.. does that mean that China is printing massive amounts of currency? or.. do the people of China save enough to make this so? what fraction of total chinese savings is used to purchase treasuries?



  17. Mark commented on Sep 20


    A 5 1/2 year high means exactly that. For 5 1/2 years your investments are FLAT. Bull market? Bullsh*t.

  18. Jim commented on Sep 20

    Mark, If you look at the Small Caps, the last five years have been a major bull market. This market is going to continue to rally until late fall. My expectation is a new all time high in the dow and the naz near 2500. The Russel 2000 will kick ass and be near 800. It is time to invest and join the rally folks. Don’t fight the trend.

    Barry your prediction of a correction really makes sense to some degree, but it will not happen.

  19. wunsacon commented on Sep 20

    I just closed almost all my shorts. Is it time for the market to tank??

  20. whipsaw commented on Sep 20

    per eli:
    “I don’t believe most people fully understand currency or much of anything to do with money (myself included).. we just accept that this is just how things are.”

    There’s good reason for that… paper money is just an illusory convention and always has been. I am not ranting about fiat currency, I am referring to the underlying notion that money is a standard of value that depends entirely on the willingness of the issuer to avoid default even where it is supposedly backed up by hard assets.

    The mechanics of international flows are neither obvious nor necessarily related to “capitalism” because at the macro-macro level, profit and loss have nothing to do with anything. If a sovereign buys or sells currency or debt securities, it is usually to further some policy that is related more closely to power projection than to profit. That is inherently confusing to most Americans, but I am pretty sure that most of the rest of the global financial world understands what the score is.

    Again at the macro-macro level, “credit” is just the ability of one nation to sell debt to other nations that find it advantageous to be owed, even if the deal doesn’t make any economic sense in itself. So the Chinese buy our debt, but maybe because they are applying Marxian theory that the proceeds will be sucked up in one way or another by corporates who will then buy their marginal wares for resale on credit to consumers. The Chinese own the debt, their people go to work, the products are sold at a profit, and we come closer to implosion since total US debt has effectively doubled via the transaction (we owe as a nation and the consumer owes for the same goods). They gladly eat whatever the yield differential is against a more sensible investment despite the increasing risk of default because our default means that they are suddenly “the only remaining Superpower.”

    Sooooo, what I am trying to say is that we are living in an age of Revived Mercantilism and if you try to second guess these guys based on quaint capitalistic notions, you will get your ass handed to you. The dollar will collapse when the Chinese think it is advantageous to collapse it which could be tomorrow or in 20 years. The point is that we have lost control of the situation which is pretty much the inevitable result of being too deeply in debt.

  21. eli commented on Sep 20

    Oops.. In the last section of my rambling post, I used yen at one point.. Replace that with Yuan.

  22. whipsaw commented on Sep 20

    per wunsacon:
    “I just closed almost all my shorts. Is it time for the market to tank??”

    yes, but only because I bought 40 QQQQ calls this morning. :)

    Actually, I smell big trouble among the hedgies and think that we are just waiting on a catalyst to emerge that will trigger a wipeout. I can’t say when that will be, but am thinking that it will actually occur before the elections rather than after as the CW has it.

    Today’s action should bring the sucker money back in thru the end of the week. But at some point, the topic is going to become 3Q earnings among other things. I am very comfortable with my March SPX puts altho they are distinctly red at present (thus the QQQQ call hedge). The more I see of this market, the more I think that it is heading for the cliff.

  23. Brian commented on Sep 20

    There was an energy stock fire sale last fall and that time it was Refco blowing up. I wonder how much of the move in energy commodities and stocks this time is fundamentals and how much is Amaranth and maybe a few we don’t know about yet.

    Everything else seems to be levitating more every day. And every day I’m thinking they’re sucking the last suckers in. Has any sector not been working for the last couples weeks other than energy/metals?

    I buy the idea that maybe tech leads the next bull run but I was thinking they’d be an ugly correction before that. Or was that May/June correction it?

  24. Barry Ritholtz commented on Sep 20


    You proved my point perfectly!

    You should load up on hi beta indices — Qs and Semis — maximum margin, and add some calls also.

  25. chardog commented on Sep 21

    >A 5 1/2 year high means exactly that. For 5 1/2 years
    >your investments are FLAT. Bull market? Bullsh*t.

    You must have missed Brinker’s calls in Jan ’00 and 3/11/03. Just because we’re in a secular bear doesn’t mean we can’t make money in the cyclical bull.

  26. Mark commented on Sep 21


    I am up 13.4% annually since July 2000. You?

  27. tjofpa commented on Sep 21

    Great post Whip.
    “The dollar will collapse when the Chinese think it is advantageous to collapse it which could be tomorrow or in 20 years”
    Thus my reference to the Olympics in 2008, when by the way, we will have another struggle for control of the empire.
    I have one question for the “global financial world” that is surely not understood by most Americans:

    What is the only thing that gives a fiat currency any intrisic value?

  28. Dan commented on Sep 21


    I work at Grant’s Interest Rate Observer. Many of our views overlap and I have enjoyed your blog for some time.

    You are very careful in sourcing the material you post on the site. Could you list Grant’s as the source of the cartoons that you have been posting?


  29. brion commented on Sep 21

    “What is the only thing that gives a fiat currency any intrisic value…?”

    “A really LARGE Nuclear arsenal”

    I’m supposing that this is a rhetorical question for which you have the ONE answer….however,
    having your National shit together also works…

  30. tjofpa commented on Sep 21


    TAXES are the only thing that gives fiat currency any intrisic value.

    Its no coincidence that we got both the FED and Income Taxes back in unlucky 13.

  31. eli commented on Sep 21


    that seems like an odd statement to make:

    The only thing that gives this paper value is that an organization takes a certain amount of the paper from people every year.

    In my opinion, the value of currency is purely psychological.. people can yabber on and on about interest rates and money supply.. but, individuals only use a particular currency because they feel like it has value.

    I don’t know where that feeling comes from. My guess is that it’s status quo, first and foremost. After that… interest rates and money supply factor in.

    Naturally, status quo can be maintained using weapons and the like.

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