Welcome NYT readers: The What’s Online column linked to the wrong commentary — the post Dan was referencing was this one: So Much for the Decoupling . . .
There were several other issues with the Times piece, and our response to the column is here: The Bulls, The Bears, & the Media.
~~~
The Fed slashes rates 75 bps – and another 75 bps are implied for next weeks meeting. There is a none-too-faint whiff of panic about today’s actions.
What does this mean for investors. Quite a number of things – none of which are particularly good over the long term:
1) Why Cut today? What was the motivation for today’s cut? Would waiting 7 days have done anything. other than allowing some of the excesses to get wrung out of the system?
2) Equity Market Dysfunction? Is it that the equity markets are not working properly? Likely not. Are rates too high? I doubt that’s the reason for any of our economic woes. Then what is it – are lowered equity prices a problem?
Globally, equity markets have been in the process of “Repricing Risk” – why is the Fed disrupting that? Further, there is now a recognition that S&P500 earnings were priced way too high – especially in the event of a European and Asian slow down. That lowered “E” in the P/E adjustment is also under way.
3) TANSTAAFL: The free lunch crowd (a/k/a Long & Wrong) has been chanting for Fed cuts. However, these are not with0out consequences, as Inflation remains a pernicious threat.
Here’s a question: What goes to $5 a gallon first – Milk or Gasoline? How about $6?
4) How Independent is the Fed? The Fed is supposed to be an independent entity, whose mission is a) price stability (inflation) and b) maximizing employment (growth).
However, today’s action reveals an apparent third obligatory goal – protecting investors and market prices. I had no idea that back-stopping speculators and hedge funds was part of their mandate…
5) Capitulation? The Market gapped 400 points, and is now climbing higher (off 300 as I type this). My second biggest concern is that the Fed merely delayed the inevitable. This market saving cut prevented a thorough, 5% wash out. In other words, all the Fed did was prevent a healthy capitulation.
6) Pushing on a String? My biggest fear is that we close down 500 points anyway. That would be the worst of all worlds: A compromised, political Fed, working on behalf of speculators, to the detriment of ordinary taxpayers, is proven to be a paper tiger. That scenario would but the “F” in Fugly.
7) Decoupling US Equities from Global Slowdown? Other markets were down much more than the US. But that makes sense, seeing as they have been a whole lot more than the US over the past 5 years . . .
This was a shot of penicillin to a cancer patient.
I’ll take door number 4 Barry….
Until we get that or it is allowed to occur we are just marking time and will drift lower over time instead of completing the washout of crap that is sorely needed.
A 5% drop would have shortened the recovery time. The stupid people at the Fed are continuing to trade the perception of short-term gains for another term of four years-at least for them.
Disgusting
Ciao
MS
The Fed’s political agenda seems more obvious now. I vote for gas to hit $5.
Milk
you know Barry, I agree and posted on this as well today on urbandigs. The fed blew it. They are ivy leaguers and dont understand trading psychology or the markets.
WE NEED TO GET WRECKED! Let it happen. Let it re price and adjust to this new world of risk and bear market. Flush the system. They used alot of their arsenal and it saved us a whopping 100 pts on DOW?
Awful. They should have let the destruction occur, and if they had to cut, do it later in the day or at the meeting. Obviously they did it today to jolt confidence as it takes 8-12 months for the rate cut to funnel through economic system.
They blew the confidence part. The should have waiting until at least mid day after the carnage occurred.
Geez, beer is going to be cheaper than milk or gasoline before this is over.
Will Rogers was once asked how he made money in the stock market. “you buy good stocks and when they go up, sell them. If they don’t go up, don’t buy them!”
I echo your comments about the Fed…Yet another unspoken mandate is to quell panics. I guess an orderly melt down is less scary. Mr. Market will go to where it will go.
This is what they mean about fighting the fed. Unfortunately the little dogs are what is going to pay for this.
I’m glad this enabled me to sell my monthly covered calls for more cash flow than what I expected to sell them for only a few hours ago. I’m sad for the families who will be ground to hamburger when this inflation blast hits the streets. They will be ground up not for my trading’s sake but for the sake of those much bigger than me in the markets who decided once again to show uncle ben who is bosssssssssss
[begin sarcasm]I think really the only solution to this is for the fed to print up some dollars and buy dollars with them. That way the dollar can retain its value [end sarcasm]
milk……
Oil will drop off a cliff as we move closer to the election. Remember Goldman Sachs little trick of tweaking the GSCI that caused a panic selloff in wholesale gas-August ’06 (this is highlighted on any oil chart as the only time since 2002 that oil has actually lost money over a three month period).
oil’s had it’s run. No way gas gets more expensive unless Iran gets invaded.
Milk is already more expensive,per gallon, than oil.
Ciao
MS
And you question the PPT’s existence.
Barry,
You’re right on the money, as usual. Frantically, trying to delay the invevitable usually only exacerbates the problems. Let the invisible hand do its thing.
1) Motivation is political but not quite as sinister as implied. It’s more to provide a perception for the masses that someone is watching. Fortunately, (or not) the masses don’t stop to think through the implications very well – i.e. this should confirm recession. Unfortunately, this reality will sink into the brains of those more thoughtful in the next week or so.
2) Milk is at $4.49/gallon already for the store-brand. If you buy the fancy-pants Borden stuff it’s already well over $5.
This is a depressing day for so many reasons and the market probably won’t even get a proper capitulation!
Just remember though, in the US as in no other country, we get the government we deserve. I would also add that we get the government that reflects the general population.
Michael,
high prices and runaway inflation(including gas) is what they want isn’t it? I thought this was all about a regime change? Nothing changes deck chairs on the titanic faster than a good ol’ inflationary slap in the face
I have a question about the inflation story and I’m not asking this to be argumentative. I seriously don’t get the argument. We are experiencing deflation on a $20 trillion asset class (real estate) and deflation in the equity market as well. Historically, inflation peaks after the economy troughs, so it seems reasonable to think that prices fall after the economy (i.e. demand) slows. So what’s the right answer, inflation or deflation?
Don’t get me wrong, I think the only long run solution for the U.S. economy is to delever and increase savings. Last time I checked, that usually requires higher rates, not lower.
you call it repricing of risk. That is market-techno-babble. A simpler explanation could be that the Funds are repositioning their global portfolios. The took advantage of MLK holiday (when the US market was closed)…they pulled money out of the foreign markets and now they are preparing to bring it home to US Stocks!
LH: the government DOES NOT reflect the general population. since 1968, 1980, Clinton (NAFTA), Republicans taking the House 1994, parabolic speculation 1995, Bush 2000 the government has tended to represent a narrower and narrower slice of the population: CEOs, hedge funds, Fortune 500, the wealthy. it’s BECAUSE there is no longer a thoughtful opposition or any questioning of laissez-faire capitalism that we can go to the sorts of extremes we’ve seen in the financials. it’s when everyone is leaning one way that the boat tips over.
This week-early but not unexpected cut was used to calm the rest of the world. That’s the disgusting part of it: we (the US) now not only have to play cop to the rest of the world, but economic arbiter as well.
Funny story–for the first time in years, I actually had CNBC on in my home office. My wife, a brilliant woman but not particularly interested in finance, listened for a while as she was doing other things.
Then she turns to me and asks: “How is this any different than Jerry Springer?”
So so true LOL
Milk is already more expensive,per gallon, than oil.
My propane bill (for my oven and water heating) from Suburban Propane last week was $5 a gallon.
“A simpler explanation could be that the Funds are repositioning their global portfolios. The took advantage of MLK holiday (when the US market was closed)…they pulled money out of the foreign markets and now they are preparing to bring it home to US Stocks!”
Why couldn’t they do that any other day?
They could just be getting their money out and sitting on it.
Motivation is political but not quite as sinister as implied. It’s more to provide a perception for the masses that someone is watching.
But this is really risky. As Barry mentioned, if the Fed’s actions don’t inspire the proper level of confidence, then people will realize it is no longer in control of events & panic, panic, PANIC!!
Looks like a dead elephant bounce in the markets–a bit of a rebound from earlier, but still a net loss.
What about another explanation for Bernanke’s move. He is trying to bail out the banking system. Cutting rates will allow them to improve margins on their traditional lending activities and if their medium-term profitabily is perceived to have improved, attracting fresh equity to recapitalise them will be easier, thereby helping stabilise the banking system. I strongly suspect bernanke is more worried about the financial system than by the economy as a whole…
Another big risk that hasn’t been given much air…..anecdotally, a lot of people have used home equity withdrawals (generally those w/prime credit) to fund their small businesses.
Slowing economy = non-repayment of home equity = another drag on housing? Another double whammy waiting in the wings?
FWIW, looking for a rebound and then a genuine washout.
Fear? What fear? The dow is only down 150 points.
For a contrarian take. Bernanke is trying to keep the market from falling abruptly (or too much) because that is the last thing keeping the economy up (through boomers retirement cash). Since house prices are down (and going lower), he can ill-afford to have the markets tank too much or we will be in for a real deflationary recession (a deep one). And, inflation is not an issue (recession takes care of oil, and unless Bernanke can end ethanol policy there is nothing he can do about food).
Funny. I noticed last night my gallon of milk was over $5.
Damn. I guess people will have to walk to the corner and buy it instead of driving.
Mike,
the problem is that cash, just like water, always finds its own level. It is like trying to put out a house fire by flooding the city. When you flood the system with money it goes away from the abundant assets to the scarce. Those are the things that will increase as the bidding wars start. That is what happened to housing until so much was built it overwhelmed demand. That is why health care costs and college tuitions are soaring. There are bidding wars going on for them right now and that will now be made worse just to stave off the ‘deflation’ in assets prices
It doesn’t matter how much ben tries to pump up the markets people are going to have to sell those assets to pay for the scarce resources that are being bid up this day
Great post – thanks for the honesty. The patient can’t get better until it finishes throwing up.
In addition to price stability and employment growth functions is the Fed’s Supervisory role of the banking system.
“Supervisory Process
The main objective of the supervisory process is to evaluate the over¬all safety and soundness of the banking organization. This evaluation includes an assessment of the organization’s risk-management systems, financial condition, and compliance with applicable banking laws and regulations.”
http://www.federalreserve.gov/pf/pf.htm
75bps is the self-inflicted fine for it’s lack of Supervision and the catastrophic consequences that have been unfolding.
“back-stopping speculators and hedge funds” as a 3rd mandate by the Fed? The last I heard it wasn’t hedge funds who live and die by the profitability of the S&P 500. Also, if your point is that speculators and hedge funds created this mess, you have a pretty simplified view of the reality of cause and effect than the rest of us….either that or you get the majority of your your news from the WSJ that is. It must be good knowing that you always have hedge funds to fall back on as a guilty party, regardless of the reality. Even better, thanks to regulatory constraints there is no voice that allows them to defend themselves!
Let’s see, the market wants another 75 BP cut next week, they want a larger fiscal stimulus plan than 150B, they want the ECB to cut rates and they want the FED to keep injecting billions in liquidity. Didn’t we just have Christmas? And what about inflation, oh yeah…according to BLS there is none. Nothing the FED will do will change the dynamics of the markets, like the markets can but they won’t allow them to correct. This recession will continue and in addition thanks to the FED we are now going to get a huge helping of inflation with it.
Milk is already $5 a gal in ID
“back-stopping speculators and hedge funds” as a 3rd mandate by the Fed? The last I heard it wasn’t hedge funds who live and die by the profitability of the S&P 500. Also, if your point is that speculators and hedge funds created this mess, you have a pretty simplified view of the reality of cause and effect than the rest of us….either that or you get the majority of your your news from the WSJ that is. It must be good knowing that you always have hedge funds to fall back on as a guilty party, regardless of the reality. Even better, thanks to regulatory constraints there is no voice that allows them to defend themselves!
Next thing you know they’re gonna tell us subprime lending was really a good thing and they’re bringing it back.
>>>WE NEED TO GET WRECKED! Let it happen.
YES.
Do it NOW…. or let the cancer suck us dry over years…
If the Fed has decided to pull the bandaid off slowly instead of just pulling it off in one fell swoop, is now the time to get out?
How long does everyone think it this extended draw-down will last? 1 month? 3 months?
Anyone able to get into Ameritrade this morning?
Site has been down since the open, phones just keep on ringing..
I don’t have the slightest clue what my account is doing not that I would trade today anyhow.
David got it right. It is the financial sector that the Fed is worried about.
Organic milk: $6.49/gal
day-traders may like these swings, but this is a multi-year process, much like the rally off the 10/02 lows. we topped last year, we will go down for a few years. the FRB has been cutting for a while, the market has rallied each time, the rallies have then failed, they will continue to fail until the Fed Funds rate is back to 1%, at which time gophers will poke their little heads out of their holes and think about foraging.
They have one more 75bp or two 50bp shot to fire and the real rate drops to ~zero. Then what?
It’s like a shot of morphine to relief the pain, but there are not many left in the kit.
We have got aid package annoucements everyday now: Fiscal stimulus on Friday; emergency monetary policy – 75 BPs rate cut today in addition to ongoing fed liquidity/ steroid injections.
May be as Mad man cramer was suggesting this morning – bail outs of some of these firms with tax payer money is the only thing left to be done.
It feels good to see the fed, treasury & the government in action so proactively unlike FEMA’s poor response during Katrina!
Hopefully all this “financial aid surge” should help calm the fears in the markets/wall street! I feel the pain of the freely falling markets that affects ordinary investors & but I have no pain for the failing wall street firms!
Let’s see if the lever-head PE guys & Hedge Funds are jumping in to buy all the companies/stock in the world to churn out incremental returns/profits at the cost of ordinary 401K investors – who may panic and may liquidate.
As Geremy Grantham was suggesting about some of these firms – I hope and pray some of these greedy firms go out of business.
Are we watching the natural decay of an empire/capitalism? perhaps, that is too cynical/ negative and hence time to buy this dip?! I will pass for now!
It looks to me people are making more speculation.
Korean stocks for example we off by almost 10% but now people are buying POSCO in the US market for 2% under Fri’s price.
Also the EEM fund is only down 2% where many emergings went down 8-14%.
Talk about stupidity! The EEM fund actually owns the stocks in the global markets.
Just maybe, this “panic” is primarily the unwinding of leveraged positions by hedge funds after understanding that the counterparties may not be able to cover their obligations, but it is being misinterpreted globally to be dissatisfaction with Bush’s fiscal plan and global recession fears.
An indication of this is that the largest drops are in the areas that were hedge fund favorites. Australia, Brazil, China, Oil & Gas, etc.
If it is the former, then stocks are on sale. If it is global recession, then they are not.
Time will tell.
btw monetary and fiscal stimulus have always worked in the past. Is it different this time?
>>>How long does everyone think it this extended draw-down will last? 1 month? 3 months?
I see no capitulation. We went from -400 to -150 in an hour… there is no panic,,, so,,, I won’t buy.
This thing will bleed lower, lower than if the fed stayed on the sidelines.
Heck,,, bond funds are down and MBI is up 30%… Fear??? WRONG…
“Anyone able to get into Ameritrade this morning?”
I got in ok, put orders but no execution was done (what a downhill from the Datek days)… then gave up, there in no point in entering a position if there is no guarantee of getting out. Another reason to close that account.
They have one more 75bp or two 50bp shot to fire and the real rate drops to ~zero. Then what?
It’s like a shot of morphine to relief the pain, but there are not many left in the kit.
Posted by: mhm | Jan 22, 2008 10:54:08 AM
Then they start buying things with freshly printed money. Things like treasuries and corporate bonds if they get desperate. And yes, they CAN legally buy corporate bonds, shares and other assets. Didn’t you know that?
It is why they say don’t fight the fed. The price is what they say it is until they say it is different. Understand?
THAT is the Matrix
TDAmeritrade is working through my Quotetracker software
Maybe they should nationalize the government. Putting it back in public hands couldn’t be much worse than the clowns who are running it now
Here’s the interesting thing—
Go back 8 years–if you sell when the Fed cuts rates[2000-2002] and [2007-now] and buy when they raise rates [2003-2006], that’s actually been a much better trading strategy than the converse.
How’s that for a financial myth!?!?
why is anyone worried?????
DOw is about to be up for the day!!!!!!
GS is up +5 as I speak…
Thank God for free markets(sic)
No panic here. My transports and financials appear to be up today. I’ll probably make money this week and might even be at or above break even by the close of business Friday.
You scared little schmucks. Go run and hide, chickenshits.
cinefoz, I thought you were going to save the bragging until year end??
indices may be rallying but the only short of mine that’s really moving up is Goldman…coincidence???
wunsacon
I haven’t even started.
By the way, BOOOOOO!
Great job Barry..I have nothing to add. I may have covered my massive QID long (albeit temporarily) had the Fed let the washout occur. I will now hold long and strong.
I think that Ben the bamboozled was going to wait until the meeting to cut but events got ahead of him. That said, he still could have waited a week without the entire free (or is it leveraged) world collapsing. The elephant in the room is the 200 trillion credit default swap market, which nobody has a clue on its ultimate outcome. If this market has even a minor blow out, no rate cut will mitigate the damage. The big question is what happens when we have rates so low that a further cut is meaningless and Pin Ball Paulson running aroiund screaming for Congress to do something. It seems we could be there.
I always find it totally ironic that with our technology and so-called speed of execution that days like these are still met with a log jam and a heavy dose of “we’re sorry”.
makes the move less and less actionable…..and as previously stated above if you can’t get out then why get in..
Ciao
MS
And remember. Inflation and deficit spending are only when caused by Democrats.
“Why Cut today? What was the motivation for today’s cut?”
I was disappointed, I was actually expecting 100 bp this morning after yesterdays’ action and this mornings futures activity. I mean really what did you expect….? You couldn’t have really thought otherwise. I would have cut 150 bp ala Greenspan.
“4) How Independent is the Fed? The Fed is supposed to be an independent entity, whose mission is a) price stability (inflation) and b) maximizing employment (growth).”
Barry: No offense… You’re a big boy and you’ve been around the block too many times. As my professor use to say to me. “you’re not even wrong on this one.”
My best regards,
Econolicious
When the Dow futures are ever up 500, will he do an emergency 75 bp raise?
Still say Dow will down 700 by end of day at some point.
The independence of the fed (your #4) is no longer in question. Policy is clearly driven by politics. The timing of today’s cut makes this absolutely clear.
The most troubling part of this from a stock trading perspective is that the market is increasingly pricing in the put. At some point, be it next week or a year from now, the market will have more than fully priced the put, and the fed won’t deliver. It simply won’t be possible for the fed to deliver a surprise cut in a world where the market “knows” that if there’s a nasty selloff looming, the fed will kiss it better.
From a longer term perspective, it should now be clear that the worlds largest debtor intends to attempt a 1970’s style inflationary response to domestic imbalances.
Cinefoz gets his artificially created rally and all of a sudden he’s pig’s in shit…..
too funny…..
ya know emotions are not a good way to trade.
But I have to thank C for allowing me to take more of it’s money on that gap down.
Ciao
MS
Mr Bernanke is one of the world guru on Depressions. He is probably obsessed by its specter. He may not be a trader, but he intimately knows the up-and-downs of the markets during the 30s. Mr Bernanke must know something that we don’t about where this market is heading if left to its own and it seems that he is desperately trying to prevent it from getting there.
The independence of the fed (your #4) is no longer in question. Policy is clearly driven by politics. The timing of today’s cut makes this absolutely clear.
Politics?
Don’t you mean moneypowergreed?
Politicians are afterthoughts
Anyone else having difficulty logging in at the ebrokers (ameritrade, etc).
All the individuals rushing to buy? Thoughts?
Bob A, my problem with TDAmeritrade was in the early minutes into the open. A limit buy (better than ask price) was not executed; a cancel replace (again better than ask) of that order was replaced without being canceled the original. On a thinly traded stock you can tell if the order hit the market or not…
There was the cost of lost opportunity but nothing else.
The Fed fucked-up royally. They had a good capitulation on their hands this morning. Just like puking the day after. They could have let it go and let the system clean itself out. But no, they had to “do something” for the sake of doing something, rather than let it run its course and lower rates next week. Now what will they do when this doesn’t (i) stop the slide, and (ii) prolongs it. Nothing can stop (i), but nobody should prolong (ii). Assholes.
you all crazy, the CPI says milk is $2.14 a gallon
ah just messin’ with ya
Milk to $5 for sure, a good recession will get oil prices down, and oil is already dropping quite a lot. Gasoline will still run to about 3.50 (average) in Springtime but won’t reach $5 as crude continues to drop
michael schumacher said:
Cinefoz gets his artificially created rally and all of a sudden he’s pig’s in shit
reply: Hell yes. It will spend just as sweetly. What are you, some kind of terrorist for being upset with a recovering stock market?
DavidB
Quite so. Politics is merely the conduit through which the moneypowergreed, as you put it, is channelled.
Down volume 20-1 on NASDAQ, a mere 4-1 on NYSE.
Yep. It’s quite a stampede for the exits. Rather breathtaking in the awesomeness of its expanse.
Total NYSE volume Friday was over 6 billion shares- a new record, yet nobody is talking about this? The 2 days before were 5.3, and 5.4 billion. If the current rate keeps up, we will break 6 billion easily today. From what I gather, the entire system is at capacity now- SELL, SELL, SELL- they’d sell some more if they could, they can’t move the shares fast enough.
The Cunning Realist has an interesting take, with a “pow” for a finally.
Meanwhile, for those who can’t be bothered with all this and just want to know who to blame as they watch the stock and housing markets plunge and the job market dry up, culpability should be in this order: “Bush, Greenspan, Bernanke. Bush, for presiding over one of the most stunning reversals in a nation’s economic position ever, in which the economic and moral costs of a war of choice played and continue to play an important role; Greenspan, a latter-day John Law, for blowing the monetary bubble (at least Law had the decency to slink off to Italy after he was discredited; here, he would have written a book and made speeches); and Bernanke, for overseeing the bubble’s important final stage, during which he did nothing (until the last week or so, perhaps — long after the damage was done) to dispel the market’s perception of him as a monetary Santa Claus.
At this stage, every rate cut is a confirmation that we should not have confidence…
What happens if we start to drift closer to the lows of the day and the Fed euphoria wears off?
I wonder what the mood would be then. I think everyone would be shell shocked. Everyone would be clammering for Bernanke to cut 75 bps at the meeting, and what would they do then with the market lower and having already had an emergency cut?
It’s interesting that all of Asia and Europe is worried about a US led recession, and yet the US market is the one that is down the least. Is it merely because we were up the least in the last year?
etrade had delays on sign-in, but I wasn’t there to place orders, so don’t know how that would have gone.
I like to look at this as a market write-down rather than a loss.
it won’t happen today, but #6 is it. Eventually outright monetization of debt is in the cards. It will also cost $2,000 to fill the fridge too.
I am rather new to this fed/market watching game but in trying to think about Q1, the only motivation I can see for cutting today is to make the traders reconsider their sell plans.
I know it’s not going to stop the inevitable (can’t push that string), but if they have to recalculate the expense side in anticipation of a lower cost of servicing debt, might it slow down the sell-off?
I have been paying over $6 gallon for organic milk for at least three years.
You guys need to go for the hedonic milk adjustment….buy a cow.
Not only is it cheaper but it comes with a built in grass mower and fertilizer maker. That is hedonic adjustment nirvana
bonus credits for figuring out how to collect the methane and using it to heat your home
recovery??? sure it is just keep thinking that along with buying for the sole reason of being bailed out every six weeks or in this case a week sooner.
I sleep much better at night knowing that there are quite a few ill-informed people as yourself.
Good luck with hold and hope…you have company in that strategy with the I-banks.
Ciao
MS
Hey cinebunz, where was the chest pounding at the end of last week? You’ve been calling a bottom for a bit now; you still have a ways to go to make up for the end of last week. And if your buddy Helicopter Ben didn’t intervene, would you still be posting smack today?
Oh yeah, but keep on talking. Even when on days you get crushed (how was last Thursday and Friday?) you like to post about the long road. Lol, you are simply hilarious.
Oh my God. Who is this Dennis Kneale on CNBC? I quote “remember, if you don’t sell, you haven’t lost” I am not making this up.
I respect investment types who encourage people to look for good cheap stocks in a down market. The thing is most of them forgot to tell you to be in cash in the first place. How can I buy cheap stocks if I have no money?
This is why this blog is so important.
DavidB
Quite so. Politics is merely the conduit through which the moneypowergreed, as you put it, is channelled.
do they even bother phoning their hand puppets anymore and at least notifying them of change before barking out orders? Or do the puppets now need to see it on the news like the rest of us?
CNBC JUST ANNOUNCED SPECIAL PROGRAMMING TONIGHT AT 7 PM. ISNT THAT KUDLOW’S SLOT?
WATCHING THE DEFENCE OF GOLDIE MIGHT BE MORE INTERESTING!!!
The market bounced to minus 150 and now it isdropping again: minus 200+. Rate cutting is to little to late and big moves now only undermine confidence and cause panic. This is going to be a big day.
Even if you have a dozen kids and buy 12 gallons of milk a week, your additional pain is $10-$25 per week depending on which doomsday scenario you are looking at. Who here has 12 kids?
Compare that to a fillup for the average car at 13 to 18 gallons per tank.
Smithers, who are these morons who compare milk and gasoline to stocks? We must have an awful lot of third world investors who are putting their $1 a day into the stock market and blogging about it.
I for one am very reluctant to play in what is obviously a rigged game. If the Fed believes part of its mandate is to manage market losses on a consistent basis, the risk / return characteristics of equities vs other asset classes must be re-evaluated as being more favorable.
My fear is when the Fed runs out of bullets (it won’t be long if we get another 75bp cut this month) or for whatever other reason ceases its intervention.
How can one try to make intelligent investment decisions in such an environment?
why cut today? probably to ruin my life. i was all excited for a day finally worth buying, now i have to just sit on my hands. like i said, to ruin my life.
David B:
The one thing we don’t need is more “bull shit”…. We’ve been getting more than enough from CNBC….. ;-)
Econolicious
Monday’s State of the Union address should be good for a few laughs.
“It is dangerous to be right when the government is wrong.”
— Voltaire
Careful out there today, everyone
Dennis Kneale is CNBC’s equivalent of the NAR’s ex-mouthpiece David Lareah. Both fools to be ignored.
A guy I have a LOT of respect for, Jeff Saut of Raymond James is getting his buy list together. This guy is intellectually honest and not some cheer leader. That last good Whack and a spike in the VIX to 35+ is making me salavate. Could be more to come but I’m in for at least a trade.
Jeff Saut is one of the good guys indeed.
The angriest guys right now are those who left their shorts on in the Asian markets last night. Probably amongst the most panicked right now too. Asia should be up big when it opens.
I use IB, and they were working smoothly at all times.
Stuart, I hear ya. Missed a buy of JOF this morning. I don’t know if it was my greed or Fidelities sloppy execution. Oh well. There will be better days.
Cheers
“Dennis Kneale is CNBC’s equivalent of the NAR’s ex-mouthpiece David Lareah. Both fools to be ignored.”
Dennis Kneale is better suited for reporting the latest Britney Spears shenanigans on TMZ…..
Mister Trouble never hangs around
When he hears this mighty sound:
“Here I come to save the day”
That means that Mighty Mouse is on the way!
Yes sir, when there is a wrong to right
MIghty Mouse will join the fight.
On the sea or on the land
He’s got the situation well in hand!
Sorry, no bad haiku today. The Mighty Mouse theme song ca. 1955 trumps all.
Milton Friedman, Bernanke’s mentor, claimed that the Great Depression would not have happened had the govt not followed a conservative monetary policy. The advice from Hoover’s economic advisors was somewhat similar to that being promulgated here, as Hoover related:
I suspect some what-if scenarios about the causes of the Great Depression are about to be tested….
Milk is over 5.00 here in Vermont and I have 2 kids under 2…
Heating oil is 3.40 a gallon (no taxes on heating oil). I have a 275 gallon tank that costs almost $1,000.00 to fill and lasts about a month and a half.
I went skiing yesterday and beer is 5.00 a pint. It was 4.50 a few weeks ago. Waitstaff are very upset because no one wants to break a 5 so nobody leaves them a tip.
Another reason for the degradation in the equity markets:
Hillary will substantially increase the tax on stock dividends from the current 15% to your marginal tax rate. This is now being priced into the markets since she will probably win in November. Common stocks will drop in value around 7% to 8% because of this adjustment.
This is not a political statement, it’s just financial reality (Actually some of her policies may actually help the market over what the competing GOP nominee would introduce).
Who knows?
@
Posted by: ECONOMISTA NON GRATA | Jan 22, 2008 11:56:02 AM
You obviously don’t understand lemons to lemonade economics econolicious.
When the world is giving you an overabundance of free BS then it’s time to open a shop, call it fertilizer and sell it for 100% markup. They’ll be lining up at your door
ROTFL!
I’m angry….
Why today? Why did they have to interfere today… they have been sitting on their hands for the past month doing nothing. The market was finally going to cleanse itself and now we have to continue with the bouncing ball juggling act that the market has been doing where it is tough for longs and shorts.
They really have no clue what they are doing…
Dear Mr. Bernanke,
I have your market and am holding it hostage. If I don’t get ANOTHER 3/4 point cut tomorrow morning I will drop it on the floor.
“The Fed is supposed to be an independent entity”
If by independant you mean having little or nothing to do with the government or the best interest of the common man, then yes, the Fed is certainly independant.
“I had no idea that back-stopping speculators and hedge funds was part of their mandate…”
It’s always worth pointing out that the Fed’s “mandate” only counts when it doesn’t conflict with the interests of the private banks that own the Fed, which of course, want all the rate cuts they reasonably can get.
David B:
“You obviously don’t understand lemons to lemonade economics econolicious.”
Indeed I do, I was just “sour graping”. I had outsourced my production of BS to India, for obvious reasons. However, I’m really pissed that CNBC is so efficient with their economies of scale, producing domestically. I guess that’s the only place where the U S can compete on a global scale today…. :-)
Econolicious
Barry, a topic suggestion?
“A decrease in price is not the same as deflation.”
The Fed move cost me a large pile of overnight paper profits, but I don’t see what else they could do.
Stand by for a 5% drop would be fine, but if they had not moved early this morning, I think the markets could have dropped far enough fast enough to cause lasting damage to the real economy.
The other day, we discussed a question of what myths are still priced in and need to be priced out. What happens when the market realizes that the Fed can not fix the problem?
0.75% cut and assumption of another 0.75% and the market is still down about 1% as I write.
The patient has passed out in a standing position and needs to be lowered to the floor, but not allowed to fall and split its head open.
>>the markets could have dropped far enough fast enough to cause lasting damage to the real economy.>>
not letting them cleanse themselves is causing lasting damage. If they just let it go, let the capitulation occur they could have marked a definitive bottom by riding in and lowering rates to signal the bottom.
But as we’ve seen….short term gain will now equal long term pain.
And on cue that POS Gross wants a bigger cut……you wouldn’t happen to have an agenda there would ya Bill???
The pain just got an extension this morning when it could have been shortened.
Ciao
MS
Bernanke full well knows that the Fed’s battle with “speculators” in 1929-30 helped usher in the Great Depression. He dosen’t want to repeat that error.
I’ve started to read some good books by Mises and Rothbard on the Great Depression.
Unless I’m seriously off-base (which is very possible), the whole interest rates were too high argument and that the Fed purposely deflated the money supply seems like junk. Interest rates in the 20s where around 3%, in 1929 it was 5.85% (that hardly seems “high” by historical standards). After the crash in Oct. the Fed LOWERED the rediscount rate from 4.5% to 2%. They dropped the rediscount rate to 1.5% in mid 1931, they then rose rates to 3.5% by the end of the year. Nominal interest rates seem to have gone from 2.6 in 1931 to 1.73 in 1933.
From what I’ve read, the seeds of the Great Depression were sown in the 20s as the Fed opened the spigots, finally when they it got too hot they tried to cool it down, the system collapsed. They then tried to open the spigot again . . . but it was too late, all the chickens came home to roost and try as they might, they couldn’t inflate (yes I said inflate not deflate) their way out of the mess.
I see some interesting similarities with todays environment (not that we’re going into a Great Depression, just interesting things). From Wall St. to Main. St. people cried that 5.25% interest rates were too high . . . they really weren’t when you look at things historically. The current environment was born out of loose standards and free money after ’01. Trying to take the crack away from the addict is hard to do. So the Feds lower interest rates. Let’s just play along and say that it works and the economy rebounds in a year . . . how long would it take before it could handle 5.25% again (or could it). Will we reinflate and need a Vocker to break inflation?
>> I went skiing yesterday and beer is 5.00 a pint. It was 4.50 a few weeks ago. Waitstaff are very upset because no one wants to break a 5 so nobody leaves them a tip. << The very fact that people can afford to go skiing and pay $5 for a pint shows how the economy is not dying. I went skiing over the New Years (extremely expensive) and it was just packed! The consumer is doing just fine.
One good outcome of this financial crisis is that the Dem Congress and the Prez are finally seriously talking and having to come up with a fiscal stimulus because obviously the Fed is rapidly using up its rate cutting power.
And, not to be forgotten, Congress and the Prez must reform financial regulators. Why the heck was the real estate bubble allowed and encouraged by the federal government to get out of hand? No oversight by the Fed, fraudlent real estate credit, and Ponzi schemes.
Bush has begun to acknowledge that recession can no longer be ignored. I like what Senators Schumer and Kennedy have indicated about any stimulus being directed to lower income people who will spend it. Forget the deficit and start public works and low income/working class tax rebates.
A true world financial crisis may force the leading world powers to begin to reform international finance and trade imbalances that also were the ultimate cause of the U.S. boom and now bust.
After all, it is a closed world economy, and if the U.S. gets a bad case of flu, a lot of others are going to get pneumonia.
Bush in 2001 and Reagan in 1981 lied convincingly about their tax cuts benfitting all income groups and stimuling the economy. That propaganda has been put to analysis now, so the Dems will not be allowing another raid on the Treasury for rich people.
First comment out of my mouth this morning. This stinks. It’s just postponing the inevitable. I expect another 5% drift down when folks wake up to fact this has not changed much. The bottoms in the low to mid 11’s I suspect. That’s using the highly questionable Dow as a rough shorthand.
“seeing as they have been a whole lot more than the US over the past 5 years . . ”
should read:
“seeing as they have been UP a whole lot more than the US…”
Milk was >$5 in San Francisco in Fall. Now it’s just under $5.
Eddie wrote:
“The very fact that people can afford to go skiing and pay $5 for a pint shows how the economy is not dying.
I went skiing over the New Years (extremely expensive) and it was just packed! The consumer is doing just fine.”
Yeah, you ought to hear what some of my Disneyworld-going friends are saying about attendance there. Never higher.
Of course, a lot of the guests are from overseas, but still plenty of “suffering” Americans.
Eddie wrote:
“The very fact that people can afford to go skiing and pay $5 for a pint shows how the economy is not dying.
I went skiing over the New Years (extremely expensive) and it was just packed! The consumer is doing just fine.”
Yeah, you ought to hear what some of my Disneyworld-going friends are saying about attendance there. Never higher.
Of course, a lot of the guests are from overseas, but still plenty of “suffering” Americans.
Very interesting post. I agree with most of your points. By the way, I’ll vote for the gallon of milk to hit $5 first, but it might be a close one! The shot of penicillin analogy is a good one and is valid. I do think there is some concern about the Fed always coming to the rescue, because as you say it prevents healthy capitulation.
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