Fed: Sorry, Our Bad.

FOMC minutes were released at 2:00pm this afternoon.

Upon reading the release, Candide Dr. Pangloss suffered a fatal heart attack.

The reset of the cheerleading squad of pollyannas simply lost their arguments — along with their lunch — that growth is fine, inflation modest, the credit crisis contained.

The FOMC lowered their growth forecast, raised their inflation and unemployment forecast. The only omission in the announcement was their new policy, for the first time ever, of buying Index Puts to pay for all of the new Credit Lending Facilities.

Markets, which were positive, rolled over and fell 250 points.


Minutes of the Federal Open Market Committee April 29-30, 2008
Federal Reserve, May 21, 2008

Fed Signals Rate Cuts Are Done
WSJ, May 21, 2008 2:11 p.m.

Most Fed Officials Saw April Rate Cut as `Close Call’
Craig Torres
Bloomberg, May 21  2008

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What's been said:

Discussions found on the web:
  1. shoeless commented on May 21

    Goldilocks was just sodomized by all three bears.

  2. Donny commented on May 21

    Hold It! Does this mean all the prognosticators on CNBC that told me to buy stocks the last 4 weeks were wrong? I thought it would be impossible for so many people who were so united to be so wrong.

  3. DL commented on May 21

    “…the cheerleading squad of pollyannas simply lost their arguments — along with their lunch — that growth is fine, inflation modest, the credit crisis contained”

    Don’t underestimate that determination of Kudlow and crew.

  4. Andy Tabbo commented on May 21

    Fed to market: The punchbowl has been taken away from the party. Time to sober up.

    Market fell a little short of my 1454 target as the 61.8 retracment, which I had been calling for since the March lows. The price action last few days looks really bad. The S&P 500 has broken down out of a rising wedge pattern. This is not good. We may get a retest of the backside of the uptrend line which was broken today….that would be a great time to sell.


  5. michael schumacher commented on May 21

    watch 1390…..

    and then watch it get bought back above…


  6. Scott Frew commented on May 21

    My memory tells me that Pangloss lost his lunch. Candide is out in his garden with the love of his life, la belle Cunegonde, and most likely not thinking about the economy or the stock market. He is, after all, off the grid, so these matters are of no concern to him.

  7. ARISTOTLE33 commented on May 21

    Hey Luskin,

    I got your recovery right here!

  8. michael schumacher commented on May 21

    and closes on the line in the the sand….

    how surprising!!!!!

    Not really

  9. JS commented on May 21

    Got an apology call from Kudlow yet? Let him leave a message.

  10. Briefing commented on May 21

    FOMC Minutes Hint at End of Rate Cuts

    The minutes from the April 30 FOMC meeting were released Wednesday and – surprise, surprise – they held a few surprises.

    There was an acknowledgment that the decision to cut the fed funds rate 25 basis points at the April meeting was a “close call.”

    Additionally, there was the most telling revelation for the market that the “…risks to growth were now thought to be more closely balanced by the risks to inflation” and that several members noted it was “… unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook.”

    Altogether the minutes seemed to suggest that there was more attention to the inflation situation among Fed members than market participants previously believed.

    Mindful of that, the understanding that oil prices have risen approximately 17%, that the dollar index has declined 0.7% and that the TIPS spread – a measure of long-term inflation expectations – has widened from 228 basis points to 254 basis points since the April 30 meeting have all played into the stock market’s negative perspective on the FOMC minutes.

    The prevailing message of the minutes for the stock market is that we have very likely seen the end of this rate-cutting cycle. You can never say never, but that thinking helps explain why there was a sharp move lower immediately following their release.

    Separately, the Fed revised its GDP, unemployment and inflation forecasts for 2008, 2009 and 2010.

  11. CPJ commented on May 21


    Dead on. Forgive the ignorance.. why 1390? I’m intrigued. I’ve seen your theories on 1400 before. Explain a little?

  12. MarkTX commented on May 21

    “Got an apology call from Kudlow yet?”


    however, do you really think Kudlow and/or CNBC
    are going to stop playing their one string banjos…. ;)

  13. Bruce commented on May 21

    I recommend an old book for both Kudlow and Don Luskin…there was a book called the Peter Principle written many years ago now that stated, basically, that you advanced until you finally reached a position that you were incompetent….

    Most of the cheerleaders I remember had better legs than either one of these bubbas..

    Bruce in Tennessee

  14. DL commented on May 21

    Posted by: Bruce | May 21, 2008 4:20:11 PM

    “I recommend an old book for … Don Luskin…there was a book called the Peter Principle …”

    I’m not a big fan of Don Luskin … but he’s been correctly bullish on energy stocks for the last few years.

  15. Don commented on May 21

    Buy puts? Selling calls would be a much better trade? Maybe the Fed can use Moody’s model to value any derivative trade they’re contemplating. No wait, maybe they shouldn’t.

  16. pikertrader commented on May 21

    Has Kudlow ask you to come back on?

  17. Bob A commented on May 21

    Speaking of Goldilocks… where’s Larry’s buddy Anne Coulter lately. Aren’t they gonna trot her out so she can help John McCain get elected? She can bring her baseball bat and show McCain how to talk to liberals with it.

  18. Mike M commented on May 21

    Is the market still a leading indicator? I’m starting to have doubts.

  19. Winston Munn commented on May 21

    The Fed minutes may have been the catalyst, but the actual reaction that brought about the past two days declines was the mix of vastly higher treasury borrowing needs combined with primary dealers’ impaired balance sheets.

  20. Roger Bigod commented on May 21

    Buying those puts is the job of the PET (Plunge Exploitation Team).

  21. Stuart commented on May 21

    Hey Dick, banks still a generational buy?…

  22. michael schumacher commented on May 21



    1390 (or so) is the recent support level. Just technicals ( which have become increasingly unreliable) in a market that has money thrown at it.

    They have to follow some sort of pattern…otherwise it looks obvious that there is “tinkering”……..

    I do not claim to have any answers…it could have kept going down which is the far likelier scenario however technicians seldom factor in the massive amounts of money that is being used to prop it up. Just think where the market would be if the Fed were not creating yet another bubble via the ‘auctions’ and various other operations we have no idea about.

    Something to ponder.


  23. John Borchers commented on May 21

    The market is never a leading indicator Mike. If the market had the ability to predict the future and it was good in the back half of 08 it never would have started coming down in Nov 07. It also never would have went up so much in summer 07.

  24. Nihilism commented on May 21

    It is a “healthy” pull-back and nothing more folks. Market is in consolidation mode now :)!

  25. JT commented on May 21

    Any one interested in OTC tulip bulbs? I’m long.

  26. JIm Haygood commented on May 21

    By revising its growth estimate to fractional percentages for 2008, while forecasting that unemployment is going to rise another half percent, the Federal Reserve is effectively admitting that we are, or will be, in recession.

    Growth of a fractional percent for the whole year probably implies one or two quarters of negative growth. Indeed, the Fed may know something we don’t — that the Q1 flash GDP is going to be revised to a flat or negative number in the next release. And they may suspect by now — more than halfway through it — that 2Q is going to be negative also.

    It’s not a crisis until we get “government panic.” Let out that primal scream, Ben — then leap into the volcano. Yes, you can fly!

  27. John commented on May 21

    Barry, you should shine a light on Moody’s little “computer glitch” fiasco. We all know that garbage wasn’t AAA, now they’re saying it should have been several notches lower all along. And it’s all because of a bug in their software. It sounds like they’re lying to save face.


  28. CPJ commented on May 21


    Grazi. I had noticed the 1390 resistance/support level. I thought I remembered a post from you a while back re: 1400 S&P, or perhaps it was 14,000 Dow. Something about it being a level of huge institutional importance, beneath which many of the big players would be underwater. Was that you? I thought your 1390 call might have been related to your theory. Maybe it wasn’t you.

    In the context of everything else that’s slowly leaked to the public about past government covert action, be it military, economic, market-oriented, foreign policy, I can only imagine what’s going on behind the scenes these days. I think there’s a good chance that we’re aware of less than 50% of the various side deals, operations and fiscal support that’s going on. Oh to have a bug in Ben’s phone…

  29. Winston Munn commented on May 21

    Is that an Oxford I see before my eyes?

    Yes, the next shoe is beginning its fall, and this time it will be the mid-size banks getting hammered from making bad loans for strip malls – too bad they weren’t strip clubs, which tend to be recession proof: FDIC, here we come.

    Financial Times reports:

    “Commercial property prices in the US in February saw their sharpest decline since records began nearly 15 years ago as sources of finance for deals has dried up, according to data from Standard & Poor’s out yesterday.

    The value of commercial buildings fell 1.03 per cent between January and February, the largest monthly decline since at least 1993, when the industry was just emerging from a deep slump.

    The fall in national property prices comes as banks have retrenched on lending due to credit crisis and the slowing economy, causing the volume of deals to slow sharply. The market for commercial mortgage-backed securities, which until last August was a major route to cheaper borrowing, has largely ground to a halt.”

    About 40% of the Fed’s balance sheet is in…ah hem….AAA MBS, credit card debt, and student loans…

    So who’s gonna bail out the FDIC when it runs out of cash?

  30. johnnyvee commented on May 21

    Forget Fed, foreget credit crunch, etc. The cost of gas/energy will put the economy in the toilet–that is a stat without excepetion. The rest amounts to kicking a dead horse.

  31. me2 commented on May 21

    So how bad is the fallout from the Fed announcement going to be ?

  32. michael schumacher commented on May 21

    can’t claim credit for the 1400 S&P post however I have said( quite a bit ) that the line in the sand is between 1375 and 1390.

    Pull up the SPX intraday chart to see how much was spent just keeping it from hitting 1390 and then once it fell below it was there for a scant few minutes….the move back over was on paltry volume. It won’t hold for very long tomorrow unless we get another round of ‘happy news’.

    BUt it really does not matter what the “news” is…..it’s what is done to the futures between now and the open.


  33. Winston Munn commented on May 21


    New York, New York
    May 21, 2008

    In an attempt to offset the damages from Moodys inadvertent computer misratings, giving the overvalued AAA rating to certain assets which should have been lower rated, the FASB today announced a new procedure to be used in cases involving Moodys improper ratings: Rule 157 AAA-A2 Wink, Wink.

    Under Rule 157 AAA-A2 Wink, Wink, investement banks at least in the top 10 in size, commercial banks who have political leaders on their boards, and anyone who contributes more than $100,000 anually to the Republican Party is eligible to continue to value the misquoted assets at the higher value, minus the mark-to-market value, plus 0.25% of the mark-to-model valuation, but not less than the original value plus accrued interest. This new level, Level 9, will then be used as basis for trading these securities to the Federal Reserve for U.S. treasuries.

    FABS spokesman, Mark I. Tupp, said, “No one say a word to Bernanke and we might just get away with it.”

    Moody’s spokeman, Ty T. Lipps, remarked, “Hey, mum’s the word.”

    Moody’s stock rose 10% in electonic trading on the non-news.

  34. BG commented on May 21

    I know the price of oil today took all of the headlines; but, for me it was a few lines I read in a magazine…”the national debt is $9.4 trillion – up 10 percent from last year”.

    Think about that. The annual increase was $940 billion! I am 51. I remember not too many years ago when the ENTIRE US tax receipts for one year was around $1.1 trillion.

    I don’t want to rain on anybody’s parade; but, what has been going on in this Country for the last 8 years is NOT SUSTAINABLE. I don’t know what is going to happen; but whatever it is, is immediately in front of us. My best advice is get out of debt as much as you possibly can and batten down the hatches. The price of oil is only one of the BIG problems we will be facing in the coming years.

    However, I must admit I was pleased to hear about Goldilock’s demise. She has been asking for it for quite a while now. Maybe, she will think twice before she goes skipping along her merry way in the future.

    Lastly, I’m not a doom and gloomer. I’m a realist and we have some very big and very real problems that spinning is not going to make go away. WE have one hell of a mess and that is not a political statement.

  35. VennData commented on May 21

    That silence you hear is the readers not re-upping their IDB subscriptions – whose editorials make Larry Kudlow sound like a range-bound-predicting equivocator.

  36. rickrude commented on May 21

    I’m not a big fan of Don Luskin … but he’s been correctly bullish on energy stocks for the last few years.

    Posted by: DL | May 21, 2008 4:39:51 PM
    Luskin is one weird dude, but he gets a few calls right. His biggest call on inflation back around 2000, called the bottom for
    Gold , nailed it right on the head.

  37. E commented on May 21

    Kudlow is blaming the market drops on Obama. I wish I were kidding.

  38. dave commented on May 21


    That is one of my big points. If the true Fed deficit is $940B, that is over 7% of a 13T economy, not counting state and local borrowing to cover deficits. That means at least 7% of our GDP growth was borrowing, leading to a real growth of -3%, roughly. Which means the US has been in the 2001 recession since then. It doesnt feel that way because Asia and the ME continues to buy our debt because we spend the money with them. Until they dont.

  39. Francois commented on May 22

    “Goldilocks was just sodomized by all three bears.”

    Think she had her K-Y jelly tube handy?

  40. Billy G commented on May 22

    You guys have it all wrong! The Fed minutes show the worst is clearly behind us now. Full disclosure and honesty by the Fed is an excellent sign that things must be getting better. Just watch Squawk or even Morning Call. S&P 1600 here we come!

  41. BG commented on May 22

    Thanks for that most recent comment about Don Luskin.

    It takes me back to the “Wedgie comment” somebody made on here last week. That was absolutely hilarious and I will forever think of it every time I see Don on CNBC in the future.

    He really does fit the mold of the kid coming home after school with his underwear up under his chin. Awesome humor!

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