“You Can’t Fight the Fed”

And another cliché dies a well deserved death . . .

"In 2001, stocks kept falling even as the Fed cut interest rates heavily. The stock market recovered briefly after the Sept. 11 attacks, but fell to new lows in 2002. This time, the problems are very different, but they once again appear to be too numerous and too diverse. Since last summer, every stock rebound has proved temporary.

Investors are coming to the realization that, despite all the Fed’s efforts, the combination of deteriorating home prices, a beleaguered consumer and rising oil prices is going to bedevil the economy, stock prices and banks for months to come. That is one reason the recent selling has been so persistent."

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Sources:
Are the Hunters Low  On Magic Bullets?
Investors Are Grappling With the Fear That Regulators Can’t Slay This Bear
E.S. BROWNING
WSJ July 14, 2008
http://online.wsj.com/article/SB121599133160949379.html

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What's been said:

Discussions found on the web:
  1. doug champion commented on Jul 14

    Barry, I heard today SEC is investigating rumor spreaders. I suggest they start with ‘It is well contained’ as the first rumor to look into.

  2. Jim Haygood commented on Jul 14

    The “cliche” came about because from the 1950s to the 1980s, buying stocks when short-term rates were falling, and selling stocks when rates entered a persistent rise, worked very well. One reason was that during this period, there was an almost perfectly regular four-year rhythm to the business-credit cycle, with three years of expansion followed by one year of retrenchment. The rate cuts midway through the retrenchment year tended to catch the stoch index lows.

    Since 1982, the cycle turned irregular and bizarre. During the next 18 years, the typical market correction lasted only a single quarter (1987, 1990, 1994, 1997, 1998).

    Now in the 21st century, on the back side of the Bubble decades, we may be experiencing longer and deeper recessions, to correct the Bubble years. Government interference is lengthening both the recoveries (2002-2007) and the bear markets (2000-2002; 2007-????). Under these circumstances, short-term rates will give buy signals that are too early, as they did in January 2001 (21 months early).

    Add 21 months to the first discount rate cut in August 2007, and that takes us to … let’s see … May 2009. “Buy in May and go away?” Stranger things have happened.

  3. Bob Abouey commented on Jul 14

    What about if the Fed starts buying equity…

  4. ECONOMISTA NON GRATA commented on Jul 14

    OT:

    Just heard Abby Joseph Cohen, the Golda Meir of finance, on CNBC. Who pays this woman…? I mean, who gives her money to do what ever she does, whatever that is.

    Anyway, she’s very weird, kind of, don’t you think….? So transparently condescending. I’m just waiting for her to offer me some chicken soup.

    Abby: “Here’s some chicken soup, now, be a good boy and cover your shorts….”

    Eco: “Yes MAM…! thank you very much….. That’s some goooood chicken soup you got there….

    Econolicious

  5. bonghiteric commented on Jul 14

    Anyone else hear the rumor that China and the sovereign wealth funds of Qatar, Dubai and Saudi Arabia have formed a consortium and agreed to backstop the Fed? The Fed is pledging U.S. citizens as indentured servants for collateral.

  6. doug commented on Jul 14

    They just haven’t pushed the string hard enough yet. Just wait till they start injecting more liquidity into underfunded pension funds.

  7. Mike in NoLA commented on Jul 14

    Finally had to turn off the “Sqawkbox Financial Summit.” Too disgusting.

    Bogle was the only one halfway objective, mentioning the privatization of profits and socialization of losses.

    Cohen, of course, thinks BB walks on water as long as he keeps bailing out her friends and making her look good.

    Pimco loves that the feds made them a lot of money on their high risk bond portfolios. Pimco’s funds weren’t
    called high risk, but they had nice chunks of Fannie’s ass. When I first saw their performance, I was interested, but then looked at the portfolio. Of course, my investigation has cost me money at both ends, not buying risky assets and subsidizing them for others. I guess it’s not worht looking: just chase yield and let the feds take care of me.

  8. bb commented on Jul 14

    econolicious

    “golda meir ” ????

    “chicken soup ”

    a bit early for another of your anti-semetic rants isn’t it ?

  9. michael schumacher commented on Jul 14

    BB-

    get over it…..it’s not like it isn’t true. But I guess people can chastise “those lettuce pickers” and such and get away with it.

    Ciao
    MS

  10. BG commented on Jul 14

    I’m just wondering how long it’s going to be before market interest rates make a persistent upward movement beyond the reach of the FED. The Interest Expense alone will bury us.

    That will be the final nail in our collective coffins.

    US Sovereignty: From Coffers to Coffins in 26 years.

  11. MarkTX commented on Jul 14

    “Can’t fight the FED and the US Treasury and the banking cartel and TPTB” might be more accurate as to what is going on right now.

    “Secretary Henry Paulson said the Treasury is seeking expedited authority from Congress to expand its current line of credit to the two companies and make an equity investment in the companies — if needed.”

    As I predicted at the first of the year-per your Predictions for 2008 column:
    They have made it clear that they intend to purchase stock(s) and intervene in the “FREE MARKET”.

    The people in charge will stoop to any level to protect and expand their corrupt system.

  12. michael schumacher commented on Jul 14

    markTX-

    They’ve already been doing it..they just want to gain acceptance and “permission”…

    Not surprising at all.

    Ciao
    MS

  13. Ella commented on Jul 14

    Barry,

    For decades, most Americans’ have not increased their earnings. Instead they have substituted debt for income. Debt has fueled their purchasing power and lead to the creation of the great consumer economy.

    The consumer economy has driven the GDP as the GDP is now 70% consumption. Such imbalances between production and consumption will implode. It is simply not sustainable. It is foolhardy for us to rely on production in other countries to supply our basic needs. Just how much move valuable would it be to keep our dollars circulating in our domestic economy instead?

    It should not be surprising to any observer, let alone someone who claims to be an economist, that absent credit the economy will slow. Many of the companies that gained market share driven by sales growth to the consumer directly or indirectly will lose value. Market share driven by speculation will also fall.

    I, for one, am still amazed that companies are selling goods with no money down, no payments, and no interest for 12 to 18 months. It seems like madness to me and points to the insolvency of many consumers.

    The credit bubble is far larger then the housing bubble and its collapse will affect our economy for many years into the future.

  14. wunsacon commented on Jul 14

    Just think of it as the US’s own sovereign wealth fund buying homes. It’s a strong statement by strong leadership in our strong economy. I feel richer already.

    Be sure to wear your flag pins.

  15. michael schumacher commented on Jul 14

    “Be sure to wear your flag pins.”

    totally sums it up doesn’t it?

    Ciao
    MS

  16. John Thompson commented on Jul 14

    Looks like the Aussie analyst on CNBC World last night was right. The Euro is the de facto new world currency – for a while at least.

    The depression is next after the dollar falls. But wait, our deal with the petroleum devil keeps foreigners buying our treasuries. . . .

    I guess it’s mutually assured stagflation and higher taxes FOR YEARS! . . .

    Glad I’m not an investment guy. Hang in there. . . . (I say this knowing you will leave the devil and promote a hydrogen economy to end the misery of destructive oppression and greed once you’re all broke in two years. Oh yeah, maybe you won’t.)

  17. ECONOMISTA NON GRATA commented on Jul 14

    bb:

    I apologize if I offended you, that was not my intention, please forgive me….

    As for “another of your anti-semetic rants ?”, Man…. that’s COLD..! I don’t recall having ever thought any anti-semetic thoughts. Me, of all people, imagine that.

    And by the way, it’s anti-semitic, not anti-semetic…. If you’re going to assert yourself in this fashion, please check your spelling.

    My best regards,

    Econolicious

  18. Tejvan Pettinger commented on Jul 14

    For a longer trend look at the Japanese Nikkei and see how much it fell despite rates being cut even lower.

  19. StevenDech commented on Jul 14

    “Regulators Can’t Slay This Bear…”

    but they are doing a stellar job at slaying the American economy. And since they have total control over it, that must be the intention. US financial sector debt is larger than both government or corporate debt. Think about it! The economy cannot produce the amount necessary to repay the yearly interest on these… And I’m not even talking about the triple insanity of private debt money based on borrower’s collateral as valued by that same borrower! Fiddling with interest rates can’t do anything anymore. This crisis is not economic, it’s political. At this point, trying to make “money” looks like the wrong thing to do. Doesn’t it?

  20. DL commented on Jul 14

    However, Bernanke has done wonders for the commodity markets (USO, UNG, DJP, GLD, etc).

    Keep cutting, B.B.

  21. VennData commented on Jul 14

    Looking for that “summer rally”

  22. hpov2000 commented on Jul 14

    “Be sure to wear your flag pins.”

    Too late. I lost my shirt already.

  23. VJ commented on Jul 14

    ECONOMISTA,

    Just heard Abby Joseph Cohen, the Golda Meir of finance, on CNBC. Who pays this woman…? I mean, who gives her money to do what ever she does, whatever that is.

    Goldman Sachs.
    .

  24. James commented on Jul 14

    Republican administrations are 3-for-3 on bank failures:

    Hoover, 1931: 11,000 bank failures.
    Reagan, 1985: 747 bank failures.
    Bush, 2008: up to 150 (?) bank failures.

    Oddly, one of the players in the Reagan bank failures, John McCain of Keating Five fame, is running for President. The current President Bush, has a brother Neil who was a principal player in a failed bank during the Reagan years; which means the Bush family spans two sets of bank failures.

  25. Risk Averse Alert commented on Jul 15

    Are you kidding me? No lucky bullets?

    Number 13 coming up. Then, watch ‘er turn to the sky…