Wikinvest Wire
Proud Member Of
Random Roger
© 2009 | Gadget Theme Blogger Template
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
Original WPtheme By Blogger Template | Converted By Gadget Lover
| Distributed by eFree Blogger Help
21 comments:
It's true the Fed is conservative and probably won't cut. It's true that the Fed has small interest in propping up the market at these levels and negative interest in appearing to help out overleveraged speculators.
But,but,but...Cramer actually made a good point. Rationally, what the Fed fund rate mainly does is influence the costs of borrowing for individuals and corporations. If the Fed was on the level with previous statements that the risks were evenly poised, and if borrowing costs have gone up a lot since their last meeting to set rates and the risks have shifted more towards the recession direction because of the steep fall in housing prices and some weakness in the stock market, then rationally they should cut here just to keep the previous balance/equilibrium. Yeah the dollar is down, but a recession won't help it either.
"It's true the Fed is conservative ...."
If the fed was conservative they would not have gotten us into this mess in the first place. The fed works for the New World Order.
Regarding the borrowing costs, the current spread between the 10yr. Treasury (4.69%) and a 30yr. fixed (6.23%) is 154 basis points. I believe the historical average (can't find a source at the moment) is 180 basis points.
he Fed doesn't try to tell people how to bet with their money. They worry about whether the economy is inflating or stable and whether it is growing or shrinking. They just went several meetings in a row where they felt that the best course was to leave rates fixed in order to balance those risks. If you tell an economist that since then home prices have gone down, employment has slowed, prices have been stable, stock market is down, corporate borrowing cost is up, and it's harder to get a mortgage, now where is the Fed member going to think the risk lies?? Clearly it has shifted away from inflation towards recession, and because some of these fundamental stimuli have lagging effects, they are going to think that the shift will go further in the future and maybe there previous rates where even a little too high. This isn't an ethical stance or a policy allegiance - it's more like trying to control an instrument gauge in a factory with fuel feed dial.
Just a comment on looking for a shelter in the storm, I notice that DOO (top 100 internationals), DIA, GLD,
and FXE are all hovering about 5-6% YTD, with SPY,
Russell 2000, and Bond ETFs significantly below that.
What does this say about diversification schema?
Scoot
Does anyone have a link to the comments that BSC made on Friday? I'd like to see what drove it down so bad.
I do not think some of you get it. Yes housing will continue to contract along with the economy. Yes that would normally start the Fed easing, but they can't not now.
1. there is a problem with inflation that would go through th roof if they eased now. Yes just as they are almost getting it under control.
2. Qualified buyers can get credit for normal sized homes. The people who can not get credit are unqualified buyers who are likely to default. It is bad enough this has gone on for a few years.
But what kind of insane world do you want the Fed to live in. "we will supply liquidity to insure that unqualified buyers can get low interest rate loans to fuel a bubble in housing and financial markets for speculators."
Sorry but I think the insanity is ending. If unemployment goes up in the fall and I think it will the fed will then ease to support other sane parts of our economy.
You can listen to the Bear call here. I'm not aware of any transcripts in the public domain.
Hey, Roger. Thanks for the post. One thing I didn't mention in my post, but have mentioned at RealMoney before, is that the FOMC is a different institution under Bernanke. He seeks the input of the other members, and votes last. Greenspan, when he wanted to change policy, voted first. The FOMC is more collegial under Bernanke, and the voting FOMC members are more hawkish.
I could be wrong here, but the economy isn't doing badly, and inflation isn't getting lower. If a major commercial bank is under threat, the whole scenario changes. I just don't see that now.
the thing behind the thing, IMO, is how the risk is concentrated and where.
I don't know the answer, I don't know who does either but wouldn't that be part of the decision of what the fed does or does not do?
I will say I expect nothing from them anytime soon.
The Fed rates didn't cause people to make bad home loans. They made bad loans because they weren't smart enough to understand the inevitability of an eventual reversal in home prices and what the systematic effect of that would be on mortgage defaults. Now that they see the reality, they aren't going to make mainly money losing loans because of the Fed rate.
It's also obvious the inflationary stimulus in the economy now is not coming from U.S. borrowing.
People in emerging markets (many, many times the U.S.+Europe populations) would like to buy enough nutritious food to eat, enough shelter so they don't have to live stacked up on top of each other, and roads to drive from place to place. They are going to buy food, energy, and materials when they get enough money to do it, and when they do costs go up and those costs eventually propagate through the entire chain of production. That process is going to continue no matter what the Fed does for at least next 20 years.
The Fed's concern is, and should be, with overall optimization of the aspects of the U.S. economy that they control. They don't control high global resource demand or lending stupidity.
NYSE NASDAQ
Advancing Issues 1,277 (38%) 1,235 (39%)
Declining Issues 1,994 (60%) 1,801 (57%)
Unchanged Issues 70 (2%) 121 (4%)
Total Issues 3,341 3,157
New Highs 28 52
New Lows 614 505
dow up 150 nasdaq up 16
some one please explain the large rise in stock averages while most stocks actually decline??????
Assuming the numbers are correct, this is a fantastic comment.
You clowns thinking you can trade this market, or somehwow trade in anticipation of the Fed meeting are FOOLS.
Sit tight, relax and use this opportunity to rebalance your portfolio to your target weightings. There is no point in guessing what the market will do tomorrow...its a losers game to try.
Roger, why do you insist on making this complicated, or over thinking this volatility? You do not serve your investors well.
Start your own "buy and hold" blog then, and leave us clowns alone. BTW - if we rebalance now, instead of on some predetermined schedule, isn't that trading the market? LOL
Most portfolio managers re-balance when an asset class moves outside of the targeted range, as opposed to some time schedule.
With this high volatility in the current market, the opportunity to re-balance, means that you will be buying on relative dips, and selling on relative highs.....that may be a foreign concept if you read this blog regularly.
"The Fed rates didn't cause people to make bad home loans. They made bad loans because they weren't smart enough to understand the inevitability of an eventual reversal in home prices and what the systematic effect of that would be on mortgage defaults. Now that they see the reality, they aren't going to make mainly money losing loans because of the Fed rate."
Josh, I respectfully differ. The true issue is that because of low rates home prices outstripped the average earnings of "normal" people who could qualify and service a loan on a nonrmally priced asset. Sure, because of all of the "easy money" then there were also unfortunate and downright stupid lending circumstances. But by and large, the designer loans were needed to qualifier normal buyers--and there was so much frickin money looking for a home, they took all comers--even those that should not have qualified for ANY type of loan.
Remember, though, so many were getting fee income. The loans were sold so they deferred any collection problems. These collection problems have a much longer life. Just go read the 10-K's of some of these issuers to get an idea on the terms.
We have a class of mortgage owners that need help. We have a class of mortgage originators and mortgage owners that ought to be jailed. And the speculators? Well, they took advantage of the gap between cheap money and an appreciating asset. Capitalism at its best. I've not thought about what to do with them. I'm definitely for finding reasonable means for helping the decent, hardworking folks who were priced out of the housing market and had to resort to this designer crap in order to get into a home.
Why is it that everyone who makes incorrect decisions with their lives and refuses to help themselves through their own efforts all of a sudden become part of a victim "class"? This class has no class.
When one cannot afford to buy something,buys it,then defaults, society has no obligation to rectify the poor decision.
Holding my friends (and heavy Democratic Party contributors)in the mortgage business criminally responsible for allowing clients to lie about their income to get a loan defies logic. If this standard was applied, do we hold the IRS and all federal, state and local governments criminally liable for the hundreds of thousands of tradsmen and professionals who use the "liar loan" concept while compiling their income tax? Should HUD be criminally responsible because subsidized rent tenants lie about their income and drive to their taxpayer-supported domicile in a 2006 Envoy?
We cannot protect everyone from themselves.
Note: If you know of individuals that need to rent, from executive level homes to subsidized federal apartments, I have a place for them. I'll even consider a "liar's Lease", unless I'm criminally liable.
Leisa, well said.
Leisa, even if the Fed rate was 0%, it would still, obviously, be a bad decision to lend to people that have a high enough likelihood of default so that the overall loan portfolio is an expected loss. What is true is that if overall interest rates are lower, then lenders can tolerate a higher rate of default and still make money. But the big mistake of the lenders is that they figured their risks as if the probability that Joe defaults and Harry defaults and Sam defaults are independent events instead of highly correlated events tied to home prices (especially if Joe and Harry are real estate flippers). So it's the lenders confusion about their systemic risk that created the problem, not low rates - i.e. even if the mortgage originators weren't confused, the people lending to the mortgage originators, or somebody else in the credit chain who ended up holding the bag (e.g. Bear Stearns hedge fund managers) was confused. Just to be clear, even if the Fed cut rates tomorrow (which I don't expect), I still regard it as almost certain that home prices in the U.S. will continue to decline overall during the next few years and that many builders will declare bankruptcy. My reasons for thinking a Fed cut would be good economic policy are not to prevent builder and lender bankruptcies or to prop up the stock market. I just think a rate cut would be most consistent with the overall economic balance the Fed is explicitly on a mission to achieve.
t, nobody here is interested in bailing out anybody. Doing what is overall best for the economy and the majority of its participants is, IMO, much more important than worrying about the "moral hazard" of somebody only losing 25% of their stake who, perhaps, "deserves" to lose 100%.
http://tinyurl.com/2xjwvz
http://tinyurl.com/yw5j94
first is hilow ratio/ wish i had longer time span.
second is bullish percent.
re number reference to new lows/breadth measures my portfolio really resonates. Weak stocks really hammered. Kind of in shock that I still have these and wonder if they are dead money. Transport, oil service, and specialized high end consumer. And, to think that I did decent research on these. A tough lessen to sell loosers early. Did someone once say that most of us mortals are just not wired to handle this game. I'm not.
The question I have for Cramer and those who believe the Fed should cut to stave off this alleged systemic crisis is the following:
Have you ever heard of the concept of moral hazard? If not, read the article in today’s WSJ (http://online.wsj.com/article/SB118643226865289581.html)?
If the Fed steps in to bail out investors/banks/funds who took on more leverage than was appropriate and, worse yet, created a liquidity/duration mis-match between their assets (MBS, CDOs, CLOs) and liabilities (investor assets, margin, repo agreements) then the message is that you can go ahead and take on too much risk and if you get in trouble you’ll get bailed out.
Market participants must know that they will be the ones to own both the upside and the downside risk of the investment decisions they make. If funds blow up so be it. If Bear Stearns goes bust, so be it. Hell, if Countrywide ends up in Chapter 11, that’s their problem and their shareholder’s problem.
The discount window is for true systemic crises that surpass rationality, such as providing liquidity following the 23% drop in equity markets on 10/19/87 or offering liquidity after 9/11/01. The events of the past few weeks have been completely predictable. In fact, many funds have predicted them — Paulson Credit Opportunities ( 40% in June and 129% YTD (no June info yet)) and BlueCorr ( 17% in July and 34% YTD) for example were created to profit from just these sorts of events.
Post a Comment