Was caught on the wrong side of the trade today, but thats life. Sometimes you have to let the market tell you what to do and not get in the way of the Fed. Bernanke: I think I read too much into his "ill use all tools necessary speech’. Today he threw bucks out of his proverbial helicopter. BTW, we are just 35 points off of the previous highs in the SPX…
memalos, are you the guy who was wanting to place a bet on the Fed not cutting rates? Just curious (not looking to demean).
you might want to edit again kkent. the fed cut rates, not raised them.
Whoops. My bad, nola. Typo.
CFA_Halifax Wrote: ------------------------------------------------------- > Marc Faber on Bloomberg this morning said lets > raise them 25 bps. Anyone see his rambling for > like 20 mins this morning! > > 25 bps is the likely course, but I’ll hold out > for an upset and a hold steady. Marc Faber is awesome. and I think he is right. Ben Bernanke is just scared.
Bernanke has no stones. I was really hoping he would only cut it 25 bps. He’s soft and caved…
KJH Wrote: ------------------------------------------------------- > Forgive this potential stupid question, but > doesn’t the decline in the fed funds rate do more > good than bad at a time like this? From my > understanding the rate drop was to attempt to > stimulate consumer mortgages and help the housing > slump hit a floor. > > There are always adverse externalities with > economics, however isn’t this the greatest good > for the greatest number? Basically, reducing interest rate means printing more paper money. So effectively, any holders of US$ will pay for the bail out. Most poor people don’t own a home or stocks, so they will actually suffer the most and benefit the less.
Wall Street called the Fed this morning and said, “Start up the choppers, bitch.”
Haven’t read the thread, but here’ s my thoughts: Me finding out today that the Fed thinks the economy is in such poor shape that they need to cut rates in order to avoid a recession in no way makes me want to own stocks. I also think we’ve repriced risk enough that this won’t do much. Poor showing by Bernanke. It’s cliche to say it, but I don’t care: “MORAL HAZARD!”. Exhibit A1: http://biz.yahoo.com/usnews/070918/18_5_ways_to_cash_in_on_the_fed_rate_cut.html?.v=1&.pf=loans Check out number 3.
at least my student loan payments will be less… good thing he cut just before quarter reset.
- Just to clear things up, the actual changes that the Fed makes are insignificant; it’s the psychological effects of doing so that have an impact. 2. The US is in a recession and hardly anyone realizes this. Regardless, rates should not have been lowered.
PRE Wrote: ------------------------------------------------------- > 1. Just to clear things up, the actual changes > that the Fed makes are insignificant; it’s the > psychological effects of doing so that have an > impact. > > 2. The US is in a recession and hardly anyone > realizes this. Regardless, rates should not have > been lowered. I disagree with both. #1) It does make a difference, at least the short term. ARMs that were 50bps higher will now put money in borrowers back pocket. This extra income can make a huge difference on the economy. Take a look at the moves in Prime, LIBOR, 1 yr Treasuries which basically all floating rates are based off of. $100-$300/household / month of saved expenses makes a huge difference on the economy! #2) Define Recession. We are not in it, according to the definition of 2 consecutive declines in GNP.
I agree with MFE here. I also find it a little irritating to see someone post “just to clear things up” in front of a statement that really doesn’t have a definitive answer, and would be a topic of serious debate even among career economists.
I agree with MFE’s disagreement, but not with his first point - ARM resets haven’t really started yet (compared to the wave that is coming) and 50 bps won’t really matter - yah, my rate is resetting up 450 bps, not 500 bps!
HoldSideAnalyst Wrote: ------------------------------------------------------- > I agree with MFE’s disagreement, but not with his > first point - ARM resets haven’t really started > yet (compared to the wave that is coming) and 50 > bps won’t really matter - yah, my rate is > resetting up 450 bps, not 500 bps! i disagree. Yes, resets have not occured yet, but they will. Oct 1st is my student loan reset, as probably most are also on quarter. ANd yes they will matter. IF your mortgage was $2200 and now drops to $2050-$2100 that is money in your back pocket to buy that cool IPOD phone with, well may after 3 months. To the households making $150K+ this difference is insignificant, but they dont drive the economy, it’s the middle class $40-80K household incomes that spend all the money and drive the economy.
I don’t think we are in recession either. Mortgage problem only affects a small portion of people as most people are in fixed mortgage or they have most of their homes paid off. The last housing bubble burst in 1994 didn’t cause a recession. Instead, it moved the money from housing to stocks and we had a great run in stock market from there to 2001. So I think the rate cut here is simply not necessary. But I guess that means it make even more sense to load up stocks.
MFE Wrote: ------------------------------------------------------- > i disagree. Yes, resets have not occured yet, but > they will. Oct 1st is my student loan reset, as > probably most are also on quarter. ANd yes they > will matter. IF your mortgage was $2200 and now > drops to $2050-$2100 that is money in your back > pocket to buy that cool IPOD phone with, well may > after 3 months. To the households making $150K+ > this difference is insignificant, but they dont > drive the economy, it’s the middle class $40-80K > household incomes that spend all the money and > drive the economy. I’m not sure that the 50 does much to the resets and I question whether it will get pumped back into the economy. I agree that the mortgage won’t reset as high as it would have a month ago but it’s still going to go up more than many can afford (they won’t be in the hole as much as they would have).
anyone catch Jim Cramer last night on mad money. I had an hr to kill and needed a laugh. Anyways, I’ve been watching a lot of World War II films lately, and Cramer’s antics last night reminded me of Dr.Goebells writings and antics in April 1945 in their lunacy. I think this guy may be the greatest propagandist since him! I mean, I used to catch Cramer every now and then for a lugh, but is just me or this guy getting worse by the day???
MFE Wrote: ------------------------------------------------------- > HoldSideAnalyst Wrote: > -------------------------------------------------- > ----- > > I agree with MFE’s disagreement, but not with > his > > first point - ARM resets haven’t really started > > yet (compared to the wave that is coming) and > 50 > > bps won’t really matter - yah, my rate is > > resetting up 450 bps, not 500 bps! > > > i disagree. Yes, resets have not occured yet, but > they will. Oct 1st is my student loan reset, as > probably most are also on quarter. ANd yes they > will matter. IF your mortgage was $2200 and now > drops to $2050-$2100 that is money in your back > pocket to buy that cool IPOD phone with, well may > after 3 months. To the households making $150K+ > this difference is insignificant, but they dont > drive the economy, it’s the middle class $40-80K > household incomes that spend all the money and > drive the economy. That’s not whats happening. The vast majority of ARMs (based upon principal value) haven’t reset yet. They’re still in the teaser rate period of 2-3%. When they reset to L + 200, that’s pain regardless if L is at 5.6 or 5.2. So no one is getting money put back in their pockets, they’re just having less taken out.
Side question: I read this statement from Dresdner Kleinwort at FX Compass “The market only attached a 36% probability to this outcome beforehand, and the immediate reaction was a weaker USD.” How is this 36% probability calculated? I’m assuming with futures contracts.