First the eisegesis, viz. what I think the Fed "should" do today. This is quite easy. Inflation is under 2%. So the overnight funds rate "should" be 4%. Employment growth is weak. Unemployment has ticked up recently while inflation has been ticking down for months. The Fed's statutory mandate is (1) to maintain price stability and (2) maximize employment. So they are failing in standard #2, as they kept rates too high too long. I just heard another commentator screeching about the dollar. The Fed has NO statutory authority to maintain a value to the dollar. The dollar has been falling for years and inflation has been coming down for a couple of years. Finally, clearly with the SIV hubbub, more liquidity is needed for some types of asset-backed securities.
The eisegetical conclusion: Cut the overnight rate by 50 bps to 4.25%, cut the discount rate by 75 bps to 4.25%. Signal more cuts in the overnight rate in the statement, while saying that inflation risks have moderated.
Second, the exegesis. The Fed still seems infatuated with its inflation fighter merit badge. And the bankers and economists running it are susceptible to all this dollar screeching. They have to recognize, though, that inflation has come down and that employment growth is weak. Plus they are involved with Paulson and the banks on the SIV problems. So I conclude the Fed "will" cut the overnight rate by 25 bps to 4.5% and cut the discount rate by 50 bps. to 4.25% also. The statement will acknowledge that inflation has come down, but will still consider future inflation as a risk. And they will continue to stress weakness in housing as a drain on economic growth.
PS: Deutsche popping up on earnings.
PPS: Goldman yesterday said sell longs in oil. And oil fell over $3. Uh ... do you suppose the in-house trading funds were long or short oil at that time ? Lololololol :-)))
Word of the Day: autarky [$10]
"Autarky" means (1) a policy of national self-sufficiency and non-reliance on imports or economic aid, or (2) a self-sufficient region or country.
Sentence: Public statements by politicians that the US must become an oil "autarky" are either delusional or sheer buncombe, and the persons making those statements are fools or knaves, respectively, as any cursury look at the data will prove instantly such is impossible in our lifetimes.
"Buncombe" is a word dividend today ... hehehe ;-) and is the original spelling of "bunkum" and is naturally pronounced "bunk um" and means "empty or insincere talk, claptrap". The word derives from Buncombe Co. in North Carolina from a remark made circa 1820 by its congressman who felt obligated to give a dull speech "for Buncombe". I saw it first reading in the Memoirs of Gen. Sherman, a book I highly recommend along with those of Gen. Grant.
All that from my word card file I've had and added to since being about 16 years old !
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24 comments:
year over year core PCE 1.9% - "in the comfort zone"
Good numbers for GDP and inflation.
good ADP number for employment, too.
headline year over year PCE inflation is 2.1% - a very good number.
Hope all sold BWLD after the Tribe lost. They missed earnings and are being tossed into the deep fryer.
GOOG trading over $700
Chicago PMI 49.2 - under 50 means contraction. That really should keep the Fed in cut mode - they need to look forward and prevent negative momentum from developing.
Hmmm an SEC investigator is asking same questions that I am re Goldman. This is about its trading in July. Its about time.
started a position in YRCW. THe stock is very cheap and I don't think the US is going into a recession.
This dollar talk is such BS. How many hundred thousand "Common Men" need to lose jobs for a "strong dollar". Zippo in my humble opinion. Let it go down. The rest of the world has been gorging on US buying of their prodtucts for years. That has to stop.
Bunkerman...you seem a little pumped up today...what is the GOLD MIST ETA.
If the Fed failed to cut rates would your bullish thesis change sir?
no certain ETA for the new caddy, but later next week seems likely
I would become very concerned if they didn't cut rates. Today's GDP number helps if they don't, but the Chicago PMI number undercuts that for Q4.
I would still be a bull, but become much more cautious as it would seem they are making a mistake and giving negative momentum in the economy a chance to grow.
re the number of posts, I had to stay in my office while the guy fixed the washing machine. I couldn't go to the barn & work, or run errands. I was trapped !
I think it's now clear that oil is in the demand rationing phase.
During the swing months, products can be imported from Europe, where Brent is cheaper. But in winter that will not be possible.
I don't know why people are surprised by the crude drawdowns. The cash price of oil is well over future prices, so storage costs a lot. There is no futures incentive to store oil.
I think a Fed non-cut would be a mistake on the order of the one they made in early August, which was recognized quickly when they cut the discount rate a few days later.
If Ben wasnt in the pockets of Wall St he would leave rates be....
The Fed didn't screw up, but seem a bit delusional. So we have to worry they will mess this up. Cautious.
My comment about them having "infatuation with the inflation-fighter merit badge" is very appropriate.
Bunkerman....fed blew it bro...on pause....wrong message for stocks.
I think they risk more pain for the common man.
agree frosty, Caution required.
Well, I have a "word of the day" that I've been saving for a situation like this. See tomorrow's blog.
Hmmm big buyers coming in. I'm not selling, but not buying aggressively, either.
I'll just chip away, buying a stock here & there and selling as my LT gains dates get hit.
I read that WSJ story on the Fed. I was not impressed at all. THey weren't paying attention in August until the ECB reacted.
Rubin shows himself to be out of touch.
I was right about the vacations, but not the exact locations.
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