La Fed announce une baisse de taux historique

That's the headline of the story in France's "conservative" newspaper, Le Figaro, online. The front page online provided more: Les taux américains se rapprochent de zéro.

Here's my translation:

The Fed announces a historic interest rate decline.
American interest rates approach zero.

The Fed will now not just increase bank reserves, but will directly lower rates to millions of borrowers on mortgage loans through its purchase of mortgage securities of FNMA, FreddieMac and GNMA. Being willing to let the Federal Funds rate fall to zero was necessary to go to this step.

Millions of homeowners should soon be able to refinance profitably to reduces their cash outlays for housing. And new home buyers in the Gen X/Y/Z age groups now should be more able to form households and do the spending that accompanies that.

And more good news from yesterday (quoting WSJ story online):
"The consumer price index dropped 1.7% last month on a seasonally adjusted basis."
"The core CPI was unchanged last month following October's decline, which was the first in more than 25 years."
"Consumer prices rose 1.1% on a year-over-year basis in November, which is below the Fed's 1.5% to 2% target range"

More excellent news. Disinflation rules !

To quote that great, old Eddie Cantor song from the 1931, "Now's the time to fall in love" -

Potatoes are cheaper, tomatoes are cheaper,
Now's the time to fall in love.
Why, the butcher, the baker, the old candlestick maker
Gave their price a downward shove.
Grab yourself someone to fry your eggs and bacon
She can live just like a queen on what you're makin'
You'll find in some kind o' trouble
You're better off double
Now's the time to fall in love

To paraphrase the Emperor Augustus Caesar, "Get married, buy a home and some furniture."
Battleship Ben just made that a lot cheaper. Gen X/Y/Z-ers - get moving, get married and support the economy.

Japan

No, we are not "turning Japanese" as one can see clearly from my ditty above. The bears and libertarian purists {ptui} will say that because Japan had about 15 years of stagnation while its interest rates were zero, the the US is going down the same path.

That is simply a paralogism (see yesterday's Word of the Day).

1. Japanese interest rates were nearly zero even before their stock and real estate markets crashed;
2. Japan has not had a consumer-driven economy in my adult memory;
3. The Bank of Japan never actually bought bank loans or non-government securities;
4. The Bank of Japan did nothing to increase demand. They didn't even increase the money supply in Japan during the critical 1989 to 1994 period.
5. The Yen was roughly flat from 1989 to 1998.
6. Demand in Japan was pushed from government stimulus on pork projects no one needed.
7. Unless the yen fell, how could Bank of Japan monetary policy help increase demand for exports ?
8. Japan has very gray - aka old - demographics. Little consumer demand and too much saving.

As any can see, the US situation and cures bear almost no relation to Japan, except for that one data point overlap - near zero interest rates.

Markets

The Fed move and the CPI data are very bullish news, but as an erudite British guest on Bloomberg said early this morning, it's a necessary but not sufficient event.

To ensure a new bull market, we need:
1. a large, well-directed plan by Obama; and
2. for Hank the Tank to give a bridge loan to the auto industry to avoid a crack-up in the US manufacturing industry.

Last evening in an interview I heard, Hank the Tank said he will do it once his team figures out the best way to do it. And leaks from the Obama team suggest a larger stimulus plan is on the way - perhaps the $1 trillion over two years that I urged a few weeks ago. Maybe Obama reads this blog ! Obviously, Battleship Ben and Hank the Tank do. Both are now getting grades of "A" as they do the bidding of Le Professeur Bunkerman. [joke]

I have a fairly good notion the two final conditions for a huge new bull market are going to occur.

Actions

Here is my preliminary "Santa's list" of stocks I will start buying on dips:

MOS, KBR, DKS, CAB, MTW, IDSA, MRT, RCKY, SPAR, CLDN, AMCN, TLF, EEFT, HMIN, X, MT, GSI.

I already own some FCX, DRYS, GNK, EXM and SSCC.

I may add MS, CIT and am looking at more, such as IHG, CX, CMI. I like quite a few restaurant stocks, but need a good pullback on them to make the reward sufficient.

I'll write more about my objectives and strategy on this effort later. But in simple terms, it is to make 5-10X on my investments over a 2 or 3 year period. I will trade these stocks a bit and not necessarily just buy and hold. My trading strategy will be simple: buy dips, sell rips, average down. I will diversify a lot over the stocks and over time.

I have a lot more work to do on these. They are very risky stocks - I do not intend to put too much $$$ into any single stock or group.

Word of the Day

"Pother" - noun and verb(literary)
Pother means (noun) 1a. confused or fidgety flurry or activity; 1b. agitated talk or controversy usu. over a trivial matter; 2. a choking cloud of dust or smoke; 3. mental turmoil; 4. a noise, commotion, fuss; (verb) 1. fluster, worry; 2. make a fuss.
Sentence: Those making a pother over the the US and Japanese zero interest rate conditions are completely misguided.