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  #1  
Old 08-17-2007, 12:49 PM
DcifrThs DcifrThs is offline
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Default Fed Rate Cut Discussion Thread

Evan & ahnuld,

this was just posted:

[ QUOTE ]
Which is the thread for talking about the rate cut in general? This is likely to be a large topic.
.
My thoughts have been that the Fed has become somewhat political, that they would not be able to stomach keeping rates as high as they must to curb inflation, therefore rates will be lower than they should and there will be a large amount of inflation over the next few years.

[/ QUOTE ]

I think this could serve as that thread.

personally, i dont thinkt he fed has become political (like those at CNBC who state the bush should command bernanke to come to the oval office to have a "discussion" about whats going on lol).

greenspan sure hurt markets when he foresaw a rise in inflation and hiked interest rates in 1994 (was a surprise).

why precisely do you think the fed can't "stomach keeping rates high"?

rates have been, and likely will be artificially low during the present and coming time periods. that artificially low rate of interest though reflects demand for US securities though more than the fed's target rate decision being influenced by some political agenda.

you are kind of implying that the fed is like the reserve bank of india (which is tied highly to the government). in India, rates are specifically low because the government wants higher growth than it wants to risk hurting growth to fight inflation.

on a scale of "central bank independence" issued by the economist, china and india both rank fairly low (i.e. banks aren't independent of govt). further, which i found interesting, the chinese and indian central banks are responsible for a vast majority of global money supply growth recently. each over two times the growth of money supply linked to the US.

anyways, i think the fed will likely cut rates ONLY if actual economic data and leading indicators imply the need for such a cut relative to capacity constraints we are currently under.

the market has 10000% priced in a september rate cut of 25bps.

markets have also priced in some % probability of a 50 bp cut. i don't have acces to options data but the fed funds futures rate is around 4.92% for september maturity.

i'd be short fed funds futures right now at 95.08. fed is not going to cut 50bps in sept. a 25bp cut would be unlikely in my eyes given the levels of production and the fact that industrial production AND capacity both came in over trend and consensus in July. unemployment ticked up to 4.6% last read which helps but despite that, the growth in production ate up those resources and pushed capcity up to 81.9% (very high, 82% is considered the "water mark" above which action must be considered).

i don't know if capacity lags unemployment by enough for that to make a difference (or at all), but without some good data that say this issue is coming under control, the fed should DEFINITELy not be cutting by 50bps.

a 25bp cut, while unlikely in my eyes, may still happen though as consumer sentiment came out a good deal below consensus (83 vs. 88) today. but i don't know exactlyw hat goes into that indicator. either way, that isn't a good sign overall. if other things come out to that effect, then a 25bp cut may become likely. but until that point, i just don't see the fed cutting.

there'd obviously be mad (both much and angry) talk of a Bernanke put also if they did.

Barron
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  #2  
Old 08-17-2007, 04:06 PM
disjunction disjunction is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]


personally, i dont thinkt he fed has become political (like those at CNBC who state the bush should command bernanke to come to the oval office to have a "discussion" about whats going on lol).

greenspan sure hurt markets when he foresaw a rise in inflation and hiked interest rates in 1994 (was a surprise).

why precisely do you think the fed can't "stomach keeping rates high"?


[/ QUOTE ]

The Greenspan/Clinton era was the anomaly, I think. Greenspan was an Ayn Rand reader, and didn't agree with any liberal leanings Clinton had. He didn't particularly want to make Clinton look good. On the other side, Clinton was afraid of Greenspan and couldn't/wouldn't do anything to control, influence, or even cross him. It was the perfect match for Greenspan to act in the long-term interest of the economy.

When I am referring to the Fed and rates I am only referring to the rates that they control, which I would expect to see cut and then cut again. I'm gathering from your post that you think it will only happen with sufficient evidence. I am saying that however they evaluate the evidence, there has to be a borderline case. And in that borderline case, they will tend to err to the side of a cut. And sometimes people wear special glasses that make borderline cases look not-so-borderline.

Bernanke got his job due to people in the Bush administration and I think there is some loyalty there to do things that will make the economy look good in the short term. Especially as the 2008 election starts to get closer.
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  #3  
Old 08-17-2007, 04:10 PM
NajdorfDefense NajdorfDefense is offline
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Default Re: Fed Rate Cut Discussion Thread

Bernanke/Fed Chairs has a 6-yr term which will last past the next 2 elections, he's not loyal to anyone over and above the economy as a whole.

Clinton wasn't scared of AG, he was scared of the bond market, which took rates from 5.75% to 8.3% in 9 months because they didn't like his initial tax&spend policies and attempted restructuring of the US economy.

It wasn't AG who took long rates up 2.5% that fast...it was the market.
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Old 08-17-2007, 04:34 PM
disjunction disjunction is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]
Bernanke/Fed Chairs has a 6-yr term which will last past the next 2 elections, he's not loyal to anyone over and above the economy as a whole.

Clinton wasn't scared of AG, he was scared of the bond market, which took rates from 5.75% to 8.3% in 9 months because they didn't like his initial tax&spend policies and attempted restructuring of the US economy.

It wasn't AG who took long rates up 2.5% that fast...it was the market.

[/ QUOTE ]

Good 2nd and 3rd points, although I disagree with the first. Call it what you will, loyalty or synchronized philosophies, I doubt that he will be doing anything that the administration thinks is incorrect for short-term benefit.
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  #5  
Old 08-17-2007, 04:51 PM
DcifrThs DcifrThs is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]
[ QUOTE ]
Bernanke/Fed Chairs has a 6-yr term which will last past the next 2 elections, he's not loyal to anyone over and above the economy as a whole.

Clinton wasn't scared of AG, he was scared of the bond market, which took rates from 5.75% to 8.3% in 9 months because they didn't like his initial tax&spend policies and attempted restructuring of the US economy.

It wasn't AG who took long rates up 2.5% that fast...it was the market.

[/ QUOTE ]

Good 2nd and 3rd points, although I disagree with the first. Call it what you will, loyalty or synchronized philosophies, I doubt that he will be doing anything that the administration thinks is incorrect for short-term benefit.

[/ QUOTE ]

i agree, i don't think the fed will do anything the administration thinks is incorrect for short term benefit.

the fed will do whatever it thinks is correct for the long term health of the economy.

Barron
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  #6  
Old 08-17-2007, 04:54 PM
disjunction disjunction is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Bernanke/Fed Chairs has a 6-yr term which will last past the next 2 elections, he's not loyal to anyone over and above the economy as a whole.

Clinton wasn't scared of AG, he was scared of the bond market, which took rates from 5.75% to 8.3% in 9 months because they didn't like his initial tax&spend policies and attempted restructuring of the US economy.

It wasn't AG who took long rates up 2.5% that fast...it was the market.

[/ QUOTE ]

Good 2nd and 3rd points, although I disagree with the first. Call it what you will, loyalty or synchronized philosophies, I doubt that he will be doing anything that the administration thinks is incorrect for short-term benefit.

[/ QUOTE ]

i agree, i don't think the fed will do anything the administration thinks is incorrect for short term benefit.

the fed will do whatever it thinks is correct for the long term health of the economy.

Barron

[/ QUOTE ]

What if the two aren't the same? What if something can be done that is probably good for the short-term, but for the long-term is 90% chance neutral, 9% chance bad, 1% chance good? And if it makes the awesomely wise people who hired you look good as well?
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  #7  
Old 08-18-2007, 02:56 AM
pig4bill pig4bill is offline
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Default Re: Fed Rate Cut Discussion Thread

There isn't. There's no reason to cut rates right now if you're concerned about the long-term health of the economy.
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  #8  
Old 08-18-2007, 03:51 AM
Copernicus Copernicus is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]
There isn't. There's no reason to cut rates right now if you're concerned about the long-term health of the economy.

[/ QUOTE ]

That isn't true. Even if you think that the fundamentals of the economy are sound and that the market at 13900+ was not overpriced (as most do), the impact of a short term liquidity crisis is still a very long term contraction of capital that would slow the growth of the economy..its not like closing down the choke on your fuel line and then releasing it and getting instant response from your engine. There has been a significant delevering of large investors positions (especially the hedge funds). the deeper that delevering goes the longer it will take to "re-enrich" the fuel mix, and 50 bps is not enough to halt the delevering.

After some short term psychological rebound downward pressure is going to mount again, and another 50 bp cut isnt far behind. If they had gone the whole 100 bp today then a lot of the margin calls that had triggered the second round of declines would have been turned off, which is what is necessary to get things back on track quickly
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  #9  
Old 08-18-2007, 05:30 AM
DcifrThs DcifrThs is offline
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Default Re: Fed Rate Cut Discussion Thread

[ QUOTE ]
[ QUOTE ]
There isn't. There's no reason to cut rates right now if you're concerned about the long-term health of the economy.

[/ QUOTE ]

That isn't true. Even if you think that the fundamentals of the economy are sound and that the market at 13900+ was not overpriced (as most do), the impact of a short term liquidity crisis is still a very long term contraction of capital that would slow the growth of the economy..its not like closing down the choke on your fuel line and then releasing it and getting instant response from your engine. There has been a significant delevering of large investors positions (especially the hedge funds). the deeper that delevering goes the longer it will take to "re-enrich" the fuel mix, and 50 bps is not enough to halt the delevering.

After some short term psychological rebound downward pressure is going to mount again, and another 50 bp cut isnt far behind. If they had gone the whole 100 bp today then a lot of the margin calls that had triggered the second round of declines would have been turned off, which is what is necessary to get things back on track quickly

[/ QUOTE ]

how does margin calls for hedge funds and large traders result in an overall economic slowdown?

it has to get back to companies (which is problamatic when commercial paper becomes next to impossible to roll) or consumers (not demanding enough).

the 50bp discount window and "we'll take any credit" certainly adds liquidity.

the fact that the delevering is happening is a good thing. there was too much of the opposite.

Barron
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  #10  
Old 08-18-2007, 12:30 PM
AvivaSimplex AvivaSimplex is offline
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Default Re: Fed Rate Cut Discussion Thread

Barron,
I agree the value here is in betting that the fed will hold rates steady. Where can retail investors make that kind of bet? Obviously there are indirect plays like shorting firms like GS and JPM, but how do I do it directly?
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