You Are So Not Getting A Rate Cut
November 27th, 2007 by 
reality
Markets: We Are Going To Get A Rate Cut. The chart shows the market’s assessment is that a 50bps cut is the most likely outcome of the December Fed meeting.
Fed: Think again.
In a speech at the University of Rochester, Philadelphia Fed President Charles Plosser said the Fed cannot resolve the cause of the tension in financial markets, which he said was uncertainty over the value of complex securities tied to subprime and other mortgages and who holds these derivatives on their balance sheets. “It is important to recognize that the Fed cannot resolve this price discovery problem. The markets will have to figure this out, arbitrarily lowering interest rates or providing liquidity to the market does not provide the answers the market seeks. Indeed, in some circumstances, lowering interest rates may prolong the painful process of price discovery.” Plosser said.
I can’t believe he said that. Might there be intelligent life in Philadelphia?
But even if there is, it needs courage in Washington. Talking tough is a lot easier than being tough.
“Humphrey, I just want to make absolutely sure you’re not asking me to make a courageous decision,” the minister inquires with a furrowed brow.
Sir Humphrey dons a pained expression, “Well, actually, minister… ”
“Courageous, oh my God, is it?” exclaims Hacker, flecks of sweat now breaking out on his forehead.
Posted in The Fed | 
November 27th, 2007 at 11:48 pm
On this point, I am going on intuition. The Fed said there were not going to be rate cuts all the way before even the first rate cut happened. Rate cuts happened anayway.
This is what I think is going to happen. Rate cut. We’ll know on Dec. 11?
My prediction, after the rate cut on Dec. 11, Plosser and company will swear on their grandmothers’ graves that there certainly will no longer be anymore rate cuts ever ever ever.
My next prediction. Another rate cut at the next next meeting.
THe US is entering into the MOther of all recessions since 1929. Ben knows it and ina way should be thrilled that GOD placed him in this position - after all the academic reserach he has done.
THe problem is the FEd can only lower rates as their tool - they have not been able to use anything else. In the relatively mild recession of 2000-2003, the Fed went all the way down to 1%.
In this one, they are going to do a Japanese style solution and bring it to 0%.
Okay disagree with me. I am just going on intuition….
WHY must the FEd say, “we’re noot going to cut rates?”
CONVERSITY. Goverments can never tell you explicitly what their next major policy step is going to be. And when it is fully apparent, they have to “LIE” so that tehre isn;t a ONE-WAY BET that the market makes to force their hand. IN reality and in history, we can learn what hte Fed does.
What about inflation? Ben is calculating that if the mother of all recessions hit, and there is a $500 to $1000 billion hit to financial system, the Delationary Tsunami caused will kill all inflationary forces and force all living animals to hiigher ground of TOTAL RISK AVERSION. Bn’s theory has always been telegraphed since his momntous speech in 2002. THe Fed should have eased WAY before the problems occured in 2009 that resulted in tighter credit. That’s why he shot his wad on August 17, 2007.
And, the truth is, like 200-2003 and 1929-1932, once deflationary forces set in, lowering interest rates do not really help - the markets begin anew AFTER we write off all the bad debts - and say, “Well, hey buddy, this time I win and you lose. No hard feelings. I am just declaring bankruptcy. Hey, can you loan me a dime after we clear the slate?”
And thence, another credit cycle begins, and another bull market starts.
THe wealth cycle andthe poverty cycle are linked. Get on the bus the right time, and get off the bus before it careens off the cliff. Call 911.
Repeat as many times as you can in lifetime.
MAke lots of money as a long term boom-bust investor.
Just my thoughts - and my two cent’s worth of intuition.
I’ll wager a McDonald’s BIG MAC against anyone who’d like to take the other side of the trade. FEd cuts like a manic rabbit all the way down to at least 1-2%. Ben will do another Greenspan trick…..
No hyperinlfation by the end of 2008.
Maybe tumbleweeds and soup kitchens if I happen to guess horribly right…..
Why a Big MAc and not more money? I already have a boatload on this trade. If I lose on the trade, I’ll only be able to
afford to do hamburgers. If I win, well, hamburgers are still fine - I know Warren likes his Dairy Queen one’s.
Go, go, Ben. Keep on printing the money!
November 28th, 2007 at 12:00 am
As I implied, it would take courage for Ben not to cut rates. He has already demonstrated he lacks courage. So I won’t be taking your bet. Sorry.
November 28th, 2007 at 8:39 am
“I already have a boatload on this trade.”
Short the market, foreign currencies, gold, or all of the preceding?