29 10 07 Gimme Gimme Gimme
The equity and bond markets the past week have reverted back to their pre-Fed cut state. Just like a crack or heroin addict who's last fix has worn off, the money houses and speculators are asking, no demanding, that the Federal Reserve once again cut the funds rate by at least 25bp - just a month after they reduced it by 50bp. Why? Apparently because Ben Bernanke's schwartz was smaller than the demographics pounding the housing market into submission. That and Wall Street has yet to find buyers for the mountain of collateralized mortgage and leveraged buyout debt they would like to get off the books.Yet since that rate cut what have we seen? The DJIA has risen 500 points or 3.8% (at one point it was 900 pts), the yield curve has steepened and the front of curve is either side of 4.0%, the dollar has continued its merry plummet (down 3.9% against the Euro), corn prices are 10% higher, sugar +5.6%, palladium +13.4%, aluminum +7.3% and gold + 10.7%. Ok - lumber is -5.5% and wheat is flat. But if the complete lack of parking spaces at each shopping center and mall we drove to Sunday mid-afternoon (we recorded the football game so don't be too alarmed) is any indication of retail activity - the consumer is out there in force, in a big way. To say we were shocked is an understatement. Where is the money coming from? Rising wages? Credit card lines?
So will the Fed give the crack addicts another fix and feed the inflation bear at the same time? Or will some common sense prevail and they walk away after prescribing some long term rehab for the housing (and bond) markets?
Copyright 2004-2008 by Gedanken Experiment (previously Rant Street) except as otherwise noted. Our terms of use are as follows: Content on Gedanken Experiment may not be indexed, cached, reproduced or syndicated in any manner by any party whose purpose is to provide such an index, cache, reproduction or syndication of our content for a monetary fee or other consideration to their clients, customers or users. Content on Gedanken Experiment may not be copied, reproduced, republished, indexed, cached, uploaded, posted , transmitted, framed or distributed in any way, without the prior written permission of Gedanken Experiment, except that a) user may download, display, or print one copy of the materials on any single computer solely for user's use; b) user may briefly quote or excerpt for use in a review or criticism for purposes of illustration or comment or as part of a news report as per fair use guidelines of www.copyright.gov; c) internet search engines which provide the public the ability to search online content at no charge (free) may index and cache content from Gedanken Experiment which is not explicitly blocked by robots.txt; in case (a), (b) and (c) above user agrees to keep intact all copyright, trademark, and other proprietary notices of both Gedanken Experiment and any other third parties mentioned in our content. Modification of the materials or use of the materials for any other purpose is a violation of Gedanken Experiment's, its affiliates', or its third-party information providers' copyrights and other proprietary rights. Nothing contained herein shall be construed as conferring by implication, estoppel, or otherwise, any license or right under any copyright, patent, trademark, or other proprietary interest of Gedanken Experiment, its affiliates, or any third party, except as expressly set forth herein. 02-13-2007