Wednesday, August 15, 2007

Financials ring investor's bells


3 month paper at 4.08%, Fed funds at 5.25%, and they don't cut? I assumed Bernanke and the Fed governors had a modicum of foresight and predictive ability.

I was wrong.

I also assumed the Fed would cut rates 50 basis points inter meeting and do it now. Maybe they are on a 360 day calendar, and the Gregorian calendar isn't used on 20th and Constitution.

By injecting cash and liquidity into the system, the Fed is attempting to cure the liquidity problems, and they are failing. The market is selling off because the market is discounting the value of homes in the future, and assuming the banks will own these discounted homes. Liquidity needs to go to the homeowner; and the relief has to be lower rates. You cannot refinance your home, thus the ARM rate has to be lowered. The market is screaming at the Fed to recognize this. That's what's causing the selloff.

The market is roaring like the lion with the sliver in his paw, and Bernanke, (tho being born in 1953-the year of the snake) is acting like a rat by not cutting rates. He needs to be the mouse, and go and take the sliver out of the paw of the lion, instead of trying to feed him.

And then the lion quits roaring.