Thursday, August 30, 2007

Let there be Light!

The Fed's ether!
Steve Liesman, of CNBC said today that the Fed wasn't doing anything in a vacuum. Tomorrow morning, at 10:00 EST Ben Bernanke gives his speech on Housing, Housing Finance and Monetary Policy. Could we have a rate cut before the speech?

Wall Street has been saying the financials are opaque, so they've been sold on any rumor. A rate cut before the speech would alleviate some of the opaqueness of the Fed, and shed light on a Fed that is not just data-dependent, (which is that which has already happened) to forecast-dependent (to that which could happen). That would be a welcome change, because in this age of instant information, markets move on bits of data. And data dependency keeps the Fed decidedly behind the curve. So consider this.

In 1657 Von Guericke placed a clapping bell in a jar, and then the air was vacuumed. You could see the bell ringing, but there was no sound. So it was apparent that sound couldn't travel through a vacuum. But light? It would pass thru! Thus light could pass thru nothing-so physicists created ether.

This luminiferous ether that light passed thru couldn't be seen or found, but physicists raved over it. Lord Kelvin thought it was the least dense but most rigid substance in the universe. It wasn't until 1887, that Albert Michelson, the first winner of the Nobel prize in physics in 1907, disapproved this ether in the Michelson-Morley experiment in which he tried to prove it. Thus his greatest success was that of which he disproved that of which he was trying to prove. Data dependent? Let the Fed be forecast-dependent!

Maybe I'm under the ether, but I think the Fed cuts rates before the open tomorrow. Or at least, that's what the market needs! And if I'm wrong, I'll find solace in quoting Banesh Hoffman:

First we had the luminiferous ether,
Then we had the electromagnetic ether
And now, we haven't e(i)ther.

PS My brother is a genius physicist, tho his business is different. His college thesis was so good it was impounded by the Government. He says that sometimes when I think about things I "get under the ether."

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