Sunday, September 2, 2007

Housing, Interest rates and the ECB

Those that feel the Federal Reserve is cutting .25 basis points on September 18 should consider what happened at Jackson Hole, this weekend. Federal Reserve governor Frederic Mishkin said, "monetary authorities have the tools to limit the negative effects on the economy from a house price decline." How is that? It's true only if the Fed will cut, and cut aggressively. So follow the money men, and you have the script.

Axel Weber, the president of the Bundesbank, said, there was a maturity mismatch, and that the non-banks, who needed the money weren't getting it. So the "conduits" which are owned by the banks or which have back up funding credit lines, used to finance long term mortgages or asset backed securities with short term funding, but the the commercial paper market has seized up. Thus the banks take the paper, and as he states, "a banking crisis."

Paul McCulley, of Pimco, the world's largest manager of bonds, said their was a "run on the shadow banking system" and that 1.3 trillion of assets had to be put on the banks balance sheet. How and when and at what cost is still not known.

Thus the ECB, cannot raise rates Thursday, allowing the Fed to cut. Now this information is known in the markets, but if you read this blog, you knew it here on the 27th.

And then you would of caught the last rally in the market. Or you could have not read this blog, and not made any money. And get your news when it happens, not before it happens.

No comments: