Tuesday, November 20, 2007

Fed to cut Friday?

Looks like it to me. In August, I said the Fed would cut the discount rate inter-meeting a week earlier than they did. So to keep with my timing I suspected they would cut rates last Friday. So if I'm off by a week like last time they should cut on Black Friday.

When Bernanke spoke before Congress, his idea to stave off the mortgage crisis was to have Fannie and Freddie Mac take larger mortgages. That was his ace in his back pocket. Now Fannie and Freddie have to raise capital. Anyone think that idea is going to pass now?

When Bernanke spoke before Congress the time before last, he said sub-prime was "well contained." It's been contained all right. Contained to every bank and mortgage company worldwide, even to Goldman Sachs if you count their credit-default swaps and the counterparty risk on the other side.

So Bernanke's cards now are only interest rates. So Bernanke cuts, and he does it this week.


Anonymous said...

A rate cut now would signal that it is time for foreign investors to exit the US equities market. If the dollar falls more, there is no return on the investment for them, so why shouldn't they sell everything?

Palmoni said...

The dollar is already fallig, and is pricing in much lower rates. Foreign investors have lost 30-45%on their money by sitting in cash due to the dollar weakness. So they switch from paper dollars into real assets (stocks. If the Fed funds were at a 3ish level, it would help housing, which would help our economy. Instead the Fed keeps rates artificially high.

Anonymous said...

Asset deflation will lower the value of stocks, housing, you name it. The Fed will lower rates in the future to try to stop it, but they won't succeed.