8 replies to this topic

[Rogerdodger]

Bets seen on emergency Fed rate cut
Futures markets suggest there is a 24% chance that central bank could make a surprise cut before next policy meeting.
August 10 2007: 11:46 AM EDT
NEW YORK -- Futures markets began betting Friday that the Federal Reserve will institute an emergency interest rate cut this month in the wake of the credit worries that have roiled U.S. markets in recent weeks.

The latest reading suggested there is a 24 percent chance that the central bank will lower a key short-term interest rate in August. Markets were not betting on a rate cut in August immediately following the Federal Reserve's policy meeting on Tuesday.

Futures markets suggest that in September there will be a 76 percent chance the central bank will cut rates at its meeting.

(CNNMoney.com)

Edited by Rogerdodger, 12 August 2007 - 11:19 PM.

[arbman]

Can the Fed inflate further these overleveraged markets? Overleveraged in failing fixed income, now overleveraged in the equities. I have some research that the damage due to these leveraged credit failures can actually reach to over a trillion dollars. As the managers suspect that the Fed will cut the rates immediately are betting the most leveraged levels in the equities now to save their failing leveraged portfolios in the fixed income, or it seems. I have a feeling that the Fed will not ease since it won't fix anything, instead trying to manage the situtation with the open market operations, then isn't this similar to 1930s? This is exactly what happened back then... I was reading Jeremy Grantham's July 25 letter* that says to expect the worse. He continues to say that this is similar to the internet collapse that wiped out about 80% of the related companies in 2000 --he also called it accurately, only in the fixed income market. He also expects at least one major bank to disappear within 5 yrs. He apparently positioned some of his clients money, $137B, in the anti-risk plays... To correct here: he actually calls the worldwide bubble in all of the asset classes, not only in the fixed income. - kisa * you need to become a member at GMO.

Edited by kisacik, 12 August 2007 - 11:38 PM.

[JAP]

If the FED cuts the rate, I'm gonna short the hell out of the USD.

[arbman]

Apparently, Mr Grantham was bullish earlier this year saying that every bubble goes through the last exponential and dramatic phase just before they burst. Now, although he says he is positioning for anti-risk opportunities, he also warns that it will be very hard to manage the positions at the early stages of this burst. We have already witnessed the extreme volatility in the markets and the short squeezes will be also even more, if the Fed decides to cut the rates. He apparently thinks that these will only delay the inevitable... - kisa

[Sentient Being]

I have a feeling that the Fed will not ease since it won't fix anything, instead trying to manage the situtation with the open market operations, then isn't this similar to 1930s? This is exactly what happened back then....
- kisa

It certainly sounds a lot like the late 20's. Telling us repeatedly that "the market is fundamentally sound". Problems with too much leverage. Crys for the big boys (this time the fed) to bail the markets out.

In the late 20s the big boys on wall street found their pockets weren't deep enough to bail the markets out.

I guess the question here is can the government inject enough cheap cash to support the economy and markets and create a "soft landing".

I think the feds have this image of Cramer screaming at them and may be afraid to not cut the rates lest they be blamed for "not trying"!

[arbman]

If the FED cuts the rate, I'm gonna short the hell out of the USD.

I guess, the damage in Europe is actually bigger than here and if the Fed cuts the rates here, it will be similar to the Asian crisis a decade ago, but to help to the European banks this time (too). I doubt the dollar will devalue substantially first. However, this is apparently exactly how it also happened in 1929, the Fed had to raise later in 1930s and could not lower until the economy collapsed into the great depression...

So, my take is even though this is the deteriorating fundamental backdrop, apparently the financial history is telling us not to play the coming months only one way, but rather follow the trend...

- kisa

Edited by kisacik, 12 August 2007 - 11:56 PM.

[pdx5]

How wonderful, Fed will lower the rates and add to the housing bubble! Or even better, inject more credit into the cedit bubble!! IMO Fed can only delay the eventual, and the longer they try to keep the bubble game going, the more violent will be the ultimate correction.

[n83]

Faber (bear on U.S. mega bull on Asia) was saying (FWIW), the IBs are the ones crying (guess who make the media waves) for a rate cut..need dough to continue games there will be NO rate cut imo..those fed funds have changed on a dime in the past and may change yet again and come late August they will be singing a different tune (already the chances for a Sep cut has dropped from 100% last Thursday to 76%-gg)

Edited by n83, 13 August 2007 - 03:55 AM.

[arbman]

How wonderful, Fed will lower the rates and add to the housing bubble!
Or even better, inject more credit into the cedit bubble!!

IMO Fed can only delay the eventual, and the longer they try to keep
the bubble game going, the more violent will be the ultimate correction.

It is not that black or white, there is no guarantee that once this crisis is over the Fed will not return to their existing tight monetary policy. If they don't do anything right now, the market will collapse 87 or 98 style. I am thinking Bernanke does not want to blow the bubbles more, but probably go sideways and gain time. The soft landing from this point on though will not work, he will end up either blowing the bubbles more into 2008 and 2009 --I expect this-- or it will burst (or accelerate) within a few months...