A few weeks ago I mentioned Gene Inger's post in the New Market ANALysis Area.
Some asked: "What the hell is he saying?"
His comments are enigmatic to say the least but here's his latest take on what the market may do:
"sometimes have to fly from Seattle to Boston with a southern detour fueling stop; say in Houston."
He seems to be leaning toward stagflation.
...by simplifying matters to such phrases as the market's 'bark is worse than its bite', the reality is something considerably more dangerous ahead.
Once again; this brings the specter (as much as we disdain the term but forecast it as a prospect months ago) of stagflation; where energy and food pricing remains high or even rising (typically for unrelated reasons), while perceptions of property wealth tend to erode. Taxing authority pressures don't let up even while politicians distance reality from desire, by failing to recognize that assessed valuations will have to be reduced a lot in the year or two ahead, as millage can't easily be raised without taxpayer revolt. At the same time the rating agencies, beholden somewhat to their lending customers, aren't making it easier for less-astute governance to come to task, efficiently enough.
In the short-run, the 'shock value' of the debacle was minimized by projected actions by the Fed, commencing with our desired Discount Rate cut before they actually did it following the detected round of coordinated interventions. Again the Discount window may be revisited, because it's the best way to facilitate systemic liquidity while not, of course, either underwriting risk nor particularly contributing to a weaker Dollar, which could be unfavorably impacted by cutting Funds rate excessively, essentially as akin to pushing on a string, while nevertheless still risking negative currency impacts. That concern in-and-of-itself tends to retard an overly-aggressive Fed stimulus effort now, so if anything supports return to 'measured pace' changes in overnight lending rates.
This sufficiently challenging situation can't easily be swept under Wall Street 'wings'. If the Fed is very mild with the Funds rate, but more aggressive with Discount Rates, that is an implication that the Fed remains committed to their primary mandate: their directive to provide systemic liquidity, not fund an underwriting of excessive risk. As a result this likely stokes confidence.
Edited by Rogerdodger, 17 September 2007 - 09:24 PM.
