24 replies to this topic

[OEXCHAOS]

Debt at a 15% lower interest rate leave you with more liquidity. AND, I might add and have predicted, the only inflation you're likely to see from this rate cut is the stock market. It sure won't go into real estate and frankly, I doubt it will go much into anything hard, short-term reactions in Oil and Gold notwithstanding. Mark

[OEXCHAOS]

I love it when folks seem to think that they know more than the Fed does.

Mark


I also love when folks think that Fed knows what it's doing. Look what Alan Greenspan is blabbering these days. If he knew what he was was doing, he woudn't be saying the things that he is saying today. So the logical conclusion is either he did not know what he was doing (or the consequences of his doing) or he was wilfully deceiving the world !

They may not, but they know no worse than anyone on this site. I will say that any time you attempt to influence markets, it's hard to know the long-term impact of what you are doing. Pro or con.

What I know is this. We don't know what the effects of the sub prime mess are, might be, and might have been. We do know that it's unprecedented.

Taking aggressive steps to maintain liquidity is very prudent. This allows for a more orderly liquidation of excess housing stock and correction of debt imbalances.

Things were slowing fast and hard and had the potential to go to deflation.

There is always a reason to inflate away.

But will it? What is going to inflate, exactly, and why? Short rates were telling us where things were headed and so were long rates. Cutting is only really going to affect some variable re-sets, student loans, and a modest number of debt instruments tied to the FF rate. Libor is actually more problematic.

I just see the chances of much inflation here as nearly nil.

Mark

[NAV]

But will it? What is going to inflate, exactly, and why? Short rates were telling us where things were headed and so were long rates. Cutting is only really going to affect some variable re-sets, student loans, and a modest number of debt instruments tied to the FF rate. Libor is actually more problematic.

I just see the chances of much inflation here as nearly nil.

Mark

What will it inflate ? - the same stuff that has been inflated like crazy over the last 3 years.


Real estate has been overdone (or so we think), which will probably only consolidate given this extension of loose money policy. My restaurant bills have gone up 20-30%. My vacation costs have dramatically gone up. I pay $120 for a medium grade motel for which i use to pay $60-80. That's about 80-100% increase. Ski lift ticktes have gone up from $40 to $65 dollars. That 40% increase. Grocery (selective items), education, labor, materials have all gone up. You may call it inflation or repricing based on weakening dollar. But you just can't escape it.

Except the electronics stuff, thanks to technology and commoditization of semiconductors, most other areas have seen big inflation. Surpisingly, wine prices have come down, even the premium segment, thanks to the two-buck-chuck revolution.

Now the Fed has set the target rate to 4.75%. That just the nominal target rate. Overnight, banks are not going to bring down the effective rate to 4.75 and start lending each other at those rates. The New york desk has to conduct open market operations to bring the market rate down to the target rate. That means one thing - more liquidity in a world which already has excess of it.

Edited by NAV, 19 September 2007 - 07:29 AM.

[OEXCHAOS]

I'd say that materials have stopped going up and Real Estate was the big driver of inflation after oil. That's dead. Not quite buried, but new construction is not going to be driving much demand, I think we can agree. I also don't see wage inflation, to speak of and less going forward. Most folks are getting modest raises. Minimum wage went way up, but nobody with skills and discipline worth spit makes that anyway. We'll have to see, but what occurred over the past 6 years isn't what's going to occur over the next. Mark

[SemiBizz]

Sure, the Fed's inflation measurement game has already been well laid out. Unless you have to drive or eat, there is NO inflation... except for your taxes ... they are inflating like crazy.