Recession, Rate Cuts and the Dollar

Bond market is again asking for a double rate cut. Just remember that the fed has been saying there will not be a rate cut. As I have said before, the fed needs to keep quiet rather than talking hawkish and acting dovish. You loose credibility when you don't walk to walk.

Inflation will be out of control if they are going to cut again. Most people can already feel the pinch of the declining dollar. Cutting rates is not going to help those who need it the most - the home owners.

So this is the dillema they are in. Cut and inflation goes up. Don't cut and let the economy get worse.

Can you say Stagflation?

http://bloomberg.com/apps/news?pid=20601087&sid=afVq20BblU7w&refer=home

Sudeep Reddy in a WSJ article says weak dollar is not causing as much inflation as it has in the past. A dollar decline in mid 70s-90s, a 10% decline in dolloar would have meant 50% increase in import prices. Now, it means 25% increase in import prices.

Since the Chinese Yuan is pegged to dollar, the falling dollar does not effect imports from China as much. Also, importers are willing to not raising the prices and instead taking a smaller markup.

Also, exporters like BMW are accepting lower profits rather than increase the price.

But to me all there is a limit to how much businesses cut margins before they start raising the prices. After all, business are not going to take a loss in order to maintain their US marketshare.

http://online.wsj.com/article/SB119542708759397293.html?mod=todays_us_page_one

Countrywide financial corp is down 9 percent again today. It has gone from 13.72 on Wednesday to 11.00 (and still falling) today. It was as high as $17.30 after Countrywide forcasted a profit in fourth quarter. All the analysts were "imperessed" by the management. I wonder if this was another pump and dump operation. Could all the analysts have been fooled into believing CFC was going to be profitabe in 4th quarter?

Lowe's profit fell 10 percent in third quarter and cut it's outlook. And it cut it's outlook for 4th quarter and blamed it on housing. People who have been reading this blog have known about how bad the housing is for a long time. It's not suprprising anymore.

http://biz.yahoo.com/ap/071119/earns_lowe_s.html

Goldman downgrades Citi to 'Sell'. I Wonder if they have more losses coming. Hats off to Meredith Whitney who was the first to downgrade Citibank( and got death threats for doing it!).

http://bloomberg.com/apps/news?pid=20601087&sid=a6814IMk7imI&refer=home