Day of Reckoning...THE WORLD IS COMING TO AN END!

Seeing an article with this title, you would guess this is another bad news blog. But it's truly scary when this article is in Barrons. The article asks whether Ben B is truly clueless or whether he is just pretending to be confident. I would think the latter.

The Fed has talked hawkish too many times and been dovish in action. At some point, the market may lose total confidence in Fed. So while being honest may mean a drop in short term, it's going to build confidence in the fed.

http://online.barrons.com/article/SB119465234453288545.html?mod=googlenews_barrons

...and seemingly not have a clue about what's happening to the economy, let
alone what, if anything, to do about it.

At one point or another, he ventured that the economy would soldier on, if somewhat slowly for the next few quarters, unless, he cautioned at another point, it didn't; that inflation was a threat, but not a reality, at least not yet. And that the economy was perking along, nicely negotiating the shocks of the housing collapse, even as evidence to the contrary -- plunging consumer confidence, weak retail sales, dragging auto demand and all the grisly et ceteras -- mounted as he spoke.

All things considered, a Clueless Ben, we suppose, is preferable to an Easy Al, but incorrigible optimist that we are, we had hoped for something better. It's always possible, to be sure, that Mr. Bernanke knows more than he lets on. Certainly, the way the Fed has been opening the monetary spigot suggests that he may entertain greater anxiety than he's willing to exhibit publicly. Which may be effective in keeping the natives from getting restive, but it doesn't exactly enhance his credibility.

$1million Fannie/Freddiie Loan?

As if cutting rates is not ennough, Helicopter Ben is suggesting Fannie Mae and Freddie Mac to buy mortgages upto $1 million. Currently the limit for the agencies is $417,000.

Yes folks, let's have government take on excess risk. Let's get dig deeper into this hole by providing more mortgages.

Of course Charles "I want bigger mortgages" Schumer is going to run with the idea. Mr. Schumer, it was excessive lending that created the problems. Throwing more mortgages is not going to solve the issue. Also, Freddie and Fannie already have their problems. In case you did not get the memo, Mr. Cuomo is already investigating the agencies.

The government is already lending more than trillion dollars. You can read more about it here

http://housingdepression.blogspot.com/2007/11/your-tax-money-at-work.html

"That would be, I think, of some assistance to the mortgage market," the Fed
chairman said. "From the federal government's point of view, it would be taking
on some credit risk, which you may or may not be willing to do." He added, "It
would be a good idea to make the GSEs ultimately responsible for some, any
excess losses, or some part of excess losses, relative to the premiums that are
paid."

http://online.wsj.com/article/SB119455499562686966.html?mod=hps_us_whats_news

The PPT In Action?

The trading patterns have been very weird since last Friday. It seemed like the markets were going to take a dive. All of a sudden the markets pare the loses.

I was listening to three different stations on radio this morning. And all of them thought it's going to be an interesting day (in a negative sense). Yet the market opens lower and starts paring their losses when the trading starts.

So could the PPT be doing this? It seems like PPT was a sleep on Thursday when the markets were down 2% (may have something to do with the Jet Lag from India Trip).

There has been more and more talk about the Plunge Protection Team. And each day the market seems to defy the odds and either goes up or does not go down as much as it should.

Here is a quote from Bill Fleckenstein's article. It seems odd that they were actually denying they were buying indexes.

An item that I felt folks would find most newsworthy is that the president's working committee on financial markets, known by some as the PPT, or Plunge Protection Team, now has about 20 outsiders who attend certain meetings to advise the committee. One of them is none other than noted short-seller Jim Chanos, who left Grant's conference early last Tuesday to attend a PPT meeting. In response to my question as to why the committee had chosen him and others, he cited one reason: that the panel was worried about adverse publicity and wanted to communicate that there was no nefarious buying of S&P futures, as is constantly rumored.

It could be that some hedge funds are doing this. But I find it hard to believe that a single hedge fund would have the power to manipulate the market.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a87VERwuZP8c&refer=bondheads

http://www.minyanville.com/articles/index.php?a=14607

http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/RecessionIsntAnIfButAWhen.aspx

Bye Bye Dollar!

We have seen this so many times, it is not even news any more. Thanks to the Helicopter and Hank "I Support Strong Dollar" PaulSIV, the dollar is dropping again.

Gold is up to $850 and oil is about $98. Can you say $100 oil? Just to remind everyone, Goldman told everyone to take profit at $93 oil.

Now the Chinese are talking about diversifying out of the dollar. Note to Congress: Be careful what you wish for. At this time, we should be begging the chinese to keep the peg. Instead, in a world where the Chinese are the only one buying dollar, we are telling them to sell the dollar. Shows how smart our politicians are.

It's kind of like you having 9 credit cards with high interest and 1 credit card with artificially low interest. So now we start complaining to the credit card company that the interest is too low!

Hey Ben, the street wants another cut.

http://www.marketwatch.com/news/story/dollar-slumps-top-china-official/story.aspx?guid=%7B49785919%2D0D1E%2D4E6A%2DBF51%2DD1DD1D2A874E%7D

Interest Rate Cuts Not Helping Those Who Need Them Most

According to WSJ, the interest rate cuts by the fed are not effecting the savers and borrowers as much. The savings product are quick to cut the rate when the Feds cut the rate. The rate cuts have also not brought down the rates on home-equity loans and auto loans.

If dollar keeps falling, the treasury will have to have a higher yield in order to attract foreign money.

Here are the highlights from the article
SLOW TO MOVE
Here's how the Fed's recent rate cuts have played out for consumers:

• Banks have been slow to reduce rates on many deposit accounts, benefiting savers.
• Rates on new home-equity and auto loans haven't dropped as quickly as expected.
• Some homeowners with adjustable-rate mortgages that are about to reset will see some rate relief.

The banks may start cutting the savings rates, but until then this is good news for all the savers.

http://online.wsj.com/article/SB119431231354883361.html?mod=hps_us_whats_news

You Want More Rate Cuts?

Justin Lahart in Ahead of the Tape column writes about rate . It seems pretty obvious to most people that rate cuts will not solve the biggest problem out there which is Housing.

The rates will also weaken the dollar and increase commodity prices. That will increase "Real" inflationary pressure (Not the fake CPI stuff).

The problems in housing are less related to high interest rates now than to the hangover after a period of feverish speculation spurred by low rates before. No matter how low rates go, many of the people who would have qualified for mortgages when banks were lending recklessly aren't going to qualify anymore. With home prices in many areas declining, no matter how low rates go, many people will be reluctant to buy -- using borrowed money to purchase a depreciating asset isn't an obvious step to take. What housing really needs is time to heal its wounds. The Fed can't drop that from helicopters.

http://online.wsj.com/article/SB119422200754581966.html?mod=todays_us_money_and_investing

Wall St. in Charge

There is an article in Bloomberg about Henry Paulson and his focus on Subprime issue. As per the article, he wants to ensure that "yesterday's excesses" aren't repeated. These are the problems that were created while he was the CEO of Goldman. But you will never hear him say I helped create this problems.

The article also talks about one of the themes we have been talking about...When main st. needs help, these people don't care. When Wall St. needs help, they stop talking responsibility and they start talking about bailing them out for the greater good!

BTW, these issues are still largely "contained."

``He should admit to having been involved in creating the problem that we
have now,'' said Representative Brad Miller, a North Carolina Democrat, who
introduced a bill Oct. 22 to make firms packaging subprime mortgages liable for
bad loans in some circumstances.

``I can't help but notice that when middle-class homeowners were losing
their homes to foreclosure, he was pretty nonchalant about it,'' Miller said of
Paulson. ``But when Wall Street CEOs start seeing trouble in their absurdly
complicated financial instruments built on the mortgages of middle-class
homeowners, he feels their pain.''

http://www.bloomberg.com/apps/news?pid=20601087&sid=a5IcbvTr6oaM&refer=home

Fleck talks about the Ben bowing to Wall St. Pressure. The fact that Fed and Treasury are helping Wall St. is not even a secret any more. Fleck quoted the fed saying they need to cut because Wall St. is expecting a rate cut!

Hnew moniker for the dollar is xera.

"Both courses of action have risks. Perhaps the biggest is that the market's
certainty that rates will be cut creates a burden on the Fed to deliver.
Ordinarily, meeting market expectations isn't a goal in itself for the Fed. But
the current environment is more fragile than usual, and thus the consequences of
disappointing the market are potentially more damaging."

Thanks to the suggestion put forth by a reader of my daily column, I have come
up with the new name for our currency. Henceforth, it shall be called the xera.
That's a combination of Xerox, for the piece of Xerox paper that it is; lira,
which in the past was one of the world's chronically weak currencies; and, most
importantly, the fact that it sounds like zero. That is ultimately where the
xera is headed.

We Support Strong Dollar!

Boo. They did it again. They have cut the rate 25 basis points. This was not unexpected. In fact, this rate cut probably was based on expectations. Amazing!!

As Jim Bianco of Bianco research said if the Feds cut rates, "we should rename Bernanke's position to Chief Investment Officer and the FOMC statement should include the board’s predictions on how high the QQQQ ETF can go before the next FOMC meeting.”

Well, there you have it. Ben is the new CIO of US.

There was a small hope in me that Helicopter Ben would stand up and not be pressured into rate cuts. At least Thomas Hoenig of Federal Reserve Bank of Kansas City dissented. And 1/2 (6 of 12) did not want to decrease the discount rate.

Note to Ben: Hey, how about saving the discount rate action for your next emergency.

Congratulations Wall St. You have pressured the Fed into another rate cut. Let's do this again at the next meeting.

Gold was down initially after the rate cut, but is on it's way up again.

Bernanke, `Reluctant' to Cut Rates???

Bloomberg has a story on how Bernanke is reluctant to cut rates. It talks about how he has talked about how "challenging" it is to make policy.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aEnZejdWUzMk&refer=home

Isn't this the same thing they did last time? It seems like they want to surprise the markets to get the bigger bang for the buck. They are talking Hawkish but their policy is Dovish. Similar to the way Henry PaulSIV talks about the dollar and the administrations dollar policy.

As usual, the question of cutting rates is by how much and not whether to do it. Gold keeps going up and dollar keeps losing it's value. But it doesn't matter because rising dollar does not cause "CPInflation."

In other dollar news, the Yuan is rising .3 percent against the dollar. Mr. PaulSIV is quoted in the article as saying "They need to have the renminbi appreciate more quickly so it reflects economic fundamentals.."

Mr. PaulSIV, the chinese are helping the US by keeping dollar high. Be careful what you wish for. It seems odd to me that at time when there is no support for dollar, PaulSIV is trying to remove the biggest support the dollar has.

Hey Mr. PaulSIV, even the Maldives they don't like to accept the dollar anymore. Why is this important? According to William Pesek : the demise of the dollar!

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=ahcvx7iJ4tXM


I have a question, has there been any rate cuts in the past when the stock market was hitting new highs?