the futures markets expected the Federal Open Market Committee to lower the federal funds rate to 4.75% by the end of the month, down from 5.25% currently.
According the article, Helicopter Ben is going to speak on Tuesday and then act on the 18th. It also alludes to the fact that many within the Fed feel things aren't too bad and are adopting a wait and see attitude.
My feeling is that the bad payroll numbers will only get worse when Beazer, Countrywide, and all these crashing companies hit the panic button.
We could be in for a series of cuts -- none of which are able to fix the predicament of the homebuilders or the mortgage lenders; and, I believe that is the point. The Fed wants these companies with poor practices out of the system so that they can get a better view of how distorted things are.
And, the credit market crunch is a testament to the same notion. Interestingly, this is affecting European companies as much as U.S. companies from some of the data I've seen.
If the Fed does engage in a series of slow, small cuts to revive the job market, the dollar should come under additional pressure as the treasury yields decline.
The counter argument to this is that if there is a global equities meltdown, there may be a rush to the dollar (through the treasuries) for "quality". But, would that be a short term bump? Most likely.
I think the only thing to bank on right now is that a lot of these companies like Standard Pacific, NVR, and Toll Brothers are in a homebuilding bear market that hasn't run its course. As much as people want to try to quantify the move downwards, it won't end until the supply/demand pendulum swings wildly the other way. In the meantime, with sales at 16 year low and no one wanting to lend them money on a short term basis, a lot of these companies have dismal prospects.
2 comments:
Under Greenspan, I bet we would've seen a 25 bps cut of Fed Funds rate back in August instead of the Bernanke cut in the Discount rate.
Cutting the Discount rate demonstrated a steady hand in the situation rather than a tendency toward the "Helicopter" drop. It was Bernanke saying, "finish your vegetables" rather than offering a skip-through to dessert. The equity markets mistook the move as early dessert, but the banks saw it for what it was & partook very sparingly (& a bit grudgingly).
...but...now that we see employment hitting the skids, the Fed has a clear mandate to act. I think we'll see a 25 bps cut in the Fed Funds rate next week.
(50 bps would scare the crap out of everyone & definitely jeopardize the $USD...which is not to say we won't reach 4.75% at the next meeting after this one!)
Gibby, I think we agree that a rate cut will provide short-term support to equities (another bout of euphoria), but will not bail out the housing market since the major pain of the housing market (builders & financiers) is not ultimately going to be liquidity but solvency.
-G
Helicopter Ben seems to be in Greenspan's camp of "you don't know it's an asset bubble until AFTER the fact". I guess over the next year, we'll get a better idea of whether he is deserving of the nickname.
My take on the homebuilders is that they've quadrupled in the past few years, and the dumb money was following the trade, and now the same dumb money cannot seem to value them properly. The answer is that some will go bankrupt and some will go back to where they were before the boom.
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