We will admit that we were among the carpers and the skeptics of the early leaks supposedly coming from the Federal Reserve last night. The refusal to slash interest rates by more than the minimal amount struck as a sign of intellectual health. Ben Bernanke, at least for a few hours, had seemed to discover his place among the vertebrates once more.
So when word began to spread through the tavern where we spend probably too many of our evenings that the Federal Reserve was still talking after its meeting—and specifically talking about how the rate cuts were not the sum of its efforts to create looser credit markets—we were disappointed. Had it only taken one day of downward facing Dow to strip the governors of the Federal Reserve of their resolve?
Of course it hadn’t. Apparently the leaks last night were exactly right—the markets had wrongly assumed that the Fed had exhausted its efforts on their behalf with the rate cuts. There really was more in the works.
This morning we learned that the Fed had made a heretofore secret accord with the European Central Bank, the Bank of England, The Bank of Canada and the Swiss National Bank. In addition, the Fed would begin buying up a wider variety of bonds, trading dollars for illiquid debt securities. Under this new “term auction facility” the Fed will lend at least $40 billion and potentially far more through four separate auctions starting this week. The rates available to banks at these auctions will be far below those charged on direct loans from the Fed through its “discount window.” Let’s call it a super-discount window.
It is still a bit unclear what it is the Fed plans to buy with these new “temporary auctions” or what the news lines of credit with the central bankers of Europe will be used for. But this lack of clarity did not stop the futures markets from jumping for joy almost the instant the news was announced or equities traders from pushing the Dow Jones index up over two hundred points as soon as they could manage it.
We hate to spoil the party so we won’t insist on this point too loudly. But this does strike us as a bit of desperation, both on the part of the Federal Reserve and investors. The Fed has said that it is undertaking these extraordinary measures in order to alleviate the “elevated pressure” on credit markets. What that metaphor conceals is that those who had sought profits speculating in the markets for debt securities and derivatives but are now concerned about their balance sheets and capital reserves are being bribed by risk-free opportunities not to dump the securities and derivatives that would reduce them to worthlessness.
Let’s not dwell on it. Tis the holiday season after all. Pour the punch a bit stronger, fill the cups with credit egg-nog. Let’s all go dancing under the mistletoe. At the very least, the coordination involved with the move will likely pull Libor back toward where the central bankers believe it should be. We’ll worry about the hangovers after New Year’s day.
The Fed is blowing bubbles again…. this time into the equity market. The pieces are falling together for a grand finale in the very near future – the spectacular collective bursting of all bubbles: real estate, the us dollar, yen carry, equity, private equity, emerging market and credit… no wonder gold is also up 2%.
This is just insanity. You can put lipstick on a pig, but it is still a pig.
My personal portfolio has done great this year (thanks Jim Rogers), but it’s amazing how shit-for-brains most of my colleagues are about the Fed.
Adam Sender is one of the best hedge fund managers in the world. One time, as an intern, I painted my face and he actually gave me a $1,000. Hes the man.
Umm…I’m fairly certain the Apocolypse is not coming.
I agree in that the equity market has a little correcting to do. The residential real estate bubble has already popped and is continuing to let out all that air. However, the CRE market is nowhere near the residential market. Liquidity/Credit is tight right now, but the underlying fundamentals are pretty strong. A default rate at 30bps, vs. 25% for subprime mortgages for example. The US Dollar’s decline is probably a good thing right now, as long as it doesn’t plummet, which I don’t think will happen, as it would take a global mass exodus for that to happen. Private equity will constrict but not burst, and emerging market performance will slow, but will continue to be propped up by global demand.
Morgan Stanley announced their number one short for 2008 – Citigroup.
Take that, sahib.
WDE – are you aware that starting one’s post with “umm” is another way of saying “hey, I’m an idiot teenage girl posting from my bedroom so please disregard what follows”?
“The Fed is blowing bubbles again…. this time into the equity market. The pieces are falling together for a grand finale in the very near future – the spectacular collective bursting of all bubbles: real estate, the us dollar, yen carry, equity, private equity, emerging market and credit… no wonder gold is also up 2%.”
What a bunch of crap.
Adam Sender is really short. Borderline dwarfism. Napoleon wouldnt want to hear him wine, and they usually see eye to eye. Next year he will lose all his money again and liquidate his art which he will be forced to barter for a giant mound of crap and a shoelace.
Maybe not a bunch of crap. Rather than read your retyping of the prior post, I would have liked to see why you think otherwise.
I was told for the last 12 months by Paulson, Bernanke, Kudlow etc..that things were contained and this economy was the greatest story never told. Are these guys clueless or liars ? Peter Schiff, Nouriel Roubini, Barry Ritholz, Michael Shedlock, Ron Paul etc..knew the score all along.
MiShedlo has been laughably wrong and bearish for 5 years and running, even a broken sundial is right more than that. Permabear and then some, just look at what he’s written every day since the market bottomed in 2002.
He wrote an entire article showing his ignorance of the non-seasonality of the Fed’s B/D-model by comparing NSA-figures to SA-figures to make some innumerate point.
Barry R is a HF mgr, no more, no less. Let’s see his returns for 2007 and I’ll be all for applause if he does well.
All this “perfect storm” talk happens every few years. Spiralling oil costs, war, real estate corrections, recession, trade deficits — sound familiar?
It’s 1992.
A broken sundial?
Well what is the Fed foreshadowing (disaster) that is coming in the banking sector that hasnt yet emerged?
This move is a BIG TELEGRAPH!
Why so angry, bloop?
Adam Sender ended 07′ up 55% NET to his investors. He’s also up already in the first two weeks of 08′. Hope all you asshats did as well last year/are doing as well already this year.
Guess you had a really sucky 07′, and 08′ hasn’t started any better for you, huh, bloop, poor lil’ baby?