Fed Hikes Rate; No Pause?
The FOMC minutes are out. “The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent. Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.”
“The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.”
“The quarter point hike brings rates to the highest level in more than five years. Banks will respond by increasing the prime rate to 8%. The prime is the base rate for many credit cards, and consumer and business loans. Other rates, such as those on variable-rate credit cards and home equity lines of credit, likely will continue to rise.”
“In the statement announcing Wednesday’s rate increase, the Fed ..added another phrase in the latest statement saying that ‘the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.’”
“Mortgage applications in the U.S. fell last week by the most since February as higher borrowing costs slowed purchases and pushed refinancing to its lowest level this year. The average rate on a 30-year fixed mortgage rose from 6.57 percent a week earlier. At last week’s average rate, the monthly principal and interest costs for each $100,000 of a loan would be $639. A year ago, when the average rate was 5.77 percent, the payment was $585.”
“‘The housing slowdown is a story that’s evolving as we speak, and it will probably get worse in the second half,’ said (economist) Chris Rupkey ‘The cost of credit is moving up. Home prices have increased so much it is scaring people away. There’s sticker shock.’” To be updated.
I was a huge proponent of the 1/2% rate hike last spring as a “shot across the bow” of the housing market. That would have cooled things down enough to prevent the bust that we are currently watching. We’d be sitting 30% lower in Florida too, basically 30% less that prices would have to drop than today.
My bet is that the fed raises 1/4% and then stops for a few meetings. Let’s not choke the golden goose. We shall know soon enough.
How would a 1/2% rate hike “prevent(ed) the bust that we are currently watching”? Weren’t housing prices still 30-40% overvalued in most areas? I agree that an early rate hike would have take some air out of the lending sales earlier but I can’t follow how it would have prevented a bust.
I think prices could have stuck at the beginning of 2005 solely through flat appreciation for years. Now that we are up another 30% from that area, it would have prevented the mania during last summer and the crash that we are watching right now.
Flat prices are not realistic. At current prices, rents cover what, maybe half the mortgage payment? Investors are depending on appreciation, not cash flow, to make their “investments” worth while. As soon as appreciation won’t cover carrying costs, investors start dropping properties like hot potatoes. This alone causes prices to plunge. Piece of cake.
prices will only plunge if investors think that the good easy money times are over for good (or at least for some years). There is NO sign of a general FED policy change, so I think many investors/speculators will hang on for the next upswing in the housing market (maybe just in time for the elections?).
IMO the concern of the Feb over going too far, is nothing more than a cover for its campaign to inflate away the debt just as all of that deflation b.s. was several years ago. I thing the gold market senses this and I don’t think the bond market will be very far behind in catching on.
Let’s not choke the gold price — never mind that it is up to levels not seen since 1980 (the last time inflation was running wild).
GS, you’re posts are some of the best on this blog, but I think you’re missing the boat on gold. It still has a long way to go. It’s far short of 1980 levels, inflation adjusted of course. Further information for your edification:
http://www.financialsense.com/editorials/phillips/2006/0508.html
Hopefully Bernanke learned something from the short time that G. William Miller spent at the Fed; do you believe otherwise?
Why should the price of gold today have anything to do with a spike in the price that occurred 25 years ago? That was a one-time aberreration from gold’s long-term value. We might as well believe that silver should be $100 an ounce because of the Hunt brothers.
Gold, just like anything else, is worth only what someone is willing to pay for it. If you think that people in the future will pay more than you, then buy it, if not, then don’t. It’s pure speculation. Now, there could be reasons WHY you think people will pay more, but simply because they aren’t building more land is not a good enough reason.
They aren’t building any more land is exactly my reasoning for why I’ve purchased gold.
I hope you can see the clear relationship there. Ponderous man. Ponderous.
Gold doubled in price in two months from the 3rd week of November, 1979, to the 3rd week of January, 1980, because the US freeze on Iranian assets drove investors in other countries to seek safe havens. I hope no similar events happen these days.
Who knew that being a shopoholic and buying tons of 18k at
Gold soared in late 1979 and early 1980 because of a convergence of factors, including: 1) The Soviet invasion of Afghanistan triggered fears of WWIII; 2) The Iran hostage crisis triggered fears of war between the US and Iran (which would disrupt the flow of oil from the Middle East, among other things); and 3) There seemed to be no “safer haven” to safeguard personal wealth or hedge against a worst-case scenario.
When you look at what’s happening today between the US and Iran, and more broadly at the gigantic global debt bubble that has built up, the case for gold (precious metals, rather) once again becomes compelling. Note the HUGE commercial short position in gold, which, if it has to be covered, is going to drive prices even higher. The biggest wild card of all, however (in my opinion) is Asia, where people have for centuries trusted gold over fiat currency and government promises.
If we revisit the early 80’s again, will my Members Only jacket be back in style?
What do you mean ‘back’ in style??
I used to have a skinny tie! Of course that was back when people still wore ties. I guess a homedebtor could use it as a noose today.
Roach openly advocated a 2% (yes, 200 basis point) increase at least two years ago. Too bad nobody was listening.
Considering that the FED took rates to exceedingly low levels to not enter a deflation spiral in 2001/2002, that probably would have been the best solution. Of course I nearly got canned from a pension fund for speaking so frankly about sacred cows. Wonder if Roach is hiring?
This is shaping up to be one of the more important FOMC meeting in this cycle. If you have a prediction, please post it here and this post will be updated when the minutes come out.
They’ve telegraphed a quarter point. The key will be the notes. I’m guessing they tone down the language a bit and take at least one meeting off.
The 1/4 point raise was pretty much a given. It will now get interesting as we approach the next meeting. I am guessing they move to 5.25% and then pause. I am guessing 6% might be a long-term target, but BB wants to see how things shake out before moving higher. I don’t think they want to fire all their bullets just yet. They may want to keep 50-75 bps in reserve. Also, I feel they would like to keep moving at 1/4 point intervals. Not sure BB wants a 1/2 point hike. I don’t see them cutting rates anytime soon.
The FRB almost always goes too far. It takes months for the effect of rate hikes to show up in economic statistics. We will probably have entered a recession before the indicators tell BB that it’s time to pause. Some have said that it is like driving a car by looking in the rear view mirror … behaviour that surely leads to catastrophe.
There’s no doubt they’ll go too far, it’s just a question of how far do they overshoot.
But this time shouldn’t they now know that they “always go too far”? And therefore adjust their actions accordingly?
Or do/will they intentionally go too far???
The lag effect on the data makes it virtually impossible to know what is happening in the economy real time. Many measurements such as unemployment don’t spike until after the recession is well underway. Think about it … a company doesn’t start laying off until after orders decline for awhile in anticipation that things may pick up. When they don’t they start laying people off. This could be months after the orders drop off. Meanwhile, the layoffs don’t show up in the government stats until a month after that. So by the time the reported unemployment rate shows up at the FRB’s doorstep it is already months late. So when BB says he will base his decision on incoming data, he is really “looking in the rear view mirror”. I doubt that they intentionally over-shoot, it’s just that they have no other way of measuring what is actually going on.
“ the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.”
We are not quite sure what happens next, we are in some uncharted territory. We hope everyone gets a grip, but in case they don’t we will crank it up some more. Stay Tuned
This takes the cake, I wonder how the fed really feels about these loans?
http://money.cnn.com/2006/05/10/news/economy/economy_mortgage/index.htm?cnn=yes
could be that the 50 year mortgage primarily aids those who need to do an emergency re-fi because of mortgage reset or HELOC type troubles. With actual house prices declining the riskier loans become less of a factor in what we saw during the bubble, which was multiple bidders on more house than they could afford.
It’s all about the payment. Cars have been sold that way for years. The first question is “How big a payment can you afford?” Then they gimmick the loan to maximize their profit. I remember when 3 years was the standard loan (Okay so I’m old) then 4 and 5 year loans came along and now we’re up to 84 months…7 years to pay off one of these gas hog SUV’s. So they just moved that mentality to the housing market within this latest mania to shoehorn people into more house than they need or can afford. 50 years!! Most people can’t think beyond their next pay check and they’re signing up for 50 year mortgages.
Oh I forgot they’re just going to sell it in two years and double their money. My bad.
I hear you! When I insisted that I have no more than a 4 yr. loan on a new car (and strictly limited both the car price and the total payment), the salesperson had the manager come over and say to me ” I’m just coming over to see if there is anything I can do to help you get a car. We have lots of options to make it more affordable for you, including the 5 year loan.”
I said the only thing that will do is weigh my neck down with an anchor and increase the amount of interest I have to pay. If you really want to help me, do what I ask or find me a salesman who can.
I hate sales people who pretend they are helping you. It doesn’t take much then to extend that dislike to all those people contributing to this frenzied market.
But they need to remember 1 thing. In hell, there is no toilet paper.
I took a 5 year loan on my car because the financing was so cheap, not because I could not afford a shorter term. In fact, Honda is paying me around 300 dollars a year to drive around, if I took the difference between what I pay in interest (2.9% v4.5%) and what I get for the money in a CD.
If the total cost was less than a 4 year loan, I couldn’t argue. I would probably get the low rate and pre pay the loan real fast. I HATE debt!! I’m looking for the new Honda Fit to be my next car, but not for another ~ 3yrs, then I’ll retire my wonderful old Civic.
Congrats on your deal.
It’s all about the Scion xA.
Polestar, you and pinch a penny have differing ideas of frugility. Yours is low risk, his is a bit higher. He most likely had cash to pay for the car but invested in CDs that pay a much higher interest rate than his auto loan. If your $25000 earns $125 in interest/month and you pay $60/mo to borrow for a car that’s a pretty good deal, assuming you are able to hedge the risk of rates moving and don’t mind carrying the insurance on the car (that a loan would require).
What happened to buy a car cash. I would never buy a car on term. Hell even my leases are one pay. In a new car scenario it decreases in value the minute you drive it off the lot why finance that. Never understood it.
I make one payment on the lease, drive and write it off for 2 yrs. Go get another one. And before I did that I paid cash. Baffling
>> What happened to buy a car cash?
Uhm, my last 6 cars were bought with cash only. What I really like are nicer lease returns. There are some real deals to be found among those.
/tends to keep cars for a long time
Only fools spend a ton of money on a depreciating asset like a car. Cars that are 2-3 years old are the way to go - then drive them for 10 years unless they are rust buckets or unsafe.
Exactly M.B.A. I have never bought a new showroom car cash. 2-3 yrs with low miles. I was reading the example above with the guy and the cd. It didn’t make sense to me because your still throwing money away. But whatever works
My last car was 8 months old, 5800 miles, 20% off the new price.
The guy who sold it to me told me he was redoing his kitchen. This was August 2004.
Good point. And people buy houses now like they were buying a car. The only thing that matters is the payment, and just like a new car, everybody deserves a new house. Without one, it’s sheer deprivation.
Ah, the indomitable American consumer. I shop, therefore I am.
Most banks already offer 40-year mortgages, which account for about 5 percent of all home loans, the report said.
One in twenty new loans is for forty years? Amazing.
Ugh! /shakes head. 5% Already?!?
Doesn’t anyone understand there is a theoritical lower limit on the payment based on amount and interest rate? Lowering either of those two factors gets you a lower payment and is far, far better than extending the term. That just spreads out the principal repayment.
Why isn’t consumer economics 101 a manditory class in our schools?
I doubt the 50 year will do much to reinvigorate housing. But it COULD help prevent or at least lessen catastrophe in the housing sector.
I’m sure there are a lot of ARM borrowers that can’t afford to get out of their IO ARMs and into a fixed 30 year… payments too high. Yet if the ARM rates continue upwards they will soon lose out that way too. Lose lose.
The 50 year could be a compromise. Perhaps a lot of people could afford the payments on a fixed 50 year (as opposed to a fixed 30 year), and yet now they will have a little security in having a fixed rate.
Again, this ain’t gonna save housing. And the numbers of people it would “help” may be small even. And it might not do anything even. But I can see a place for it for FBs who are in the ARM chinese fingertrap.
A new buyer taking a 50 year is a fool IMO. But at least again they (unlike the IO/option ARM crowd) would have fixed rates, and relatively fixed payments (not including insurance/taxes)
clouseau
It also saves the banks’ collective a**es. Better to get some payment than to have to account for them as “non-performing.” Could save a couple of larger banks from Chapter 7.
“A new buyer taking a 50 year is a fool IMO. But at least again they (unlike the IO/option ARM crowd) would have fixed rates, and relatively fixed payments (not including insurance/taxes)”
I agree mostly but I do think it depends on how the borrower makes use of the loan.
I haven’t done the had math admittedly but I wouldimagine that the payment on a 50-year loan would be the equivalent of , let’s say, a 5/1 interest only loan at today’s rates. (I have no idea what the going rate is on a 50-year so feel free to enlighten me).
With a 50-year term you face no re-set +full amortization shock and you are still afforded the “safety” of a lower payment. If you use the earlier years of the loan to pay down priciple you can reduce some of the interest paid over the life of the loan.
But, yeah, you’re right….. still a crappy loan. Definitely for FBs backed up against a wall.
If you can get the property to appraise in a falling market. In reality a pretty bad loan. But I would have rather seen a buyer take out one of these than a 2/28 or 3/27
Its funny, I could have sworn the 50 year loan being advertised was an ARM. You read that right, a 50 year ARM. The article distinctly stated the payments can rise.
Oh lawd……
I think I’m finally scared.
Oh.. My… GOD…
from: http://www.bankrate.com/brm/news/mortgages/20060427a1.asp
tatewide’s 50-year loan is a 5/1 hybrid, meaning that the introductory interest rate lasts five years and then the rate is adjusted annually, moving up and down with the London Interbank Offered Rate, or LIBOR.
So if you buy a house when you’re 15, it’ll be paid off by retirement. What could possibly go wrong here?
I also like how the last two paragraphs of the article say “don’t do this, it’s a time bomb.”
So if you buy a house when you’re 15, it’ll be paid off by retirement. What could possibly go wrong here?
LMFAO…No more f*cked borrowers…try f*cked country
no worry, they will probably offer these 50-year loans to retired folk without any problem …
Obviously, 1/4 hike. The Fed’s words today are most likely to leave the road open for either further rate increases or a pause.
Either way rates will be above 5% sometime this year.
David
http://bubblemeter.blogspot.com
The most interesting thing will be how the statement handles future expectations. It was just few days ago that Bernanke was saying how the markets had missunderstood him, etc. Gold went over $700 yesterday. Inflation has to be on the FOMC’s plate.
1/4 GUARANTEED!
My bet is the Fed does 1/4 and does not pause. Bernanke has to know he risks being seen as a tool of the stock market if he simply does what it expects. Furthermore, a pause would basically open the floodgates on gold and other commodities, as well as bonds
He has to “Volckerize” this mess by going against the grain and keeping the market guessing in order to clear out the problems.
The stock market (and the hedge fund parasites which feed off it) have cast the gauntlet, and are expecting a pause at the next meeting. If BB complies, then you can expect gold, stocks, long-term bond yields, and oil prices to shoot up like rockets to the sound of deafening applause. Unfortunately, the dollar will not look too good at that point…
At least two Fed governors have come right out and brazenly manipulated the markets in the past month or so specifically wringing their hands over the housing market — which is not their concern. So we know they will take poor housing data into account.
By the next FOMC meeting, Robert Cote’s “Silent Spring” in the housing market will be complete, on record, and un-spinnable.
So a “pause” next month, acknowledging the terrible shape the housing market is in, is a given IMO.
“Precious metals and mining stocks for everyone!”
No offense to Robert Cote, but the term “Silent Spring” was actually coined by DinOR at Patrick.net several months ago. Robert also posts there regularly, so I’m guessing that’s where he picked it.
The difference is that the Volckan Pinch would probably lead to deflation this time. Either the dollar or the economy are going to take a beating. Maybe the housing collapse will cause Bernanke to sacrifice the dollar to prevent the housing popping deflation scenario.
what time is the anncouncement?
Release Date: May 10, 2006
For immediate release
The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent.
Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.
As yet, the run-up in the prices of energy and other commodities appears to have had only a modest effect on core inflation, ongoing productivity gains have helped to hold the growth of unit labor costs in check, and inflation expectations remain contained. Still, possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures.
The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information. In any event, the Committee will respond to changes in economic prospects as needed to support the attainment of its objectives.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Jeffrey M. Lacker; Mark W. Olson; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen.
In a related action, the Board of Governors unanimously approved a 25-basis-point increase in the discount rate to 6 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, St. Louis, Minneapolis, Dallas, and San Francisco.
Bottom line: more increases, but no promise that next meeting will be an increase (but probably will).
agreed.
for sure…inflation is actually worse than CPI suggests, as they well know, and their Holy Grail is to contain inflation at all costs. More increases to come, with no pauses.
Careful…”containing inflation” these days means using statistical tricks to pretend that it isn’t a factor.
I myself figure that real inflation is at least 7% and probably closer to eight.
exactly, so even the longterm rates are still a steal (rates below inflation!) and Helicopter Ben will make sure real rates remain firmly in the red as long as possible.
The CPI is totally accurate (if all that you buy is pumpernickel bread and apple-scented Palmolive).
Boiling the frog comes to mind. 16 times the Fed has slowly turned up the heat, leaving plenty of room for second-guessing and modified reactions. The game is still afoot. On to 6%.
The frog will actually jump out when the heat becomes uncomfortable.
I think you missed the point: a frog will NOT jump out when you turn up the heat gradually, it will simply boil to death.
A frog will only jump out if it gets ’sticker shock’; it’s a real nice comparison with the housing market. All frogs are still in and waiting to be boiled, although the cook is hoping that he will magically notice what is happening and jump out of the pot.
That is an urban legend.
Look it up on Snopes.com.
Although, one of my favorite quotes is “Never let the truth get in the way of a good story”.
Don’t forget that the thermometer is broken (M3 stats no longer published)…
Yummy boiled frogs
‘After nearly two decades of decoding Alan Greenspan’s famously opaque speaking style, financial markets are having to learn to interpret his successor — Ben Bernanke. So far, the results have been a little rocky.’
‘Wall Street widely expects Fed policy-makers will boost a key interest rate to the highest level in five years when they meet on Wednesday.’
‘There is a wide split over what happens next. Some economists believe the Fed will stop with the funds rate at 5 percent, up significantly from the 46-year low of 1 percent in effect before the rate increases began.
Others think the Fed will only pause for a meeting or two and then raise rates one or two more times. And still a third group thinks there won’t be any pause as the Fed continues a steady march toward higher rates.’
‘Part of the blame for the confusion is being assigned to Bernanke, who took over as Fed chairman on Feb. 1. ‘He roiled markets over the past two weeks, first with testimony before the Joint Economic Committee on April 27 that the markets read as a strong signal that the Fed was going to pause in its string of rate increases, and then the next week when he told a reporter that the markets had misinterpreted his comments.’
Yes, the Bernanke is to blame. Bernanke - hissss - yes we will gets him. He hurts us!
Tricksy, false. We hates the Bernanke, we hates it forever.
1/4 hike with a complete retraction of the possible pause statement from the last session. Hey, I’m allowed to dream.
IMO that’s the important bit; no mention of a pause. We’ll see how Wall Street views it.
Quarter hike… “Banks will respond by increasing the prime rate to 8%.”
http://www.usatoday.com/money/economy/fed/rates/2006-05-09-fed_x.htm
BayQT~
Its funny the analyst in the article interpreted the Fed Statement was a shift in position from raise by default to not raise by default. The statement I read is it could go either way strictly based on incoming data.
A 5.0% short term rate with today’s inflation rate is pretty fair. It’s the long term rates that are low, and seem to be driven by something other than the Fed.
My guess is the Fed will try to keep interest rates above inflation to the same extent as now, and future decisions will be tied to it.
above inflation ?
I think you want to say ‘above CPI’ which obviously is way BELOW inflation. I’m very sure the FED wants to keep rates below real inflation, otherwise their house of cards will collapse.
They might be able to walk the tightrope if they are able to keep the conundrum alive a bit longer. Check out the DJIA around 2:17pm today — does anyone else see anything puzzling about that 1-second-long volatility spike?
http://tinyurl.com/br84c
Here is another volatility spike which quickly damped down to a 0% change in the 10-year T-bond yield for the day. I find it highly disturbing when so many asset diverse classes move in such close, conundrumish correlation, as though synchronized by the angel…
http://tinyurl.com/qxpu9
From the update:
‘The Federal Open Market Committee decided today to raise its target for the federal funds rate by 25 basis points to 5 percent. Economic growth has been quite strong so far this year. The Committee sees growth as likely to moderate to a more sustainable pace, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.’
‘The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.’
“The quarter point hike brings rates to the highest level in more than five years. Banks will respond by increasing the prime rate to 8%. The prime is the base rate for many credit cards, and consumer and business loans. Other rates, such as those on variable-rate credit cards and home equity lines of credit, likely will continue to rise.’
“In the statement announcing Wednesday’s rate increase, the Fed ..added another phrase in the latest statement saying that ‘the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.”
No help for ARM or HELOC owners here…..
“The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information”
Sort of blows out of the water the ‘ we’re almost done’ speech last month. We are going to at least 5.5 %, maybe 6%. The Fed as usual is behind the curve. $700 gold and $70 oil and a plunging $$$ will dictate rates moving higher. BB does not have the ‘gravitas’ that AG had,
We are approacing the perfect storm of a bubble in housing and a new Fed Chairman. Look at the history of new chairman’s over the past 30 years. Every time it has been followed by a correction- this one coming from levels not seen in a century.
may YET be needed (the YET word is scary and throws averything out there)…I think for bulls and gold speculators, it doesn’t sound that good…
….The Committee judges that some further policy firming may yet be needed to address inflation risks but emphasizes that the extent and timing of any such firming will depend importantly on the evolution of the economic outlook as implied by incoming information.
The language is not as opaque as some suggest. Here’s a pretty clear restatement: If the market collapses, we will stop raising rates. Otherwise, we have to keep raising rates or foreigners won’t keep buying our dollars and there will be a collapse. Ergo, we will keep raising the rates until a collapse occurs.
Higher rates and foreign investment are fantastically good things in this scenario because if the economy collapses and the US defaults on debt, the crushing blow will affect foreigners at least as much as it will US citizens and companies. Foreign investment should be highly encouraged in this situation, so rates will rise until further notice.
By definition of fiat currency, the US cannot default on dollar debt. If by “default” you mean “devalue” well that’s a different thing.
Your suggestion makes no sense. If the federal government can be forced to shut down for lack of funding, it can be forced to admit that it doesn’t have the money to retire treasury debt or other debts when they fall due. Ergo, it can default on US obligations. Moreover, since the dollar is backed only by the fiat, the dollar can reach a practical value of zero.
I think that safety is the top concern at this juncture. We are a huge part of the world market on the consumption side. If the world’s customer stops buying then there will be many factories shuttering their windows. So if the USA goes down then the world will follow.
I agree with your statement about dependency on foriegners to fund the government. The fed is backed into a corner. They have to protect the dollar to protect the government’s ability to keep financing itself. If there are devaluations they will be competitive devaluations between currencies.
homebuilders are tanking as soon as the news came out…LOL.
Schadenfreude sandwiches for everyone.
Schadenfreude, mmmmmmmmmm. D’oh!
Really, this kind of talk doesn’t make me feel comfortable….
holy crap, they’re pulling up again after that nosedive.
PPT/buyback to the rescue. Put those sandwiches back in the fridge.
I re-entered my HOV short just a few minutes ago. I missed all the fun earlier — there was NFW I was going to be short before the announcement based on previous post-announcement 3%+ rises and there was NFW I was going long after the drop both as a matter of principle and as a matter of never trying to catch a falling knife.
Turns out they brought the HB’s almost all the way back to pre-announcement levels anyway. I know I’ve certainly entered shorts further off the top with less justification than this one.
Ok Wall Street Bernacke just gave you some cover for some more downgrades, let’s have at it.
I bottom ticked/covered KBH and TOL yesterday and got back in at 2:17 today.
We’ll all be watching Ben.
http://www.youtube.com/watch?v=ipJTqCbETog&eurl=&watch2
The US could default on dollar debt if the market will no longer lend it money to fund the deficit.
It a relatively simple concept; when you are spedning more than you have, you have to borrow money to make up the difference. Foreigners could demand higher and higher rates at Treasury auctions to finance the debt. This could easily happen if the difference between revenues and spending got “too wide”.
Based on 1970’s historical context, we are already “too wide” but foreigners have not demanded too much of a higher rate, probably in the context of keeping America “liquiefied” enough to buy foreign imported goods.
At some point even foreigners figure it out. Then its off to the merry land of 18% mortgage rates and money markets becoming retirement funds.
So it is possible to default. Just because the Fed says it never would happen doesnt mean they could print money forever.
Is that why China needs to increase their % of gold to forex reserves from 1.3% to 5% because they just overtook Japan as the largest holder of US dollars?
“‘The rapid growth of the Chinese economy, and the inability of other major currencies to step in and prop up the value of the US dollar, make it incumbent upon China to diversify its holdings away from US dollars and toward bullion to hedge against future global currency shocks,’ an industry analyst was cited in the report as saying.”
hmmm….. what a difference 20 years makes. We have gone from watching banana republics devalue their currency and have bailouts to being that banana republic.
It’s dollar denominated debt, so you just fire up the printing presses and boom debt is paid. Worked pretty well for Rome for a hundred years or so.
That only works for current debt. It does not work for future debt or current account transactions. When foreign nations decide that they require euros or other currency for their current and future transactions, and the US dollar is worth close to zero, it will be almost impossible to get any credit or imports. You can then print all the dollars you want and they will be utterly ineffective.
Whirlpool to shutter plants, layoff 4,500
http://money.cnn.com/2006/05/10/news/companies/whirpool_jobs.reut/index.htm
perhaps there is less of a need for new washers and dryers now that the building boom is winding down
There’ll be a lot of dirty laundry washed in public.
Also, with energy prices the way they are, a return to the clothes line.
There’ll be a lot of dirty laundry washed in public.
Also, with energy prices the way they are, a return to the clothes line. (Do you even know what I’m talking about
)
Anyone remember when I said that the WB acquisition was all about the execs making $$ for themselves at the expense of the shareholders. Remember how I stated that they had a long history of seemingly stupid acquisitions that benefited the CEO’s and not the customers, employees, or shareholders?
Wow, it took 2 days to uncover the truth.
http://biz.yahoo.com/bizj/060510/1286679.html?.v=2
“Two top Wachovia Corp. executives exercised stock options, reaping gains of as much as $1.7 million, about the same time the bank started discussions with Golden West Financial Corp.”
“The executives, Ben Jenkins III, Wachovia’s vice chairman and head of consumer banking, and Alice Lehman, who heads investor relations, were not aware of any merger discussions when they exercised the options, according to Wachovia spokeswoman Christy Phillips.
Wachovia shares, which hit a seven-year high of $60.04 on April 28, fell 8 percent to the $54 range after the deal was announced Monday. The stock was trading at $55.36 on Wednesday afternoon”
In my best Dr. Evil voice about them NOT knowing about the merger, ” riiiiighhhhhhhtttttt….”
wtf???….Alice Lehman, the head of investor relations did NOT know of any merger discussions??? What baloney. Pre-merger talk is always gossiped about in a company the size of Wachovia…even the janitor hears this stuff.
Man, I smell an Enron!
OK. they sold shares prior to the merger announcement, and perhaps those transactions wer questionable. But to say that the GW acquisition enriched anyone but GW shareholders is silly. Wachovia stock fell 8% on the announcent, causing any Wachovia shareholder (including its executives) a lot of pain.
Ok pal. the FACT the stock fell 8% tells you it was a dumb deal. I guess that is why Wb and GW are being sued by their SHAREHOLDERS to block the transaction because it is a great deal for the shareholders.
Are you reallly that naive to think that the key executives won’t make more $$$ than the “shareholders’ on this deal?
Now , that is silly. Last time i checked the stock was down about $8 since the merger.. multiply that times the number of shares… yeah, that was a huge plus for shareholders that don’t get FREE STOCK OPTIONS and golden parachutes.
Well, hurrah, hurrah. The treasury dept. has concluded China is not a currency manipulator (via marketwatch)
http://tinyurl.com/oac39
If the Treasure wants to worry about currency, it should be ours.
Well, everything I am seeing reminds me of 1929. Prior to the crash, people could put no money down on housing purchases. After that, banks & govt. decided that a 20% downpayment would be a good idea. Here we are, 78 years later, repeating the same dumb mistake. I am amazed at the silliness.
Well, everything I am seeing reminds me of 1929. Prior to the crash, people could put no money down on housing purchases. After that, banks & govt. decided that a 20% downpayment would be a good idea. Here we are, 78 years later, repeating the same dumb mistake. I am amazed at the silliness.
Well THAT IS SCARY. If that were true, even the smartest smart@ss on this blog will get sucked into hell.
If we completely crash out, we are all screwed. The only thing worse would be bird flu at the same time :-/
I will have to find my reference to this So that you feel comfortable with the info. I have a good memory for this kind of stuff but will find the info. for you.
There is far more leverage in the housing market than there ever was in the stock market.
Does anyone have any advice on how to buy gold? eg Coins, bars, holding it personally, secure storage etc. Thanks
http://www.kitco.com
Rate hikes may “yet” be needed?! My, my. Are we beginning to sound a little exasperated with market reaction?
You bet your a** they’re needed, and lots more of them too - especially if we’re sticking with these baby quarter-point moves. That’s just what the precious metals are signaling. So keep on hiking, Ben. Defend our currency, it’s job #1.
Watching the recent gold price action has given me a mild case of vertigo. So I’ve switched to watching bond yields. When 30-year US Treasuries begin yielding 10% and higher, I just might consider trading in some of my gold coins for those. I wonder how many folks had the stomach to do that in the early 80’s. New 30-year issues from that era are still around, throwing off a fat chunk of interest every six months. Sweet.. try getting a deal like that in the stock market.
To quote Martin Z., ” Don’t fight the Fed.”