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Do Not Yell At Me For Discussing Fundamentals

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  • Post #1
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  • First Post: Sep 12, 2007 10:52am Sep 12, 2007 10:52am
  •  Dave Floyd
  • | Commercial Member | Joined Aug 2007 | 555 Posts
I am a chartist at heart - those that know me though also know that I do follow the 'fundies' to some degree - I mean, c'mon, hanging a story on top of some solid technical analysis is comforting, just like my down slippers that have been brought out the closet already with the cold Central Oregon mornings recently. That being said, my comment below are regarding recent comments from Treasury Secretary Paulson:

Normally there are so many comments each day from experts, government officials, you would need to be a linguist or an expert at spotting BS in order to make sense of it, let alone make trades off of it.

However, Treasury Secretary Paulson however could not have been more clear in his recent comments thus adding some clarity to what has been volatile and murky outlooks.

Paulson suggested that the current market turmoil will last longer than the 1998 crisis. There have been government sources suggesting that the sub prime fall out will take two years to deal with. Paulson made clear that the current crisis has very little to do with central banks running too tight liquidity conditions.

Hence, the problem of wide credit spreads and dis-functioning money markets will not be solved by adding central bank liquidity. Liquidity adds just ease the symptoms of the crisis.

Therefore consider the equity market rebound, built on hopes of the Fed taking bold action by cutting interest rates by 50 bp's next Tuesday, as premature. If the market does not get a rate cut, expect weaker equity markets and a solid return back to carry trade unwinding - i.e. lower USD/JPY and EUR/JPY.
  • Post #2
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  • Sep 12, 2007 11:50am Sep 12, 2007 11:50am
  •  HalifaxCB
  • | Joined Apr 2007 | Status: Ich habe genug | 551 Posts
I won't yell at you; I thought it was a well argued POV. Thanks for putting the time into it.
 
 
  • Post #3
  • Quote
  • Edited 12:26pm Sep 12, 2007 12:01pm | Edited 12:26pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
great post dave!

i am one of the few who doesnt think the fed will cut rates. the poor employment report made me second guess that theory, but i came back to my senses.

my argument is based on one thing... the fed has not given the "signal" yet. i made similar comments in wade's story the other day.

after reading bernanke's book "Inflation Targeting" (twice now) i am left with the impression that bernanke does not like to make reactive moves, and that every rate move will be signaled long before the move is made.

these are extraordinary times, so i wouldnt be so surprised to see a cut next week. but i am still leaning toward no cut.
Relax and be happy.
 
 
  • Post #4
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  • Edited 12:18pm Sep 12, 2007 12:08pm | Edited 12:18pm
  •  smjones
  • Joined Mar 2006 | Status: THANK YOU MERLIN,TWEE and FF Team | 4,603 Posts
Quoting merlin
Disliked
great post dave!

i am one of the few who doesnt think the fed will cut rates. the poor employment report made me second guess that theory, but i came back to my senses.

my argument is based on one thing... the fed has not given the "signal" yet. i made similar comments in wade's story the other day.

after reading bernanke's book "Inflation Targeting" (twice now) i am left with the impression that bernanke does not like to make reactive moves, and that every rate move will be signaled long before the move is made.

these are extraordinary times, so i wouldnt be so surprised to see a cut this week. but i am still leaning toward no cut.
Ignored
merlin, or anyone who would like to comment, because many people are all ready expecting a rate cut do you think that no change to rates, would be received by the market the same way as an increase normally would. In fact because so many are expecting a cut, it would be treated similar to an increase under more normal circumstances?
 
 
  • Post #5
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  • Sep 12, 2007 12:25pm Sep 12, 2007 12:25pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
well, i am expecting the fed to give the "signal" of lower rates in their statement. a rate cut and the signal of a rate cut usually have the same effect, so i dont think the fed will stray too far from the market's expecations by not making the move right away. which is another reason i dont think we will see a cut...the fed knows they can have the same effect by mearly signaling. and this would be a less "reactive" move, and bernanke is BIG on not portraying a reactive image.
Relax and be happy.
 
 
  • Post #6
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  • Sep 12, 2007 12:37pm Sep 12, 2007 12:37pm
  •  HalifaxCB
  • | Joined Apr 2007 | Status: Ich habe genug | 551 Posts
The implied probability of a half point fed cut is so dominant at the moment that I would imagine that holding firm would really tank the stock market; a quarter point OTOH would show some sympathy for the poor hedgies while at the same time probably just cut the market moderately, say a few hundred points. Just a guess here (personally I think they should raise rates...)
The attached image is courtesy the cleveland fed:
http://www.clevelandfed.org/research...unds/index.cfm
Attached Image (click to enlarge)
Click to Enlarge

Name: image1.gif
Size: 33 KB
 
 
  • Post #7
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  • Sep 12, 2007 1:06pm Sep 12, 2007 1:06pm
  •  accrete
  • Joined Jan 2006 | Status: Pips Ahoy! | 1,130 Posts
Quoting Dave Floyd
Disliked
...the cold Central Oregon mornings recently...
Ignored
Nice post Dave, and read like you did some homework to arrive at that viewpoint. And hey, how could i find fault with a fellow Oregonian?

...still warm on the Oregon coast.

Cheers,
Thom
 
 
  • Post #8
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  • Sep 12, 2007 1:17pm Sep 12, 2007 1:17pm
  •  Dave Floyd
  • | Commercial Member | Joined Aug 2007 | 555 Posts
Ah yes, Oregon, what a great state to live in - quality of life is superb! Glad you are enjoying it too.
 
 
  • Post #9
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  • Sep 12, 2007 1:25pm Sep 12, 2007 1:25pm
  •  Dave Floyd
  • | Commercial Member | Joined Aug 2007 | 555 Posts
Quoting HalifaxCB
Disliked
The implied probability of a half point fed cut is so dominant at the moment that I would imagine that holding firm would really tank the stock market; a quarter point OTOH would show some sympathy for the poor hedgies while at the same time probably just cut the market moderately, say a few hundred points. Just a guess here (personally I think they should raise rates...)
The attached image is courtesy the cleveland fed:
http://www.clevelandfed.org/research...unds/index.cfm
Ignored
Valid point - the market would in fact get whacked if rates are not cut and a lot of people (i.e. Wall Street) would lose money and be very pissed off! Merlin's point is valid and in-line with my thought though - it is not the Fed's job to react and essentially bail out, but this issue is so big that perhaps it has impacted the macro outlook enough for the Fed to feel justified.
 
 
  • Post #10
  • Quote
  • Sep 12, 2007 2:09pm Sep 12, 2007 2:09pm
  •  SunTrader
  • Joined Mar 2006 | Status: Trade the reaction not the news! | 10,414 Posts
From the CBOT web site as of today 9/12/07:

"Based upon the September 11 market close, the 30-Day Federal Funds futures contract for the October 2007 expiration is currently pricing in a 100 percent probability that the FOMC will decrease the target rate by at least 25 basis points from 5-1/4 percent to 5 percent at the FOMC meeting on September 18.
In addition, the 30-Day Federal Funds futures contract is pricing in a 72 percent probability of a further 25-basis point decrease in the target rate to 4-3/4 percent (versus a 28 percent probability of just a 25-basis point rate decrease)."
 
 
  • Post #11
  • Quote
  • Sep 12, 2007 2:20pm Sep 12, 2007 2:20pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
yeah these fed fund probabilities are the main thing that make me think i could be wrong here. but i find some comfort knowing that that fed fund futures were wrong (like 2 months behind) the ENTIRE time the fed was raising rates in the latest cycle. the bias on those contracts seems to be for lower rates.
Relax and be happy.
 
 
  • Post #12
  • Quote
  • Sep 12, 2007 2:21pm Sep 12, 2007 2:21pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
btw, if the fed holds rates, yet the statement says "we need to lower rates and will do so in the following meetings", why is that so different that actually cutting rates? the only difference i can see is that the fed will look less reactive, which i think it is a positive.
Relax and be happy.
 
 
  • Post #13
  • Quote
  • Sep 12, 2007 2:30pm Sep 12, 2007 2:30pm
  •  cesarnc
  • Joined Nov 2006 | Status: Shoot all the clowns.. Shoot'em all | 14,663 Posts
Quoting merlin
Disliked
great post dave!

i am one of the few who doesnt think the fed will cut rates. the poor employment report made me second guess that theory, but i came back to my senses.

my argument is based on one thing... the fed has not given the "signal" yet. i made similar comments in wade's story the other day.

after reading bernanke's book "Inflation Targeting" (twice now) i am left with the impression that bernanke does not like to make reactive moves, and that every rate move will be signaled long before the move is made.

these are extraordinary times, so i wouldnt be so surprised to see a cut next week. but i am still leaning toward no cut.
Ignored
You may be right on this one. I'm reading in all sources that a 0.25% cut would be "too little" to solve the problem. And this Wed's move in currencies, commodities and stocks were pure rate cut being priced in.

So Fed will be better off signaling a cut instead of disgusting the market with a 0.25%, that would cause a big selloff - LOL

By not cutting, Bernanke will buy time leaving the market in this shadow of confusion he made no effort to dissipate since early August.

IMHO.
 
 
  • Post #14
  • Quote
  • Sep 12, 2007 2:32pm Sep 12, 2007 2:32pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
Quoting cesarnc
Disliked
So Fed will be better off signaling a cut instead of disgusting the market with a 0.25%, that would cause a big selloff -
Ignored
LOL!!
Relax and be happy.
 
 
  • Post #15
  • Quote
  • Sep 12, 2007 2:42pm Sep 12, 2007 2:42pm
  •  HalifaxCB
  • | Joined Apr 2007 | Status: Ich habe genug | 551 Posts
Quoting merlin
Disliked
yeah these fed fund probabilities are the main thing that make me think i could be wrong here. but i find some comfort knowing that that fed fund futures were wrong (like 2 months behind) the ENTIRE time the fed was raising rates in the latest cycle. the bias on those contracts seems to be for lower rates.
Ignored
Good point; I think there's always a tendency to look at these probabilities in a frequentist sense, rather than an evidentiary (or Bayesian, aka wishful thinking ) sense. It would be interesting to correlate these numbers with the actual results over time. SunTrader - does CBOT provide access to historical data on these? (The fed stuff is just a nicely formatted version of the same data).


PS - Apologies to Bayesian believers out there, I shouldn't make jokes about Bayesian methods, especially as I'm actually using them on something else; they're pretty cool.
 
 
  • Post #16
  • Quote
  • Sep 12, 2007 2:55pm Sep 12, 2007 2:55pm
  •  HalifaxCB
  • | Joined Apr 2007 | Status: Ich habe genug | 551 Posts
cesarnc - ever browse through fintag? Their position i great; Bernanke gets 3 choices:
Quote
Disliked
Bernanke's thought for the day
If I put rates up?
USD grows stronger over the Euro, petro-dollar lovin' OPEC happy, oil price falls, unemployment rises, short term credit crisis, fat bonuses cut at banks, clears out the inefficient companies, Bush will hate me, Democrats will be left with a mess when they come into power, threat of US being bought out by a Chinese SWF, wage inflation, my 3 houses fall in value, savings ratios become positive, MBNA unhappy, my fellow economists award me a Nobel Prize.

If I put rates down?
USD collapses, OPEC goes mad, oil prices increase, my collection of gold coins fall in value, short term credit crisis eased, subprime goes away, lots of gifts from my mates at Goldman & Co, will continue the Greenspan Put legacy (so can keep blaming him), US turns into Japan circa 1980, equity markets happy, bond markets collapse, M&A deals go thru, Private Equity punters pleased, money supply grows, budget deficit worsens, Okun's law kicks in, I get a lucrative job at a top Investment Bank.

If I do nothing?
I lose my job for looking weak and ineffectual.
http://www.fintag.com/archive/2007/09/10/
 
 
  • Post #17
  • Quote
  • Sep 12, 2007 3:10pm Sep 12, 2007 3:10pm
  •  cesarnc
  • Joined Nov 2006 | Status: Shoot all the clowns.. Shoot'em all | 14,663 Posts
Quoting HalifaxCB
Disliked
cesarnc - ever browse through fintag? Their position i great; Bernanke gets 3 choices:

http://www.fintag.com/archive/2007/09/10/
Ignored
LOL.... Nice finding...

As a matter of fact I could bet one ear and three of my fingers as if Fed cut (.25%, .5%, whatever) we will have the first minute panic and like two days later the headlines will be "Is the cut rrreeeaaalllyyy going to solve the problem?"

BOOM CRASH KABOOOOMM across the board again...

Ok, enough joking... From here to Tuesday will be all about speculation gossips and rumours. Some says that VIX index (volatility) is likely to surge to Aug's high level at the news and in the aftermath. So, if we get the tone of the market, it might be one nice profitable week....
 
 
  • Post #18
  • Quote
  • Sep 12, 2007 3:16pm Sep 12, 2007 3:16pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
LOL!!! so true! you crack me up man!

cesar i know you have been at FF for a long time, and oddly i have never read much of your posts. very glad to be doing so now thats one for the TR!
Relax and be happy.
 
 
  • Post #19
  • Quote
  • Sep 12, 2007 3:21pm Sep 12, 2007 3:21pm
  •  merlin
  • Joined Mar 2004 | Status: Magic Man | 3,220 Posts
Quoting cesarnc
Disliked
Some says that VIX index (volatility) is likely to surge to Aug's high level at the news and in the aftermath.
Ignored
shorting the VIX the day before the fed meeting might be a good play, im looking at that trade
Relax and be happy.
 
 
  • Post #20
  • Quote
  • Sep 12, 2007 3:28pm Sep 12, 2007 3:28pm
  •  cesarnc
  • Joined Nov 2006 | Status: Shoot all the clowns.. Shoot'em all | 14,663 Posts
Quoting merlin
Disliked
LOL!!! so true! you crack me up man!

cesar i know you have been at FF for a long time, and oddly i have never read much of your posts. very glad to be doing so now thats one for the TR!
Ignored
I just can't help it posting without joking, sometimes excessively I know... But I got burned in this market so many times exactly for the reasons I mentioned. You read, read, read, plan, plan, plan, wait, and take the trade. And it goes the other way around because of gossips rumours and all...

And I wouldn't be surprised at all if this whole "cut Bernanke cut!!!" turns into a disaster at the first hedge fund dropping its shoes afterwards... "concerns re-emerge, cut seems not working, etc, etc, etc"

We just have to be aware that volatility will pick up big time and if the market decides toward the "unexpected" direction, there will be a narrow window either to take the trade or to cut the losses.
 
 
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