calls for fed ease

[jk]

poom will be ushered in by the fed cutting rates. at that point we can expect a reflex rally in stocks, and for precious metals to take off like scalded cats. so i would like to start a thread documenting calls for fed ease. these are the screams of pain which will eventually crescendo loud enough to produce fed action, and so calls for ease are an indicator to follow in order to predict the onset of poom.

today i saw my first. floyd norris is a usually sober financial columnist at the ny times. in his column today, "can lenders suddenly tighten reins?" he says: "This is not, in other words, a really good time for the regulators to be getting tough. Three years ago would have been." he mentions greenspan worrying about recession, and then concludes: "But Ben S. Bernanke, who now has Mr. Greenspan’s old job, seems to scorn market signals. He fears that inflation will worsen as companies raise prices to restore margins.He might be better off to pay more attention to markets, and contemplate what he would do if companies start laying off people, providing yet another reason for mortgage defaults to rise." this is call for ease #1.

[Finster]

Re: calls for fed ease

Completely, unequivocally, agreed, JK. One wonders why the Fed couldn't have been more restrictive in the late 1990s, when we were in an economic and financial boom, or last year, when unemployment was falling and official growth soaring past what virtually everyone acknowledged was "trend"?

If the Fed acts like its walking on glass when everything looks rosy?

No ... now that the pressure will really be on ... how do we expect the Fed to resist?

[Jim Nickerson]

Re: calls for fed ease

Paul Kasriel http://www.financialsense.com/editor...2007/0207.html

in a piece "The Fed Probably Thinks It Is On Hold for All of 2007" of 2/7/07 replied that he didn't think the Fed was on hold all year. He suggested by the August 7th meeting an interest rate cut will be made by the Fed. "The trigger for the Fed to decrease the federal funds rate will be the combination of lower inflation and persistent below-potential economic growth." He supports his contention in his article.

Bill Gross, Pimco, March "Investment Outlook" http://www.pimco.com/LeftNav/Feature...March+2007.htm

What I’ve been saying over and over again on the investment side is that the Fed will cut rates later this year and that their two key criteria will be employment and asset prices. With construction laborers about to hit the unemployment lines and the U rate in jeopardy of rising more than the Fed feels comfortable with, an ease as soon as mid-year may be in the cards. I have a strong sense as well, that mortgage credit availability is in the midst of a cyclical squeeze due to subprime defaults and “better late than never” moral suasion/congressional supervision of mortgage bankers. This should not only continue to floor the housing sector but dampen consumption, as the combined effect of layoffs and Mortgage Equity Withdrawal, “withdrawal” produce a 2% or less real and a 4% or less nominal economy. Those numbers when extended for three or four quarters (which they now have been) are the stuff leading to output gaps, rising unemployment, declining inflation, and an easing in overnight Fed Funds rates.

Richard Russell, Dow Theory Letters, 3/2/07 opened his comments today with the reference to the same Bloomberg article that jk referenced here
http://www.itulip.com/forums/showthread.php?t=1023

His first comment is in reference to Goldman Sachs, Merrill Lynch, Morgan Stanley and their debt ratings.

Comment --You want to make the big billions, then you have to take the big risks. And when you take the big risks, your credit rating may hit the skids.

Second Russell Comment: I see a rush for cash -- it's happening in every area of the economy including stocks. We're now seeing the other side of liquidity -- it's called the DASH for CASH.

Third Russell Comment -- Today both the Dow (and the S&P 500) closed below their December lows. Not good, not good at all.

I also think, jk, that focusing now on the onset of "-Poom" is important; however, it seems to me that the economy is going to have to go through the "Ka" first, and I strongly presume you appreciate that much better than I do. If one can believe Finster's work with the Rate of Change of his eponymous Dollar Index, then disinflation has been in effect since perhaps Q3 2003. http://users.zoominternet.net/~fwuthering/FFF/Inflation

Kasriel is predicting "lower inflation." Gross sees "declining inflation." Russell is suggesting cash isn't trash.

Thus it seems to me the focus right now should be on playing the "Ka."

I've even noticed this week my cash went up in value, thanks to Finster not for it having done so, but for helping me to realize that it did.

[metalman]

Re: calls for fed ease

Completely, unequivocally, agreed, JK. One wonders why the Fed couldn't have been more restrictive in the late 1990s, when we were in an economic and financial boom, or last year, when unemployment was falling and official growth soaring past what virtually everyone acknowledged was "trend"?

If the Fed acts like its walking on glass when everything looks rosy?

No ... now that the pressure will really be on ... how do we expect the Fed to resist?

reflate with gasoline on the rise, along with everything else? i miss stagflation godzilla. where is he? somewhere violating the Unlawful Accommodation of Donkeys Act 1837?

[Jim Nickerson]

Re: calls for fed ease

reflate with gasoline on the rise, along with everything else? i miss stagflation godzilla. where is he? somewhere violating the Unlawful Accommodation of Donkeys Act 1837?

Metalman,

Wasn't it you who just recently questioned whether or not to lighten your gold holdings with regard to considering deflation/disinflation? I don't think anyone is suggesting lowering interest rates come Monday. I think the economy will have to start looking pukie*, and then it may well happen that rates are lowered. In the meantime, what's going to happen to the Metalman's PM holdings?

*sophistocated economics term.

[jk]

Re: calls for fed ease

re: playing the ka.
yes, now we're in the ka. the difficulty with playing the ka is knowing when we switch to poom. i didn't lighten up on my pm holdings, and it cost me when gold and silver dropped this week. [for all that i hold a bunch of shorts and puts, and a position in hussman's fund which rose on the week, i was still down about 0.7% overall.]

richard russell talks about the difficulty of trading in and out of the pm bull market, and the likelihood that you'll be out at the wrong time. i experienced that during the rapid run up in april-may last year. i had sold my cef because of its premium, knowing that the slv etf was arriving soon, and assuming the premium would be arbitraged away. so i decided i'd sit with a smaller pm position for a while, and then buy more gld along with slv after slv came out. of course pm's shot up, and to add insult to injury the cef premium was not arbitraged away because of differences in tax treatment.

so the problem with ka strategies is their potential to cost you when the switch occurs. and it's hard to predict switches. everyone here has felt that the markets have been vulnerable, but it took whatever it was - the chinese gov't triggering the shanghia sell-off, greenspan making a remark about recession, the phase of the moon and the digits of pi [see martin armstrong remarks elsewhere] to cause a sudden global sell-off.

so yes, play ka, but watch out for poom. i propose using this thread to track calls for fed ease, i.e. pleas for poom. predictions of fed ease, such as those of kasriel and gross, are not the same thing as calls for ease.

calls for ease are cries of pain. i quote floyd norris above, and i assume that as a financial columnist he is plugged into wall street. some people there are hurting -- note also the article about the investment banks' credit default swaps trading like goldman and merrill are now junk. norris is hearing their complaints and their fears, and it comes out as a warning that bernanke better pay attention to the risks. that is to say, a warning that bernanke better cut rates.

[Jim Nickerson]

Re: calls for fed ease

Randall Forsyth. Current Yield, Barron's 3/3/07
http://online.barrons.com/article/SB...ne_market_week [subscription required]

Indeed, after the biggest percentage drop in the DJ Wilshire 5000 since the week of Sept. 22, 2002, and the maelstrom in the market for subprime mortgages, the financial-futures markets were looking for the Fed to ride to the rescue with rate cuts beginning as soon as mid-year. The June fed-funds contract was putting a 75% probability on a quarter-point cut in the overnight money rate, up from just 20% a week earlier, notwithstanding Fed Chairman Ben Bernanke's soothing words that the economy should gather steam later this year.

[JN emphasis]