A person learns from his mistakes, and admitting defeat is only partly the path to greatness. Well it would seem the PPI experienced a 1.5% drop, which should admit tingly lead to a rate cut. But then again, sub prime, and credit problems don't seem as bad either. Take a look at Lehman earnings, surprisingly they did not do as bad as analyst estimates expected. Why? Simple, compare Lehman to Funds like Bear Stearns and Goldman whose funds have been infamously headlining. Sub Prime has not been as a significant problem for Lehman funds who deal with MBS. As i said before, with proper hedging and proper discipline the "subprime" and "credit crisis" is not a big a deal as everything thinks. Considering the amount of people involved with poor discipline though, adding furthermore average joe listening to every spoon fed word of the media, only sustains the problem, instead of resolving to action that would fix the problem, and as American culture is, we always want to depend on someone else to fix our problems, and blame everybody else.
This is why, in my opinion, the feds should not cut rates. By cutting rates it fixes no fundamental issues, but may only help persist already existing problems. One may argue that more liquidity is necessary to fix this problem, but by using a quick fix, many steps of the healing process may be over looked.
Also, the fact is that since Inflationary pressures are not as great as perceived, which i find so perplexing, since i see the prices of many of items I purchase are regularly increasing... I feel this decrease in the PPI is artificial. It is also quite possible that this drop maybe to attributed to the volatile food and energy part of the PPI. Though this idea of a drop being artificial due to the volatility of food and energy, can mean there is a more significant drop and a rate is more deserved or the drop is not as significant as stated. Perhaps as revisions for the PPI come in, this drop may be not as significant. (tommrow CPI report shall be interesting).
In regards to oil:
Perhaps there are still bull's fighting own ward to the very end of the season for oil or people are once again ignoring fundamentals as prices are back up over $80's (this would seem that this move in oil goes against the idea of tame inflation). Looking at the future's contract for october crude, it seems that today resistance level was broken and there is still upside momentum. By the end of October i would expect to see some divergence and people starting to close out positions for profits and start preparing to short.
But in general as Lehman has shown, the environment is not as bad as everyone thinks. Hopefully the federal reserve will see this so, and act accordingly. But with the recent news, i can find it hard to see no other way then a .25 cut considering the past actions of the fed (injection billions of $ for liquidity). But, perhaps they will see that the recent liquidity should be enough for the economy to work itself out. One thing is for sure though, if a rate cut happens, I'm not going to be happy when i see the price of more goods i need to buy go up further.
Domestic Equities:
On the interesting note, this would be a "surprise" as the technicals were reading more downward movements, but as i specified early in the morning, that this is a day heavily dependent on economic reports as market movers.
new news:
Upon finding a new piece of news, the feds have added 9.75 billion dollars of liquidity in the over night reserves. With this news perhaps a rate cut is not to be needed at all. Or perhaps this is a precursor to a more significant rate cut.
The housing market has not improved, the key media word is "soaring" which is probably propelling stock prices higher ahead of the opening bell. With housing this down, it is another reason to help the bears get a rate cut, but! in the past even with poor housing news the Feds never cut rates for that reason. Considering the new economic environment, i think many more presidents are leaning towards a rate cut, this new news can only add more to the equation for a rate cut... though i feel it would be most unwarranted.
This looks like its going to be an exciting day, until tonight then...
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