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Bob Faulkner |
| TXN Provides a Little Sunshine |
12/11/2007 5:56 AM EST
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TXN added a little positive update to its fourth quarter outlook last night. The company bumped up the mid-point of revenue guidance about $40M to $3.58B with all of that increase coming from the semiconductor business. In addition, EPS are now expected to be in the $0.50-$0.54 range versus the prior expectation of $0.48-$0.54.Management indicated on the call that all business segments are in-line with prior expectations with the exception of the wireless business which is a little stronger. While wireless is still weak compared to the seasonal norms, demand is not expected to soften in December from prior levels. Despite the wind down of business at EMP, 3G units are still expected to grow sequentially and the company is seeing entry level products doing a little better. This last point may be the result of Motorola putting the LoCosto part into phones higher up the product scale than its MotoFONE line. It could also just be the strength of Nokia in India with their customized LoCosto solution.Overall inventories were categorized as being "lean" and the distribution channel transactions are expected to be flat with Q3 results.While this wasn't exactly earth-shattering news it was a pleasant surprise given some of the uncertainties that are entering investor's minds. As I noted last week with the piece I wrote on supply chain inventory, IF demand holds up in early 2008 there could well be some OEMs looking around for components. It's too early to put a stake in the ground but TXN's update certain isn't suggesting weakening demand.
Position: The Telecom Connection Model Portfolio is long MOT
Sony CEO Howard Stringer made the following comment yesterday: "It's a shaky economy in the United States (but) it hasn't affected electronics in the US so far. Maybe that's what customers will pay for in this kind of difficult climate. Maybe they'll stay at home and watch television."
I would interpet this as positive for BBY/CC.
Position: none
I am surprised that the talks broke off between writers and producers. When the strike was launched there was a lot of discussion on both sides about how close they were to a deal. I figured that when they decided to start up negotiations again under a strict blackout a deal was at hand. My view was reinforced by two factors. First, the writers union is led by a folks who were willing to wage a strike so they had already proven to the producers that they were serious. Second, the fact that the writers seemed be winning the public relations war in a landslide. It seemed like a perfect setup for a deal.
Now things are looking ugly and the strike is dragging on long enough that it could impact media stocks. As a reminder, it is TV that could get hurt. That means that network owners and TV producers have the most to lose. Disney (ABC), NBC Universal (GE), News Corp (Fox), and CBS are the network owners. NBCU, Fox, Viacom, and Time Warner are the big TV producers.
The problem is most acute at the networks. Network TV is in a long-term state of decline as viewers diversify their media consumption. Cable networks have steadily gained share and now new digital distribution is starting to build viewership. With most popular original series about to run out of episodes, ratings will take a nosedive starting in January and February. The timing couldn't be worse as this is the first year advertisers are using the new currency of live commercial ratings plus three days of DVR playback. Ratings were unusually poor last TV season and although there is no an apples to apples comparison, they appear to be down sharply. Finally, the lousy ratings have actually tightened the ad market because the networks have had to offer "make goods" of ad time to compensate for low audience delivery. That means that if ratings nose dive under a prolonged strike scenario there is no obvious way for the networks to make good other than cut prices dramatically.
The financial impact of a prolonged strike on the networks is unlikely to hurt earnings at the networks owners because the cost of the replacement programming is going to be very cheap. However, the big picture risks of an accelerated decline in audience ratings and the shifting ad currency have serious long-term implications that could impact valuation of network assets. That said, CNBC is way overdoing the coverage of the strike relative to the stock price risks for the companies.
CBS is by far most exposed as the network is the primary driver of its profits. Disney and News Corporation have less to worry about given their broad base of entertainment assets. I remain bearish on CBS which also has serious ratings issues that put hundreds of million of operating income at stake. I still like News Corp and Disney which have plenty of growth levers away from network TV to drive operating income.
Position: Long DIS in personal and client accounts. Long NWS in a single client account and personal accounts. Long GE is selected client accounts. Long TWX in a single client account.
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Christopher Atayan |
| Credit Crisis: We Are Now Seeing the Required Equity Infusions |
12/11/2007 8:27 AM EST
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For some time now, I have been pounding the table, saying equity infusions are an important ingredient in terms of settling the purported credit crisis. We are now finally starting to see these deals happen.
This is a very positive development as it will enable any further writedowns that are necessary to restore the health of the system.
I continue to believe that rate cuts are not the proper remedy and bring a number of unintended consequences -- such as a weaker dollar and correspondingly higher dollar denominated costs of oil.
Position: None
I have been on record before and will reiterate my thoughts once again. Too much time and energy is being wasted on trying to prognosticate whether the FOMC cuts by 1/4% or 1/2%. The FOMC will no doubt debate over 1/4% versus 1/2%. Here is my point - what is so darn wrong with easing by 3/8%? In 1989 the FOMC cut by 3/8% and another time by 1/8%. My message to those academics at the FOMC - think out of the box and think in 1/8ths. Even better - think in basis points. Even Wall Street which moves at the speed of an amoeba went from trading in 1/8ths to 1/16ths to pennies in a few years.
Position: None
As we wait for the announcement from the Fed later today, I thought I'd pass along a note I received from Carl Mathison, a hedge fund manager who writes for StockMarketMentor.com. While there are many predictions flying around about what the Fed will do, Mathison has written the only note that actually explains,
in layman's terms, exactly what needs to be done. Whether or not the Fed will actually act in accordance with this note is another matter altogether -- nobody knows for sure. But this note ties the LIBOR, the fed funds rate, and the TED Spread together in a way that even non-financial types like me can understand.
It is too long to post in Columnist Conversation, but
here is a link to the note, which can be viewed without a subscription.
If you have any questions, please feel free to contact me.
Position: none
Doug-e-boy. If the rate cut is so meaningless, then why do you fear it so much? I think the Fed should cut 100 bps today and finally get ahead of the slowing economy/credit crunch curve. The Fed has been too restrictive all along and now needs to turn accommodative. I warned them and others in 2006 against hiking rates too much: Robert Marcin
A Fed (up) Day
5/30/2006 1:42 PM EDT
In my opinion, part of the market's decline is due to the Michael Moskow CNBC interview this morning. I think the Fed and Mr. Moskow just don't get it.
They continue to press the rate hike story. It's a mistake. The real estate market is in disarray. Consumption is slowing. And much more slowdown is baked in the cake. ... The real estate market is more precarious than most realize. Remember Greenspan's contention that the wealth effect is much higher from real estate than stocks? Wait till the reverse wealth effect hits consumption.
Things always look good at the top. The Fed usually ovedoes the rate hikes by remaining "data dependent" too long. This time, overshooting will be more painful than usual. A couple more rate hikes this summer, and the Fed will be cutting rates before this time next year. Someone at the Fed needs to buy a vowel and get a cl_ _! Dropping short rates down to 3% turns them only slightly accommodative in my opinion. Considering how bad the financial markets are currently; one could legitimately accuse the Fed of fiddling while Rome burns.
I know the moral hazard case. I get that Greenspan's 1% stupidity caused the debt bubble as investors levered all asset classes to generate higher returns in a low-interest environment. But I don't think that risk exists now, even in a 2% fed funds environment. Too many morons have lost too many hundreds of billions. If the dopes are still not on fire, then the burns are still very fresh! So the Fed should do what it needs to do. Take short rates down to 3% now, and relieve the pressure on the banks and the financial system. We are way past bailout here. We are attempting to preclude the meltdown you and other shorts desire so deeply.
Position: none mentioned
I'm a huge fan of Jamie Dimon after he spent time in Chicago turning around the mess that was BankOne, and this weekend, either in Barron's or some other periodical, I recall reading that Jamie thinks there will be greater consolidation within the banking industry, and then FierceFinance reported this morning that -- per CreditSights -- C will be acquired by JPM. Maybe it will happen, but I can't see why, after the drubbing the financials have taken, a management team would would want to depress a stock even further by buying a competitor. Back in the 1990s, a salesman friend of mine once said that during the frenzy of bank acquisitions that was happening in the mid to late 1990s, it doesn't matter if you overpay dramatically for another bank (I think Nationsbank had just paid 3(x) book for someone) if the currency you are using to make the acquisition is 4(x) overvalued. I thought that was a telling statement. For those banks that maintain a relatively high credit rating -- like in the AA area -- I guess they could issue term debt to partially fund any acquisition, but you would have to think that the rating agencies are a tad nervous these days and would be quick to yank the downgrade lever if they had any doubts about the integration of any sizable acquisition. I'd like to hear Chris Atayan's or any other contributor's opinion on the topic, but with bank stocks depressed, do you think an acquisition would depress the acquiring stock even further, or perversely, might it light a fire in the group by telling investors that the worst is over? Inquiring minds want to know...
Position: long JPM (and sure hoping they don't do anything stupid)
I heard a comment this morning that a firm is doing a road trip for investors through China and hitting a number of the solar players along the way. As part of the feedback, the sell-side analyst indicated that SunTech is "working on" a high-efficiency multi-crystalline wafer with an efficiency of about 20%. This was subsequently characterized as a SunPower-killer.
While all the PV firms are looking to increase efficiency, SPWR is already shipping product at 22%. Consequently, I don't see hitting the 20% mark as much of a threat.
Position: Long SPWR
Robert, I'm a 100% short, and I'm not worried about the Fed. I say, "Bring it on, Mr. Uncle Ben!"
A dramatic cut, along the lines you are talking about, will only serve to artificially boost asset vales, such as homes and stocks, and prolong the agony. Cheap money got us into the problem; it's not going to get us out.
Position: none.
While out with a eurodollar trader Sunday night from the CME, I asked him about today's meeting and the potential for Fed action and what the boys in the pits were thinking, and this trader told me the eurodollar pit was positioned for more curve steepening. The two-10-year Treasury spread is abou 100 bps currently and has remained constant for the last week. It feels like the short end of the curve is still too well bid, but the curve could steepen from a plethora of changes, the most logical being that the short-end rates continue to fall and the longer maturities rise or remain constant. Anyway, just throwing that out there...
Position: long indiv Treasuries, CME
Ok - we all know its crunch time for the retailers into XMAS. You can read all the bulge-bracket sell-side gobbledy-gook, and try to make sense of what's REALLY going on, OR . . you can follow your Talented Blonde on her stealth tour of the real world of retail. This weekend, your tireless blogstress yet AGAIN was in the mall, and this time it was with SPIES. Why? If you want to get a real look as to what's going on, you need to get the retailers to open up.
So I brought what seemed and looked to be "helpless victims", looking for a little holiday shopping guidance. I sent them into the very heart of the mall, to see if they could get the retailers to take their pants down a bit, and offer some real insights as to the strength of the holiday spend. And BOY did it pay off. Nothing like a mid 40's married dude wandering helpless in Tiffany to get the sales help swarming like SHARKS. My "spy" hooked a woman from TIF corporate sales, and in the course of 15 minutes of mindless shopping, found out that in fact the woman had been recruited from NYC TIF headquarters to deal with what was hoped to be a busy Sunday. HOWEVER - this nice corporate type owned up to the truth -traffic was WAY off, the day was slow; people weren't shopping. When they WERE opening their wallets, the ASP's were DOWN, and the fear of the impending recession was ALL everybody talked about - in TIFFANY!!!!! Mon Dieu! The balance of the day was more of the same: send the "spies" into the stores, ask about sales, and come back feeling like the end of the world is coming... don't bother with trying to figure out if Wall St. is right on this one - Main St. is telling you that it's BAD in retail.
Position: NONE
The Fed might not cut! I'm alone on an island on this call, but if it's one of my beautiful Aegean paradises, that's not so bad. Never has the herd mentality been this evident. I've not heard one talking head mention the possibility of inaction, or seen one reporter say anything of the sort. It's as if the FOMC cut is a given.
While I agree that we need a cut, I also feel the market has read too much into recent Fed-head public appearances. I watched Bernanke's speech and came out of it sure he was still neutral, despite the "need to be flexible" statement. I watched Kohn's discussion, and I noticed his qualification of his statement, that the FOMC did not necessarily agree with his views.
From the very moment the Fed went neutral, economists and sector strategists alike began to question it. The Fed used words like "it was a close call" in describing its decision last time out. Why has this important information been lost?
You will say "things have changed Greek," and Fed representatives have been public about their noticing of that change. But, things have also changed in a favorable manner of late. For instance, Bush/Paulson's rate freeze initiative should help add confidence to the mortgage-backed securities market, in my view. And yesterday I read, as you probably also did, that a key Fed inflationary metric was indicating heating ahead. We know how important this is to the decision-making process, and jobs data just has not been that bad. Q3 GDP was strong, though Q4 now looks even weaker.
Analysts sometimes apply methods that goes beyond P/E ratios and DCF models. When we interview corporate executives, we are garnering an impression, measuring their character, seeking messages in tone and action. Bernanke and Kohn's body language and facial expressions even guide me in my view for inaction. Finally, I viewed the early start to today's meeting as indicative of the group's expectation for debate.
I think it's going to be another "close call." Despite market expectations, I think that this time around the Fed could surprise you. To be quite honest, I expect they only cut last time out because of market expectations, so don't tell me they have to do this again. Bernanke tried to tell us where he stood in last policy statement, and maybe Fed appearances between meetings should not be allowed. While market participants may have missed the message, the efficient market received it loud and clear, and thus the stock slide since.
Kitchen sink write-offs should have been expected this Q4, considering the damage in housing, lending and ancillary financial sectors. I think the market correction last month was more the result of the Fed's change to neutrality, and otherwise remaining concern for the economy. I'm going out on a limb here based on conviction. I think we'll see a discount rate action only.
I think the market will react poorly to inaction, and not positively to a quarter point cut either since it is so well baked in. However, in either scenario, my nose will be sniffing for bottom and looking to buy. Fed inaction will require patience from buyers; the market could slide through the rest of the week in that event. On a quarter point move, I would be looking to buy tomorrow or later this week. If the Fed moves 50 points, I would eat crow, swallow pride and buy immediately!
However, I expect the Fed very well might let the market down today. Mark me down as a sole voice using logic to read what the Fed will do, rather than what the Fed should do. The caveat that offers support even in this scenario is that the Fed does have our back, and is there if we need it. As the market remembers this, even inaction today would be eventually followed by value buying and rally into '08. Let's be clear, I'm a near-term bull looking for one more short short-term hit.
Position: None
Just a couple more datapoints indicating that video games remain in huge demand:
Microsoft (MSFT) VP of something or other Jeff Bell told Gamedaily.com that Halo 3 has sold over 5 million copies since its late September release, while new role-playing game Mass Effect sold over 1 million units in less three weeks on the market.
Market research firm NPD will report its November sales data Thursday evening, and in addition to the aforementioned games, I expect huge sales of Activision's (ATVI) Call of Duty 4 and Guitar Hero 3, Ubisoft's Assassin's Creed, and Nintendo's NTDOY Super Mario Galaxy. I'm also awfully curious to see how well Disney's High School Musical and Hannah Montana games did.
Position: wondering how the new Hermes and Hickey Freeman stores down by Wall Street are doing...
Not since May 2003 has the Federal Reserve said that the balance of risks to achieving its goals were weighted toward economic weakness rather than toward accelerated inflation. Inflation hawks would rather see the Fed say that risks are balanced to indicate that any future rate
cuts will be dependent (more so than usual) on upcoming data, while doves would obviously like to see the Fed say that growth risks exceed inflation risks. If the Fed were to cut the funds rate by 50 basis points, it could use language such as what was last used in November 2002 to indicate that its aggressive action had put the risks in
balance:
With this action, the Committee believes that, against the background
of its long-run goals of
price stability and sustainable economic growth and of the information
currently available, the risks are balanced with respect to the
prospects for both goals in the foreseeable future.
Position: n/a
25 bp cut in both fed funds rate and discount rates.
balance of risk titled toward inflation.
Position: not bold enough
What are your thoughts on today's rate cut?
Tell me to my screen!
Position: NONE
I wrote below the Fed's "balance of risk" is tilted toward inflation. Officially, there is NO official balance of risk in today's statement but a nebulous line: "Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation."
By 'tilted to inflation' I was referring to this graph in the statement: "Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully."
Position: wondering how the FOMC's 'incrementalism' fits with the Paulson/Bush mortgage rescue plan
The Fed delivered a 25 bp cut in the Fed funds rate and 25 bp in discount rate.
This is the bare minimum that was expected. There was one dissenter, the
Boston Fed president who wanted a 50 bp Fed funds cut.
The Fed's statement seems to emphasize uncertainty. The Fed still cites
inflation risks, but notes that recent developments, "including the
deterioration in financial market conditions" increases the uncertainty of the
outlook for growth and inflation. In general the door is left ajar for a move
in January should market conditions not improve.
The dollar rallied on the back of the less than decisive move and what
market participants see as a lack of urgency on the Fed. Key support for the
euro is seen in the $1.4640 area. The yen is likely to strengthen. The dollar
ran out of steam earlier near JPY112.15 and now looks to set back toward
JPY110.
Position: none
The Fed blew it once again. They are still behind the curve. Expect the bears to enjoy the fruits of the Fed's whiff as the A.I.R. pauses. They should just let me make monetary policy. Like 2000, 2004, and 2006 when I had major disagreements with their policy, I expect they will come around too little too late.
Position: none
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Christopher Atayan |
| Brian The Banking Sector Will Continue To Consolidate |
12/11/2007 2:31 PM EST
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My good friend Brian Gilmartin posed an excellent question, will an acquistion in the banking sector at this point help or hurt the acquiror?. In my experience I think it will only be a positive. What many are forgetting is that the acquistion process give s a one time changce for managements to fess up any remaining sins of the past. Hence, a shrewd acquiror can pick up some valuable franchies at the current levels and not bear much risk going forward. Take for example a bank like National City. Not really well regarded but not universally hated either. Basically has no reason at this point to exist any more. Would be a sound target for a foreign bank with a strong currency that wanted to develop a US Presence or alternatively one of the US Majors Like Wells Fargo or US Bank could pick it up on the cheap. I am not touting NCC as a takeover or anything like that but using it as an example of why I think acquistions will be positive. Another example someone like Downey Savings which has a fistful of bad loans would still be attractive to a major Austrial bank looking to increase its west coast presence or even a Comerica looking to beef up in California. The list goes on. The key thing is to look at the franchises. I think that is what a lot of people are missing right now. The real estate and management teams that are necessary to run those systems have taken years to build and are worth a lot.
Position: long NCC
The 25-basis point cut should result in investor sentiment cratering in the near term. I don't think it makes much sense to throw money at the market on today's dip, but you can be sure that opportunities will be created for patient investors with some cash on the sidelines.
One area that I'd be looking at is the volatility-levered financials like the exchanges, interdealer brokers, and options brokers. It's a good time for the bookies.
Position: none
When it comes to the Fed I'm with John Hussman - I think the Fed influences the economy like a rooster influences the sunrise.
Even those who do believe the Fed has an influence always say it takes 6-9 months for the moves to have an impact. If that is the case, whether the "other" 25 bps happens now, in January or in March is going to make little difference.
Hopefully you've been looking for stocks whose price can be justified by their fundamentals, not by what Bernanke and crew will do.
Position: None
I have no dog in this fight -- had been mostly in cash and didn't stand to gain or lose much either way. So this is not "sour grapes."
But with that said, why did the Fed even cut at all? Why not just dole out some aspirin (or Tylenol for those who are allergice to aspirin) after noting that it sees the gushing chest wound currently hurting the credit markets? Just say, "Well, if that chest wound doesn't heal pretty quickly, then we'll probably consider getting back to you sometime soon...or not...with a couple of band aids. Meanwhile, hang tough and bite the bullet."
What is just breathtaking to me is that the Fed sees balanced risks between inflation and growth.
I understand that the Fed is destined to be behind the curve (because it relies on past data to dictate policy that takes time to flow through the economy), but these guys are so behind the curve that they are getting lapped.
The Discount Rate is not a discount rate -- it's a penalty box.
Position: In a word: "Fear"
It's deja vu all over again as we traded right back to the Maginot Line of 1488/1490 on the SPX
Position: none
Of course the tendancy will be for those who think the Fed should have taken a bigger step to claim the a bigger move is around the corner. But the immediate reaction in the Fed funds futures market is not as sure. The March contract, for example, was trading near 96.12 before the Fed's announcement and is trading near 96.91 now (30 minutes later). The lack of urgency on the part of the Fed is surprising. Equities have sold off in disappointment and the dollar has moved high against most currencies, but the Japanese yen.The rally in the yen and the sell-off in US shares will liekly weigh on Asian equity markets on Wed.
Position: none mentioned
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Brian Gilmartin |
| Fed is doing fine - why all the angst ? |
12/11/2007 3:03 PM EST
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People seem to be forgetting that the fed funds rate has been cut by 100 bp's in just a little over 90 days, not to mention the discount rate cuts, and the drop in on-the-run Treasury yields, all of which indicate that significant liquidity is being added to the system. I think Bernanke is earning his buttom with this crisis as Greenspan did in '87. Stocks are on course for positive returns this year, jobs are still being created by the economy, and the only Americans in financial jeopardy are those that chose to try and buy a Rolls-Royce with a Vega credit rating.
Position: long SPY
Three outside advisors to the FOMC apparently held a great deal of sway with several members, particularly with respect to the committee's outlook on inflation versus weakness.
All three advisors, Larry, Moe and Curly, believe that less is more.
They do remain vigilant...even as they poke each other in the eye.
Position: Ah...whatever...
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Alan Farley |
| Applying Counter-Think |
12/11/2007 3:13 PM EST
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Thinking as a trader, the most counter-intuitive outcome here would be a resumption of the Santa rally and run into year end. It's just become my favored scenario, because it seems so outlandish after the Fed news,
I just can't help myself.
Position: n/m
Brian, why don't you go tell that to the banks and lenders who won't extend loans because they can't make any money on them?
Nobody is forgetting what has previously been done by the Fed. But past actions aren't particularly relevant. This isn't a prison term, where mitigating factors are taken into account. When the credit system is frozen, a 2 degree increase in temperature doesn't boil the water, does it?
The Fed Funds Rate? Not as relevant as the discount rate. The biggest problem is the Fed's apparent cluelessness about the state of things right now...as well as the direction of the economy. It ain't static; it's dynamic...in the wrong direction.
If the prevailing sentiment is a collective "throwing up of the hands" by the Fed, then why do anything at all? Why not just take an early lunch?
The signal (which has always been the most important aspect of FOMC moves) is clear: "What! Me Worry?"
Position: none
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Bill Trent |
| Re: Fed is Doing Fine? |
12/11/2007 3:23 PM EST
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Dan, That's just the problem: Banks and lenders extending too many loans they weren't likely to make money on.
You can't fix that problem by writing more bad loans.
Position: None
Not really sure how dropping the discount rate so it's more in line with the norm equates to making more bad loans.
Let's be frank: There is no "fix" for this longstanding issue. Only politicians and simpletons (but then, I repeat myself) are looking for a "fix". It is more a question of taking advantage of the tools that can help mitigate the damage.
The Fed obviously has another approach in mind. I'm not sure I even want to know what that approach is because I've seen it before...almost 2 decades ago.
Position: nm
I get the feeling and so does the market that we have the junior varsity in control of the FOMC and the major financial institutions. About the only leadership we are getting has come from Henry Paulsen. It will appear that fiscal policy and legislation will have to take the lead in fixing our economic and financial woes because the FOMC is working from la-la land. Perhaps with an election year at hand, the White House and Congress will join hands and work the fiscal and legislative solutions much faster. Holding hands and singing "Cumbaya" on Capital Hill - who wulda thunk?At the end of the day we will work out way out of the finacial crisis but it will take more money and more time with the FOMC providing no help.I am standing in a room full of financial academics and they are all shocked by the FOMC naiveté. Dan - the only reason that Moe, Larry and Curly had so much influence is that Manny, Moe and Jack are on vacation with Groucho, Chico and Harpo.
Position: none
I agree that lowering the discount rate doesn't equate to making more bad loans. I also don't think it will equate to making more good loans, which is the way I interpreted your statement that Brian should "tell that to the banks and lenders who won't extend loans because they can't make any money on them?"
These banks aren't halting lending because of the Fed. They are halting lending because they finally figured out they weren't lending at all, but giving away money.
Stopping lending is the way that damage can be mitigated.
Position: None
The FDA advisory panel recommended approval for Cardiome's (CRME) IV vernakalant for the treatment of acute atrial fibrillation. The vote was 6-2 in favor.
Cardiome was halted for trading all day.
Position: none
Some observations - clearly a minority viewpoint that will give everyone something to shoot at!
For a multi-year period the Fed has looked at the same data as have market participants and the public and seen more economic strength. In general, the Fed has been correct. Few thought that a soft landing could be achieved and no one would have expected economic growth at the pace of the last two quarters if they had known about energy prices and the housing/credit situation.
Most economists see the current economic data are consistent with Q4 growth of about 1.5%. One noted forecasting firm sees zero growth and economists now see a 40% chance of a recession in 2008. This is the reason that the Fed started cutting rates, a policy that has a lag.
25 versus 50 bps today makes little policy difference. Neither does a 25 bps in the discount rate. The Fed has made it clear that discount borrowing should not carry a stigma.
The Fed does not have sole economic responsibility. Lowering rates does not by itself solve the housing situation. Raising the loan limits (to include jumbos) at Fannie and Freddie would help, as would reducing the capital surplus requirements. Bernanke has advocated both. There are qualified buyers who cannot get loans.
Fed members are probably amazed at the market reaction, believing that they not only did what seemed right on a policy basis but something close to market expectations.
Wordsmiths need to come up with synonymous phrases for "behind the curve." I am sick of it already!
The increased transparency of the Fed is not helping that much so far. It seems like a good idea, but the committee statements wash out much of the tone that those of us in the market would like to see.
Brian says the Fed is doing fine. There is evidence for this viewpoint. If one looks at a thirty-year record of the US economy it is pretty obvious that recessions have declined in both frequency and severity, despite various economic shocks. Fed policy shares part of the credit for that. The Fed does not take responsibility for avoiding or piercing "bubbles", despite the emphasis on that criterion by many in the markets.
Today's market reaction seems excessive. It includes the effect of the GE announcement (which may have had an erroneous element) and the technical selling from breaking support at SPX 1490, as Scott noted in a timely fashion.
Position: no GE position
So now we have Mr. Rube-in, architect of the dubious $800 million Old Lane acquisition, and biggest fan of dancing fool Chuck, reverting back to some $20 million dollar per annum cocktail hosting job? Essentially, Chuck Bob paid $800 million for a good/smart guy, but totally unproven CEO, Vikram. Chuck Bob pays everyone well, except the shareholders.No wonder Bob loved Chuck so much, who wouldn't? Chuck Bob. Totally. What a bleeping disaster this whole story has been.
Position: no stocks mentioned
CNBC ran a Steve Liesman "breaking news" piece during their Fast Money program. Liesman reported that the market "could be misreading" that today's quarter-point rate cut represents the whole Fed response to the credit crunch. A Fed source who asked not to be named said that they are considering a range of tools to address the liquidity issue, ideas that would see the light of day "sooner rather than later."
Some will think that the Fed is trying to make up for a policy mistake. As readers can tell from my earlier post, I do not agree with that viewpoint. The Fed sees the FF rate as a tool that does not directly address the liquidity issues started by the housing and mortgage problems. We will see some other initiatives from them (long term repos? purchasing mortgage debt?) and there will be other stories like Liesman's.
Also, the first take on GE earnings growth was wrong, according to CNBC. They stated that some who saw the WebX presentation omitted the words "at least" from the 2008 outlook of 10% profit growth. The stock traded higher when some got the additional language.
I covered some short futures contracts after hours on the Liesman story. We shall see.
Position: no GE position
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Barry Ritholtz |
| Top 10 Things You May Not Have Known About the FOMC |
12/11/2007 9:15 PM EST
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Since a rough day is now over, perhaps now is the time for a little market related humor:
Top 10 Things You May Not Have Known About the FOMC
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