Please enjoy this free sample of our premium content featuring Doug Kass. To get all of Kass' premium content free for a limited time, please register here.NEW YORK ( RealMoney) -- Lower mortgage/interest rates a la Operation Twist are no longer the answer. The ball is in the politicians' court. "Economic growth so far this year has been considerably slower than the committee expected. Indicators suggest a deterioration in overall labor market conditions in recent months, and the unemployment rate has moved up. Household spending has flattened out... " -- FOMC Let's review my thoughts regarding Operation Twist, the U.S. stock market's reaction yesterday and the German and Chinese economic news released last night (that seem to be the proximate cause for the schmeissing in S&P futures over night). As I expressed in my FOMC Post Mortem, I still don't know why there will be any real benefit to the economy from this strategy, as the shape of the curve and the level of interest rates are not currently growth constraints.
|The ball is in the politicians court now.|
- Reports that French bank BNP might be seeking capital.
- The European banks continue to be reluctant to recapitalize (which they must).
- A divided Europe continues to be unwilling to address its fiscal issues.
- We still have no sense regarding counter party risk when Greek defaults.
- The tape was already exhibiting deflationary signals going into FOMC announcement -- industrials, transports, etc. breaking down -- so maybe the "downside risk" Fed statement was a tipping point where investors simply gave up.
- By making the "downside risk" statement, investors might have come to the conclusion that the Fed has a better sense of how bad upcoming economic numbers will be and that poor August sentiment will translate into weak hard economic data in early winter. (One can even argue that the "significant downside risk" pronouncement might have frightened the markets more than Operation Twist helped in reducing interest rates.)
- Growing recognition that the Fed will not likely entertain QE3 in the face of much opposition within the Fed and in the Republican Party.
- Growing recognition that the domestic economy (combined with the eurozone uncertainty and structural challenges) is now on its own.