Thursday, October 2, 2008

RATE CUT ON THE TABLE!

Let's hope this WSJ report about the Fed considering a rate cut is true.

HAVE THEY SEEN THE LIGHT?
After all the very weak data we have witnessed we know that this is more than bad hair day for the economy. You can't just lick your hand and smooth this baby's hair back into place. Yesterday stock prices rose in the face of very weak vehicle sales, a stunningly weak ISM and news of continuing faltering in the construction sector. Why? are they so enamored of the idea that the Senate is doing the right thing? Will Congress see the light?

BLINDED BY THE LIGHT! or DARK?
Yes all eyes are on Washington and when you think that is where economic leadership is coming from you are in real trouble. Nothing there works fast enough or is quite right to really repair markets. You know its going to be a slap-dash fix. The economic support package from earlier in the year really 'worked' didn't it? Markets are too centered on events inside the overstuffed beltway while the economy is going to Hell in a hand basket. Heck we may already be there! having a devil of a good time yet?

RATE CUTS- A PANACEA?
Right-o, cuts are not a panacea but they might help. Rate cuts are hampered by the low level of rates. We KNOW the Fed does not want to cut FF below 1%... So at 2% rates have little downside. that means once you start cutting expectations will not get that far out in front of you and the impact of the cut might be blunted. A skeptical market might even respond by less than the rate cut if it does not think there will be follow though. All that argues for cutting by 50bp.

THE ECONOMY STUPID or VOODOO ECONOMICS?
The reason for a cut is the sudden deterioration in the economy, not financial strife. The Fed also should hold back until the House passes its side of the bill. The Fed should not look like it is stepping into the fray. It should cut rates soon and not wait until the next meeting that is too close to the election. This time a cut makes sense, but don't get your hopes up and remember rate cuts have brought some ill consequences for the dollar, for commodity prices, oil, etc. Let's hope IF the Fed does it the market approves. Jobless claims are hugging the 500K mark. There are reasons for concern. Are interest rates the right medicine? Well, things are so weak I'd try herbal medicine, acupuncture and look in the yellow pages under 'V' for 'Voodoo.' Gosh remember Voodoo economics? Could we bring it back? Already did? Rats! How about misdirection? 'Nothing up my sleeve!" Tried that one too, eh? What's left? triage...oohhh painful, but probably correct. Time to cull out the dead wood and stop pretending we can voodoo it back to life or pretend it's still alive like 'Mom' in the rocker at the Bates Motel. We know where that one leads.

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