leow.cathy

Time To Warm Up The Helicopters?

Now I now we're near the bottom when you start showing clips of "Apocalypse Now".

I don't want to bail out the speculators with a rate cut. I also don't want a further plunge in the US$ since it will spur inflation. BUT with short and long term interest rates trading well below the Fed Funds rate already, are we really fooling the world by keeping the Fed Funds rate at 5.25% - or are world currency traders reacting to real interest rates in this country? I say the latter; and that a small rate cut doesn't matter.

Why The Fed Won't Cut Today

In my view the Fed will also leaves things alone - for the time being. But what's this about the dollar? Don't you people realize the world market has been trading US interest rates well below the Fed Funds rate for a considerable time now? Are we fooling the world market into thinking our interest rates are higher just because the Fed Funds rate is there? I don't think so.
It's ironic. The lowest long bond rate in months and mortgage rates are HIGHER due to the credit crunch. I don't want to bail out Bear Stearns, but can't we at least help the people who are trying to take advantage of the "lower" interest rates.

The Next Bear Market is Anybody's Guess

Sorry for the multiples. I thought my computer wasn't responding and must have pressed the send button a few times.

The Next Bear Market is Anybody's Guess

"Bear markets come so infrequently that guessing about the next one in a meaningful way is likely to be the wrong trade".

You write this yet you are bearish. Hmm......

The Next Bear Market is Anybody's Guess

"Bear markets come so infrequently that guessing about the next one in a meaningful way is likely to be the wrong trade".

You write this yet you are bearish. Hmm......

The Next Bear Market is Anybody's Guess

"Bear markets come so infrequently that guessing about the next one in a meaningful way is likely to be the wrong trade".

You write this yet you are bearish. Hmm......

John Hussman: Low Interest Rates Don't Fuel Expensive Stocks

I disagree violently with your opinion. Low interest rates help all stocks regardless of their p/e's. Low interest rates, means money is cheap and companies can profitably invest and expand their businesses. That is true regardless of whether their p/e is high or low. The only advantage I see to a low p/e stock vs. high one is that the management can profitably buy back stocks if money is cheap.

The Federal Reserve Should Cut Rates

A few points. Check your data. I don't believe the 3 mo t-bill got below the 4.6-4.7% level.
Secondly, it's possible the Fed does cut rates - but only later in the year if the economy is suffering. Economic data in March and April was very positive, so slower economic growth would have to be seen.
Third - for you naysayers that say "look at the rest of the world" - I submit the yield curve can do that work. There is no reason for the curve to be this flat. Long rates can be at 5.25 % while the 3 month is at 3.75% - that's much more "normal" historically - and would make sense if the US economy is weak and still entice foreigners to buy our bonds.

The Ethanol Industry: An Insider's Take

Cappcharlie - you had me until the following line:

"So when the global warming alarmists predict worldwide starvation, they’re right. They’re creating it. "

As a former grains specialist I couldn't agree with you less. I agree that there will always be poor people unable to feed themselves - many parts of Africa were starving 30 years ago and are still starving - but the world has a whole has improved its diet, and the consumption of ethanol is just a short term problem with the system. In the 1970's the world went through a similar cycle. The USSR blew into the grain markets in the early 1970's ("the great grain robbery"), there was a corn blight and a few droughts, culminating in an explosion of prices. There were numerous alarmists around 1980 writing about how the world was going to run out of food. In the late 1980's and early 1990's when corn prices halved (and much cheaper in real terms), they weren't saying a word. They were wrong then and they will be wrong now.
The one thing most people forget is that crop production and animal feeding is not static. Crop yields for corn especially have almost doubled in the last 30 years as genetic engineering, increased fertilizer and other practices have been put to use. And the rise will continue.
My problem with corn based ethanol is that it isn't cost effective. The American public is paying through the nose via taxes, inferior energy creation and higher food prices. But never doubt the worlds ability to feed itself.

Agflation!

Barry - wake up and smell the coffee (which is still pretty cheap)! The agflation in not a matter for the Fed - it was legislated. Take it up with the morons who decided to subsidize an inferior fuel at taxpayers expense. I really should say taxpayers expenses - through higher taxes, less efficient fuel and higher food costs. There is nothing the Fed can do about it!
Legislated, subsidized ethanol production from corn is the driver. The irony is that oil refiners are balking at expanding capacity because they don't see the long term gains because of our push to biofuels. So we're also paying via higher gasoline and heating oil prices - just the opposite what corn ethanol was supposed to do.
Yes, metal prices are high due to the global expansion and like all commodity cycles these too will correct when production suffiently expands. As it will with grains. It may take a couple years but never underestimate the ability of the world to rise to meet the challenges when there is a profit to be made. Remember the "great grain robbery" of the 1970's when the USSR swooped into the world market and caused food inflation - plus we had the corn blight and a couple of droughts thrown in for good measure? At its peak around 1980 there were numerous pundits writing that the world would not be able to feed itself. It was then followed by the dismal ag markets of the 1980's.
I agree with the Fed. Ag doesn't belong in the core simply because they have no means to fight it and it is extremely cyclical. What good would raising interest rates do for food prices? Or metals prices - since they have been primarily driven by the global expansion boom - and are self correcting since there's so much profitability in producing metals. It'll just take a little more time.

Yield Curve Versus Stocks On a Decade By Decade Basis

Your charts show what should have been intuitively obvious; yield curves don't matter! The reason - it's not the curve, but the absolute levels of interest rates that determine economic activity and the direction of the stock market. Typically, but not always, the yield curve inverts at high levels of interest rates, such as the 70's and early 80's. That's bad for stocks because businesses can't profitably borrow to expand and consumers have a difficult time buying houses, cars, etc.
This recent inversion was at low interest rates. No one can argue 5 % long bonds stifle the economy in this era of global expansion. Perhaps we would have had a recession and a declining stock market without the globalization because of the weak US housing situation, but right now the world is propping up the US economy. Isn't free trade wonderful!

Inflation Part II

john - you obviously haven't studied commodity prices. Yes, inflation is built into the system - but that's primarily for services. Commodity prices typically fluctuate in a wide band. As a grains specialist for 20 years I was short more often than long - and made money. Crops yields and animal weight gain (per pound of grain fed) have steadily risen over the years as technological and scientific advances were made. That's why the Fed keeps it out of the core. The difference this time is that we have had an exogenous shock to the system - the exponential increase in the use of corn for ethanol. Pray for rain over the next two months or food prices will rise to the point the Fed can't ignore it any more.

The Return of NILF

That can only be a positive for the market and the economy. If during this major turndown we actually only had 4.5% unemployment, imagine how tight things will be when the economy perks up - as suggested in the latest slew of reports. Looser employment means less upward pressure on wages means less inflation. It's actually a relief - not a bearish phenomenon.