Monday, September 15, 2008

Possible rate cut for the worst financial crisis EVER!!

Markets are likely to tank today - an emergency Fed rate cut can't be discounted.

It seems so long ago

Remember how analysts were calling for likely rate increases last month, yet I was sticking to my call for further rate cuts:

End of week economic reality check (Aug 08)

"Mark my word -- we'll see another cut before a rate hike"

Bernanke's Next Moves (June 08)

Baring any drop below 11,700 on the DOW between now and June 25th, I expect the fed to pause at the next FOMC meeting(no action on rates) -- If we do drop below the stated number, expect a new rate cut.

I expect Credit Crunch Phase-2 to kick in by Aug/Sept 08, and it will likely make phase-1 look like a walk in the park, so expect a cut at one of these meetings and another in October 08.

By December, semantic debate over our full-blown economic recession will be over/recession will be unquestionable and our newly elected President will demand action -- so expect another cut.

Bottom Line: Expect a 1.5% or lower FFR between now and the end of this year and a 1% or lower in 09.


Justin_n_IL said...


Wall Street crisis could put Fed rate cut in play

FOFOA said...


Could this have a bearing on whether or not they lower rates? If we see a spike in this graph in the morning does that make it costly and dangerous for the Fed to lower the target rate?

Sid R Real said...

Looks like the 'slow motion avalanche' is picking up a bit of speed.

Where are we going?
And why am I in this hand basket?


tarun said...

Yu had mentioned that we will see new highs in gold before the end of the year. is that still your prediction?

jerry said...

Sid R Real--I love it! We are in a hand basket!

FOFOA-the link to Itulip via the highlighted word "this" had a picture of a sports car being driven into a brick wall, while one could see from the reflection in the rear view mirror that the driver had been cruising on the open road. Suddenly, from nowhere, a brick wall lay across the road. and VaVoom--the crash is upon him. He is us.

One thing different today than in the 1987 economic crisis scenario is that we are no longer the economic power we were. Today, we are the world's biggest debtor nation, and purchaser of finished goods. Then, we were the world's greatest creditor nation and exporter of finished goods. We are not the manufacturing king of the hill or seller of cheap gas. We were not begging sovereign wealth funds to pay for our hugely negative current account deficits or persuading them to buy our garage and massively leveraged mortgage securities, and those fake insurance CDO gimmicks.

It is very different today. Today is like nothing we have ever seen.

Randy said...

Thanks Justin, Seen quite a few of these articles today.

FoFoa, I will need to read the article and get back to you.

Sid r real - spot on

Tarun, Yes - still think we're likely to see new highs as people flock to safety

Jerry, As usual - hit the nail on the head!


FOFOA said...


Today's gold market has become an event driven market. Especially with the dollar interventions that are taking place. High impact, low probability events will drive gold up in large amounts. Those events are sometimes called black swans because in normal times they are rare and hard to predict.

However it feels like we are now in a season of "events". Black Swans are lurking everywhere.

I am very bullish on gold for the long term, but I would say there is a greater than 50% chance that we reach an all time high before the end of the year.


tarun said...

Hi Randy,
I bought a lot of gold calls expiring in January thinking these black swan events will take it to 1200 as a flight to safety-anti dollar trade. If gold hits new highs i would like to buy you a vacation. Don't ask how many calls i have. LOL. It was a hedge as the rest of my money is in Vanguard treasuries.You called everything else right so far so i will let it ride.

Randy said...

Well, I was wrong and it looked like the Fed had other ideas - massive central bank injections around the globe followed by a taxpayer bailout for AIG - enough to calm markets for the time being.

With that said, by not lowering today, the Fed still has some ammunition left in his can to quell future market turbulance -- which I think he will do.

Bottom line: I still feel we'll see 1.5% FFR by EOY.


Thanks for the very kind thought, but I'm going to feel ABSOLUTELY HORRIBLE if your gold calls don't pan out.

As you can see, my fed call for this week was wrong - as have been others... I've been much better at longer-term outlooks vs. short term. Additionally, I've personally been handed my rear-end with what looked to be "guaranteed" call options in the past...

God I hope this works out for you!


Garey said...
This comment has been removed by a blog administrator.
Hugo said...

Here, I do not actually imagine it may work.
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I would say 1929 was a little worse.


Crisis Crisis