Saturday, September 22, 2007

Digest of Weekend Articles "Sea Change"

"Regardless of what the Fed does, eventually, the Wall Street-Main Street disconnect will eventually correct itself. Just like back in 2001, when the stock market continued to fall in spite of an aggressive, and sustained shift to an easier monetary policy. There are simply too many tsunamis bearing down on the U.S. economy for policymakers to turn them all back with policy moves that offer little real aid to most individuals, and businesses" -Michael Panzer

"Ironically, the clear inflation warning emanating from the gold and currency markets finds no sympathy in the official inflation statistics published by the United States government. On Wednesday, the Bureau of Labor Statistics reported that consumer prices fell in August by 0.1%. Rarely has gold run up so quickly, and sharply in the face of officially stated deflation. For the moment, at least, this divergence is in the running for the mother of all statistical disconnects in the field of economics and finance.

It requires no great insight to realize that someone's wrong about future inflation. CPI and gold can't both be right. One side or the other is headed for a massive dose of attitude adjustment. No one can be sure who's going to get stuck, or when, but we have our suspicions." -James Picerno

"We are obviously being lied to by our government on inflation - take a vote - no one knows more then the paying public - Period." - peachin

"Of his bones are coral made:
Those are pearls that were his eyes:
Nothing of him that doth fade,
But doth suffer a sea change
Into something rich and strange"

(The Tempest - Shakespeare)

"The term "sea change" has come to mean a profound transformation ever since Will Shakespeare used it in The Tempest.

Bernanke addressing the problem of moral hazard faced by Central Banks.. "try to get out ahead of the situation " relating to the "over clout of a .50 rate adjustment".....".to try to get out ahead of the situation..." Hello?

And so we get a sea change. We get a Fed that is pro-active instead of reactive. That makes Fed-watching a whole new ball game.

A couple of side points. In 1998, the Fed cut rates 75 basis points in response to the Russian bond crisis and LTCM. When the crisis subsided, they took those cuts away fairly quickly. While I do not think this crisis subsides in a few months, if it does, and inflation even remotely ticks up, they will take the recent cut, and the ones they are going to make in the future, off the table just as quickly.

Even with a proactive Fed, I think we do not avoid a recession." - John Mauldin

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

George W and the Republicans, will historically be remembered as causing a "Sea Change" In our Economy and our lives - not for the better!

The definition of IQ: "The speed at which a person handles information - "Correctly" - a prior friend

"Woe is Me" - also Shakespeare
"To have seen what I have seen, see what I see!" - Hamlet.

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