Friday, June 6, 2008

In Greenspan's time ...

there would already be an unexpected rate hike at this point.
Laugh at your own risk.

By popular demand: explanation of my cryptic cowardly comments: :D

I think there is sufficient evidence to suggest that at any reasonable transfer mechanism of inflation (from oil to PPI then to CPI) that inflation anchor has moved +5% over target at the rate and level oil and many commodities are presently. While this may be good to POT and Saudi Arabia, the real economy runs on fixed set of condition (namely salary) and will not be able to adjust to such a rapid shock.

This is equivalent to in other words, BSC, or shall I say the Bear-Stearns-event-equivalence. The only cure to stop it is the application of unexpected rate increase until the pricing mechanism is firmly under control.

This may very well be suitable, as the majority of investment banks who needed to raise capital have done so in the past 3-4 months.

The fed's responsibility to IB is fulfilled, in that they opened a breathing room for the IB to obtain funding. As far as to those who provided the funding (please don't use the words BAGHOLDERS, it's not proper), the Fed never issued guidance as for example, how much someone should pay to invest in the stocks of LEH, or MER, or Citi. That is, Ben told me, the key defense in court, should anybody take him to that, when they say "But YOU SAID you GOT OUR BACK".

Now that issue is behind us, and another firmly in front of us, namely the incorrect application of slosh to deposit into commodity investments, the pressure is clear as to what this Fed Chairman would do (or any Fed chairman previous to him would hav done), which is a surprise rate hike.


D said...

While the 3 month, 2 year, and 5 year treasuries have moved up in yield since mid-march, they have not made the move that would suggest inflation expectations. Bernanke, like every other central banker, does not control market prices...they try their hardest to shape incentives to promote certain assets though.

Interest rates are still driven by demand for debt and unless credit standards are reduced I do not expect interest rates to materially rise...yet. I do not believe Greenspan would have done anything different at this point. Bankers just talk and generally state the obvious in such a way that the uneducated are sufficiently confused.

I will address the "yet" as we march further down the road.

Anonymous said...

[QUOTE]there would already be an unexpected rate hike at this point.
Laugh at your own risk.[/QUOTE]

What is that supposed to mean? is it b'cos of unemployment report.

mtgspy, one suggestion - can you please elaborate your comments? everytime you post something here/TF, its hard to immediately interpret it without knowing the context and REASONS behind your posts. That said, i appreciate you sharing your clears up doubts about the market-behavior. thanks!

D said...

You want oil prices to come down? Pull the plug on the Primary Dealer Credit Facility and start taking down TAF credit.

Problem solved.


Anonymous said...

Thanks mtgpsy, for responding to my request and detailed comments.

D said...

There's a relevant read for you Mtg.


D said...

The UK just printed a May output PPI increase of 1.6% increase!!! +8.9% yoy.

Meanwhile the 3 month treasury just hangs out under 2%.