Wednesday, June 11, 2008

Look at Oil. I think where rate is going to be is

more about the timing in the next several days than what the direction or amount is going to be.

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By Cherian Thomas
June 11 (Bloomberg) -- India's central bank raised interest rates for the first time in 15 months, the latest in a global wave of monetary tightening to combat a surge in inflation sparked by food and energy costs.

The Reserve Bank of India increased the repurchase rate to 8 percent from 7.75 percent, according to a statement in Mumbai. The move came seven weeks before the bank's next scheduled monetary policy meeting on July 29. Reserve Bank Governor Yaga Venugopal Reddy joins central bankers in the Philippines, Vietnam and Indonesia in raising borrowing costs this month. The urgency signals Reddy's concerns on inflation after India raised fuel prices at the sharpest pace in at least six years.

``If inflation is heading into double digits, it would have been impossible for the central bank to ignore that,'' said Robert Prior-Wandesforde, senior economist at HSBC Holdings Plc in Singapore. ``Particularly with inflation being so sensitive a subject politically in India.''
Lehman Brothers Holdings Inc., Standard Chartered Bank and ICICI Securities Ltd. expect India's inflation rate to rise to 9.5 percent, the highest since 1995. Inflation is currently at
8.24 percent, near a four-year high. The changes in fuel prices announced on June 4 will be reflected in price data due for release on June 20.

8 comments:

Penn said...

MTG, what are your thoughts on shorting Oil?

Penn said...

By the way, great call on FED. That bugger is getting pasted today.

D said...

I would be more inclined to short crude in small size on the break of $150. The equities look like a good short here.

MTGSPY said...

Rate hike is COMING. Don't confuse yourself looking at bond yields.

Inflation is FIRMLY ABOVE 5.5% OVER TARGET per "internal" model very similar to that used for monitoring by Fed Bernanke. The model is somewhat complex, with oil as one of the input.

The latest input to the model uses oil AT $120, because most modelers would agree that we have NOT YET SEEN the REAL IMPACT of $120 oil. What do you think of $140 oil, my friend, a couple of weeks from now if we try plugging in the same model? NOT GOOD AND SIGNALLING INFLATION IS OUT OF CONTROL AND MUST BE REINED BACK.

IT IS EITHER 3-4x UNEXPECTED HIKE TO SUBDUE THE BEAST or UP TO 20x within ONE YEAR FROM NOW. THE CHOICE IS OBVIOUS.

The source of it is FIRMLY the TAF and lower than ZERO risk premium causing massive flight to commodities from paper asset, contrary to the original intention.

D said...

Mtg -

This is going to be managed like the subprime epidemic...wait until after the problem shows up in the data and someone is going bankrupt...

Apparently, they don't care about the airline industry though.

D said...

The deficit data yesterday showed the average price paid for oil was $96...all of the numbers are going to come out much worse and the demon is already unleashed.

As I said before, close the TAF, PDCF, and find a way to let LEH go tits up and everything goes back to normal.

MTGSPY said...

The DEMON is already OUT and plugging in a $130 price paid for oil into a model like this will yield 7+% OVER TARGET.

The model is the "steepest" and wont "flatten" until 9-10% over target, at which point, like I said, 20x interest rate hike to just CATCH UP with inflation/rein it back.

The choice is OBVIOUS to MOST LAYMEN in the business.

D said...

Sounds like we need a laymen Fed Chairman. I agree it is prima facie, but the asshat has not responded for over three months now. That's why fundamentals can blow people out of the business. Bernanke is going to blow out the entire economy when a few months ago he could have let it fall apart and the blame would have fallen on the Banking CEOs.

He is an idiot.