2 more Fed actions - an immediate cut to the discount rate of 25% and a new facility that they just came up with to dump more mortgages on the balance sheet of the Fed. How do I know they just came up with it? They haven't even had time to think of a fancy name like the TAF or TSLF... it's just the "black hole" - give us your junk. Is that the smell of desperation in the air? More serious steps, not even a week after the last round? Seriously Ben, just BUY the stuff right now, let's stop with these parlor games of "borrowing" for 28 days... why all these song and dances first? Let's just get the conclusion - the Federal Reserve will be the owner of a vast amount of mortgages ... just do it Ben.
- Federal Reserve Chairman Ben Bernanke said new steps announced by the central bank Sunday should help squeezed financial institutions get cash infusions-- a fresh effort to provide relief to a spreading credit crisis that threatens to plunge the economy into recession.
- The central bank approved a cut in its lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately, and created another lending facility for big investment banks to secure short-term loans. (something they rushed so quickly out the door, they didn't have enough time to even properly name!)
- The new lending facility will be available to financial institutions on Monday. It will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral -- including investment-grade mortgage backed securities -- will be accepted to back the loans.
- The Fed also is broadening the type of debt it will accept as collateral in the lending facility. The Fed said such loans can be collateralized by a broad range of investment-grade debt securities.
- The facility will begin on Monday -- and the maximum period for such loans will be extended to 90 days from 30 days.
And as we all knows "extended as conditions warrant" means these are going to be outstanding for years. More risks for the taxpayers. Again, let's just cut out of the middle man here... just buy all this junk outright... we've been calling for this for months on end... this is the ultimate conclusion. Or instead of 90 days why dont you just say 1000 days? That's effectively buying it... or maybe 5000 days.
4 comments:
surprising that the commodity names are getting killed as the FED will probably cut 100 basis points tomorrow. looks like the hedgies are taking profits where they can.
You are learning fast! Must be reading some good blogs. ;)
That's part of it
Another part is when things really get bad people think the world will implode and no one will need coal, oil, food etc so they sell off
The last piece is much is priced in dollars and when people think apocoplyse is coming then they think ECB and other banks must cut rates to help prop up the sad US dollar. Which in theory would hurt commodities priced in dollars. Thats short term thinking. Long term thinking is creation of paper money only makes hard assets more worthwhile.
So today gold miners go down while gold is actually up. Or was up strongly before profit taking. ANyhow I am buying back some gold exposure and the DBA.
Also you asked about coal - TODAY is why I did not go whole heart into coal Friday but I added alot of exposure today on this 10% across the board sell off.
Patience... something that I try to remember all the time. I always like to jump in at the first drop, but that is bull market thinking, not bear market. Can't say today is the low but I got many names 5% (this AM) and now 10% cheaper (this PM) than Friday.
Once things return to normal the same groups will go up. But I am sure we will have a 4-7 days period where retail, financials, and homebuilders pop! Again you will begin to see patterns. Remember late January when all those consumer/financial groups ran up a ton? I wrote a piece "Time to change strategy?" because none of the fertilizer, coal, commodities were ramping but instead the "junk". That lasted all of 2 weeks before the next round of carnage. I expect the same coming in the near future. Then once that is done, we go back to bull markets in things that deserve it...
it seems the fate of the market hangs in the balance of every FED meeting. the FED cuts big tomorrow, you get a short term rally that is probably led by commodities, maybe even financials. they disappoint and you get a SELL OFF in everything (except the dollar). i want to stay short the USO as oil is due for a pull back but i really can't see the FED disappointing tomorrow. they are in a tought spot. it seems to have any success in this market that you have to anticipate what the FED is going to do.
oh yeah, do you see the price of oil being correlated to the success of the coal and nat gas names? i didn't think it would be but they seem to be trading in unison.
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