PLUS, fourth quarter GDP number was up only 0.06% (a bigger number would have indicated more inflation on the way. So the Fed can once again, point to this number to say further cuts (or a big one) is not needed. Set you loss limits now, and for the first time ever in Strategy Update history -- HOPE is part of the strategy, depending on what you are hoping for. WALL STREET STILL WANTS HALF A POINT.
1/30/08 10:30 AM UPDATE: When the ADP (employment number) came out in the 8 am hour, it was good enough to spook Wall Street that there might not be a half point cut. Gold, that was at a record high at the time, started to drop on the news. Within the hour, the GDP number came out, and it indicated to Wall Street that Bertankie and the Fed would HAVE to go a half point, now. And gold started climbing back up from it's five dollar an ounce hit, this morning. And agriculture is at the bottom of the pack today (most down). That's an economic indicator, as well.
FURTHER UPDATES AT STRATEGYUPDATE.COM
Fed announces at 2:00 PM EST. The language and reasoning Bertankie uses (his reasoning behind the numbers) will be important, too. Wall Street will be reading a lot into what he says about what factored into the number.
Alright, so tomorrow, Bertankie may have his name changed back to Bernanke, based on tomorrow's rate cut news. Wall Street has the chance of a .5% point rate cut at 87%. So imagine what will happen if it's anything less. (Wall Street is the biggest bunch of spoiled crybabies on the planet. I know, I know...it's hard being so right in the face of such obvious wrong.)
Normally, I would be saying, "No chance of .5%....25% if anything at all." Reasons being,
* Bernanke doesn't want to appear to be bowing down to a bunch of spoiled crybabies.
* Inflation is on the rise, and a rate cut will make it worse.
* The day they came out with an unprecedented emergency rate cut, last week, turned out part of the problem could have been that rouge trader in France.
* Durable goods number were better than expected.
So they can say, "Well gee, we came out with the full .75% rate cut, last week due to what seemed to be a legitimate global economic crisis. However, at that time, we did not know about the $7 billion in losses from the rouge trader in France. And since inflation is a major concern -- consider the early rate cut to be the rate cut we were going to do today, since it turned out to be for other reasons than we were aware of at the time. And further cuts would offset any benefit, by increased inflation, including higher oil prices, because the oil sheiks in Saudi Arabia have to make up the difference in the weaker dollar -- so they simply hike the price per gallon -- even though there is no added production cost.
HOWEVER...like I said, that's what I WOULD have been saying, except for this little ditty:
Those of you who know me from my political blogging elsewhere, know that I have immersed myself in politics this past couple years, and you hear a lot of things. (Deniro Voice: I heard things.) If you check the StrategyUpdate.com website, you will see that these contacts allowed my to blog about the subprime mortgage crisis on May 5, 2007 -- predicting a bubble burst that would trigger a year long recession starting in November of '07.
Well basically, it happened to the day of the prediction if you check the headlines. And in October, sources recommended pulling out of the stock market entirely (mutual funds and all), because the market was going to start sinking first thing January '08. And we all know what happened.
We also learned that this would cause a big problem in the credit derivatives and bond insurance market. This next shoe, ready to drop, is scheduled to drop in February of '08 (like, next week), when all these derivative options come due, and if you think we had some down 200-300 this past month...
Well, that was just the little wave warning you that the Tsunami is coming. And it ain't gonna be a one week -- or one month sell off. We have already seen things that haven't happened in 70 years, or so. Some things have NEVER happened. You see people who have traded for 20-50 years saying they have never seen a week like last week.
So Bush can try to keep things propped up by visiting the oil sheiks and asking for a break, fiscal stimulus packages, bond insurance bail out talk (even though there wasn't any real talk) -- and the Fed can cut half a point: BUT THEY WILL NOT BE ABLE TO KEEP THE MARKET ARTIFICIALLY PROPPED UP WHEN THE SUBPRIME AND DERIVATIVE MARKETS END UP BEING MUCH WORSE THAN ANYONE WAS LEADING ON TO.
When people start walking away from their homes (since they now owe more than they are worth, once those teaser subprime rates jump to market rate), banks will not only be stuck with all these homes -- they won't be able to sell them, either. (And they won't be taking in all this money, while the homes sink in value.)
People will be later and later on their credit card payments -- and many will simply walk away from those payments, too.
And when these derivative futures come due, it will be like what happened when everyone options were due last week, and everyone was caught short, and we saw a huge sell-off including all the good and profitable stocks to cover the losses on the others.
Bond insurers will be out of business, and we are already starting to see the leaks in the dam start to sprout water this past week.
And I think the Fed knows this. So even though no cut, or .25% would be the right thing to do in these inflationary times; and even though Bertankie would do the wrong thing -- just to show he doesn't bow down to Wall Street ("Revenge of the Nerd")...
Strategy Update feels there IS still hope for at least the half point Wall Street is throwing a tantrum over -- due to the fact that the Fed is seeing numbers that we haven't seen, yet. And the numbers are very, very small where they are supposed to be big. And very, very big where they are supposed to be small.
11PM UPDATE: 11PM Update (1/29/08): O.K., the Batcomputer now feels the chances of a predicted and accounted for half point rate cut is more likely to happen, than not. Here's what we added to the equation that a computer was not able to deduce:
The Fed usually does not like to cut when the dollar is already weak, and oil is already so high, at risk of adding to inflation.
However, those are in ordinarily bad times. These are extra-ordinarily bad times. (See: Subprime/Credit/Derviatives)
So in this case, the big white elephant in the room, is the biggest elephant in the room ever (on steroids), so the Fed will have to try and prevent the massive fire they can see currently burning over the hill -- and worry about the next fire that these embers will spark, once those flames get hot enough. So yes, it's a rock and a hard place. And I think they're gonna go with the hard place. (Half a point so the entire planet doesn't have to blame him, and they'll worry about inflation as it rises. But only because they also know what lurks in the shadows.) And he can add, "we are prepared to step in as needed...", except insert the word, "inflation", next round.
This may help, too:
Reuters: WASHINGTON/NEW YORK—Federal Reserve Chairman Ben Bernanke's job rides on protecting the U.S. economy from the worst of the fallout from housing and financial market turmoil, but politics and a few missteps could determine if he wins another term.
Bernanke's four-year term as chairman expires on Jan. 31, 2010. The next president, who will take office in early 2009, may consider whether to tap someone else to lead the Fed.
Check back on this blog later this evening or tomorrow for some of the stocks I like for '08, whether it's a bull or bear market. And remember, I bought one gold mining stock on Friday, and it was up 26% on Monday. (Yes, twenty six percent gain in one day.) Read the rest of this blog and you can follow the predictions and analysis and hopefully you'll check back for update.And maaaaaaaan, if the Fed don't cut by at least half a point, I hope you are near a fire exit or have a parachute on hand. (Set your loss limits now!)
And on a lighter note, Strategy Update's Zuma Dogg called into C-Span on Sunday to give his prediction on the U.S. Presidential election. I don't necessarily mean anything I was saying, just wanted to rock the boat for some of my friends who drank a little too much Kool Aid.
StrategyUpdate.com's Zuma Dogg calls into C-Span
strategyupdate.com
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