U.S. panic spills over into Canada
Lehman shares plunge as fear stalks financials
Oil Rises on Speculation of Dollar Drop on Interest Rate Cut
Delphi Probes Investors Over Trading Allegations
If you panic, then do so early
Posted on 03/17/2008 10:45:00 PM PDT by TigerLikesRooster
Fed set for big rate cut amid market turmoil
Tue Mar 18, 2008 12:55am EDT
By Mark Felsenthal and Christian Plumb
WASHINGTON/NEW YORK (Reuters) - The U.S. Federal Reserve is expected to slash interest rates by as much as a whole percentage point at its policy meeting on Tuesday as investors warily await investment bank results that could aggravate fears of a full-blown markets crisis.
Traders expect the Fed to cut rates by a full percentage point in an effort to stop hemorrhaging in financial markets and boost the flagging economy. The Fed is expected to announce its decision around 2:15 p.m. EDT.
The Fed has cut overnight rates by 2.25 percentage points to 3 percent since mid-September as a rise in defaults on subprime mortgages has escalated into a financial crisis that this weekend claimed one of Wall Street's most venerable firms, investment bank Bear Stearns, as a victim.
While financial markets expect the Fed to fire off its biggest rate cut since 1982, they might focus more on the quarterly results due hours earlier from Goldman Sachs Group Inc, the most profitable U.S. investment bank, and Lehman Brothers Holdings Inc, the fourth-largest.
The banks are expected to show how badly they were hit by the credit crunch in the three months ended February 29 -- and any major shocks could send markets into another tailspin, especially given the vulnerability of the financial sector exposed by the fire sale of Bear Stearns to JPMorgan Chase.
The Fed has already taken a series of radical steps in an attempt to stabilize the financial system.
It narrowed the gap between the discount rate -- the rate at which it lends directly to banks -- and the federal funds rate, the overnight rate banks charge each other for loans and the Fed's main policy tool, from three-quarters of a percentage point to a quarter point.
The U.S. central bank also unleashed a barrage of other unorthodox steps to provide liquidity, including $30 billion in financing to enable JPMorgan to buy Bear Stearns. In addition, it set up a new program to provide cash to a wider range of big financial firms through loans at the Fed's discount window.
INFLATION ON BACK BURNER
Against the market upheaval, fears that a seizing up of the financial system could plunge the U.S. economy into deep recession have overtaken worries about inflation fueled by high oil and commodity prices.
"With the recent market turbulence, those inflation concerns are now taking a backseat, and the (Fed) has to think about the action that not only is appropriately aligned with the forecast but that also supports financial markets at a time of extraordinary turbulence and systemic risk," Laurence Meyer, a former fed governor now with forecasting firm Macroeconomic Advisers, said in a note to clients.
The Fed has focused efforts in recent days on surprise steps to make funds available to banks and Wall Street firms, offering hundreds of billions of dollars in auctions and credit to thaw frozen credit markets.
Policy-makers may have hoped that recently announced emergency actions, such as expanded cash auctions for banks and the extension of credit to a wider array of Wall Street firms, would remove the need for a deep interest rate cut. But officials will have to take stock of gloomy data on hiring, factory output and retail sales.
Lehman, whose shares closed down 19 percent on Monday on concern that it is the most vulnerable to troubled mortgages and leveraged loans next to Bear Stearns, is expected to report its quarterly earnings tumbled 63 percent, according to Reuters Estimates.
Goldman Sachs, which in previous quarters succeeded in escaping the worst of the subprime mortgage crisis thanks to some well-timed short bets on subprime debt, is also expected to have run into tougher times over the past few months.
Goldman, Wall Street's top brokerage by market capitalization, is expected to report earnings fell by more than half from the year-ago quarter.
And if Goldman and Lehman earnings weren't enough drama for one day, the market will have another major event to chew on late in the day: Visa Inc's initial public offering, the largest U.S. stock flotation ever.
(Editing by Leslie Adler)
U.S. panic spills over into Canada
Lehman shares plunge as fear stalks financials
Oil Rises on Speculation of Dollar Drop on Interest Rate Cut
Delphi Probes Investors Over Trading Allegations
If you panic, then do so early
Only a minority of the people active here - and certianly a minority of the chicken littles - were around for any of that. Hell, I wasn’t born until a decade-ish after that time span.
But, I’ve been around the block a few times.
When your janitor is making tens of thousands buying stocks in dubious tech companies, it’s time to bail.
When your secretary quits because she and her “handyman” husband can make $70,000 in three months “flipping” homes, it’s time to bail.
When people are rushing to sell their jewelry because of they’ve suddenly become aware of the value of Gold...
To make any money, you have to be two steps ahead. The good companies (Google, Yahoo, Microsoft, Amazon, eBay, etc.) survived the crash and new ones emerged, aware that they needed some way to make money or be indifferent to money (Craigslist) to survive.
The same will eventually happen in the real estate and financial sectors. Bear Stearns bet bad. Bear Stearns lost. End of Bear Stearns. Right and proper.
What people miss, largely Ron Paulites and other economically illiterate people, is that the Fed is the main reason why there was one Depression in the 20th Century and one roughly every decade in the 19th.
People mock the near-slogan that the “fundamentals of the economy are sound.” But, most of the time, it’s true. There’s no slackening of demand. There’s no reduction the population. There’s no massive shortages of materials. Pretty much every major Depressoion (as opposed to mere recession) was as a result of a finance crisis. Certianly, the Depression was. To create the Great Depression it took three stupid steps:
1) The Fed responds to the crisis by tightening.
2) International trade is hampered by runious tariffs.
3) Taxes are massively raised.
What we’re seeing here, in the end, will be to the great benefit of everyone if it’s allowed to work itself out. A financial sector which had grown too reckless will be chastened and cleaned up a bit. At the same time. allowing the dollar to find a new level is pumping America’s exports.
The trade deficit fell by 10% last year. It’s on pace to fall by much more than that this year. The odds are, baring a major adjustment, that it will fall again next year (I won’t make any promises after that). Meaning that, by the end of that time, it’ll have falled to something like half its former level as a percentage of GDP.
Everything in the economy is linked together.
Why don’t they just set the rate to zero already and be done with it?
Or they could regain their sanity and raise rates back to where they were before this whole ‘crisis’ began - I’m not holding my breath for that to happen.
What’s going on now seems hugely dangerous from where I sit. A lot of people who played by the rules, made it a point to be good citizens, etc. etc. stand to get hurt.
I’m reminded of the words of Charlie Chaplin when he described the Depression as “deeply cruel.”
A lot of people are simply not equipped to deal with what’s going on now and if things turn bad, they’re going to get very, very angry.
Gather 'round children! It's free money time.
Uncle Ben is handing out free money
We don’t make a Helluva lot to export these days.
Gold moves with oil these days.
My logic for dumping oil would be that hedge funds have are responsible for 20-30$ of oil's price. That hedge funds are not able to borrow like crazy anymore due to general drying up of credit. Hedge funds have "liquidity" problems and margin calls and are forced to dump oil positions
Interest rates are not the real gun. It is liquidity.
That's why Helicopter Ben isn't causing serious inflation. Some inflation, here and there, as everything shifts around. But for every dollar Ben prints, ten dollars of credit evaporate. We are entering fundamentally deflationary times, in my view.
Of course, if you are a true patriot, you may get very ill . . .
I agree. Deflation will be the killer not inflation. Though some markets will be inflated like energy and probably food commodities. Gold too if the world demands a gold backed ruble
The Great Reckoning makes the case that hyperinflation is not an option anymore because the markets render instant harsh judgments on the perpetrators.
Amazon.com: The Great Reckoning: Protecting Yourself in the Coming ...
www.amazon.com/ Great-Reckoning-Protecting-Yourself-Depression/dp/0671885286 - 235k -Cached - Similar pages - Note this
I see lots of valuations evaporating. This means deflation. CMOs were claimed to have a certain valuation. Now it seems they don't. Derivatives even more perilous. They are claimed to be worth X and the big Wall Street players behave as if they are.
Another evaporating evaluation. Lets say the local county says my house is worth $250000 and taxes me based on that very fictitious evaluation. Lets say that houses like mine are on the market for $226,000. That is the going price.... But is it? Because no houses are moving at that price
The true “marked to market” price of my house is actually $180,000-$200,000. That is the true marketable price that my house will get tomorrow or let’s br more generous and say within two weeks
and that will be gold = 2000$. (see my posting above why)
See what posting? We anxiously await your wisdom :)
The blood letting in commodities and on The Street will start after today's bump. They'll be a little bump today as Ben Ben makes the US taxpayer cough up the dough in the future to allow a select few to skim a little more today.
Get out of debt, sell what you can, be prepared for a reduced standard of living, be on good terms with ones neighbors, and tend to any fancier medical or dental procedures that you've been putting off. If you can reach the other end in five or ten years with your health and a little capital left, you can buy some stuff for nice prices (as JPMorgan just did.)
The correction has been needed for some time, however, the devaluation of the dollar is hurting the US in that those that were slack enough to run up their credit, are feeling the sinking teeth first.
The BS bad loan credit expansion to the unqualified consumer in housing and credit cards was bad anyway we look at it. Now, ad all them packaged CDO's etc., shhheeeeshhh!
People will still eat, go to work, go to the doctor, buy electricity and oil...but, filing their homes with more junk, $7 lattes, the newest electronic gizmo, has come to an end for the most part.
FWIW, Stock future right now are higher....Dow futures +67.00, NASDAQ +15.75, and S&P +11.9.
Of course, that could change on a moment’s notice.
During Japan’s last really bad recession,their “Fed” kept cutting rates until the yen was availiable vitually interest free.
It didn’t help—the Japanese economy was still in the tank for nearly a decade—the trees in Tokyo parks had many white collars hanging from nooses as per the Bushido tradition of Japanese business where failure is inexusable and suicide an honorable way out.
Free market forces finally recued Nippon—probably sooner if they had not been influenced by government interference.
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