Hedge Funds and Junks

[wndysrf]

Crooked:

 

The Emergency Economic Stimulus Plan came across the AP wires, then several Fed govenors denied it.

 

Reported by Bill Murphy at LeMetropolecafe.com and GATA.

 

Wouldn't surprise me though.

 

If I were Al Green, being so close to the 200-day, I would lower rates by 100 b.p., inject a $30 billion 28-day Repo Blast, and grant zero interest, zero payment, zero maturity credit lines for the Gang of 22.

 

All on the same day.

 

Announced when short interest is the highest.

 

Guaranteed 500 point move on the Dow.

[wndysrf]

Full AP Story:

 

By MARTIN CRUTSINGER

The Associated Press

Monday, April 7, 2003; 5:15 PM

 

 

WASHINGTON - Confronting new fears of recession, the Federal Reserve is refining an emergency economic rescue plan that includes further interest rate cuts and billions of dollars in extra cash for the banking system.

 

The Fed's effort would be aimed at pulling the country out of a nosedive that has seen 465,000 jobs evaporate in just the past two months, raising fears among economists that the weak recovery from the 2001 recession is in danger of stalling out altogether.

 

"Clearly, the Fed is in uncharted territory," said economist David Jones. "I think they will try some experimental moves."

 

One key element hasn't been used successfully in a half-century.

 

Based on comments by Federal Reserve Chairman Alan Greenspan and other Fed officials, the central bank is expected to move beyond its traditional buying and selling of short-term Treasury securities held by banks to the direct purchase of longer-term securities in an effort to influence long-term interest rates.

 

Also, Fed officials have indicated they are prepared in the event of an unexpected shock to the system to lend massive amounts of money directly to commercial banks to make sure that financial markets do not freeze up.

 

And as a third policy option, Fed officials have indicated they would explicitly state that if the federal funds rate is moved below its current 41-year low of 1.25 percent, it is likely to stay at the lower level as long as needed to get the economy on its feet - which would help investors' worries about a sudden jump in interest rates down the road.

 

The fact that Fed officials have been so open in discussing these options underscores the need the central bank sees to restore investor confidence that has been shaken by the fact that the Fed's aggressive two-year campaign to cut short-term rates has yet to produce a sustainable economic recovery. The Fed's target for the federal funds rate, the interest that banks charge for overnight loans, is now at a 41-year low of 1.25 percent.

 

"The Fed is trying to buck up fragile confidence," said Mark Zandi, chief economist at Economy.com. "They know that everyone is asking the question: what can be done if the U.S. economy slides back into a recession and it ignites a deflationary cycle?"

 

Greenspan in a speech in December in New York noted that the Fed from 1942 to 1951, as part of an agreement with the White House, successfully capped long-term Treasury yields at 2.5 percent as a way to hold down borrowing costs to finance World War II.

 

However, private economists note that a later Fed effort dubbed "Operation Twist" - in which the central bank sold short-term Treasury securities and bought long-term securities in the early 1960s in an effort to influence rates at both ends of the yield curve - was judged to be a failure because the central bank did not make the transactions in large enough amounts.

 

"If you want to produce results, you have to convince markets that you are serious and will do whatever it takes to alter the rate structure," said former Fed board member Lyle Gramley.

 

The Fed made just such a massive response on Sept. 12, 2001, the day after the terrorist attacks, when it lent a record $46 billion to banks in a single day to keep the financial system functioning.

 

Fed officials have indicated that their battle plan has been influenced heavily by reviewing the mistakes made by the Bank of Japan, which has been unable to jump-start that country's economy over a decade despite driving short-term interest rates to zero. Fed officials believe the Bank of Japan's biggest mistake was being slow to respond after that country's real estate bubble burst in the late 1980s.

 

Vincent Reinhart, the Fed's top monetary policy staffer, told an economic conference recently that the Fed is striving to act pre-emptively before falling prices become entrenched.

 

"The best policy for dealing with deflation is to avoid it strenuously by acting pre-emptively," he said.

 

Because of this, some economists believe the Fed will not wait until its May 6 meeting to put its plan into effect, opting to cut the federal funds rate through an emergency conference call, possibly as soon as this week.

 

However, other anal cysts argue that the Fed will likely wait, hoping that the favorable tide of the war will bolster markets in coming weeks and restore confidence.

 

"I think they will hold off cutting rates again to see if an early, successful conclusion to the war has the desired effect everybody is hoping it will have," said Zandi.

[phatbubble]

Phat:

 

Thanks for the info about the "various" Bradleys.I've got a file somewhere

with the Geos and the Helios and the 360's of these.

It seems to be a characteristic of the markets recently that,as soon as you find

something that "works" then it changes and it doesn't work anymore!

 

My usual approach nearing a turn is to look at all relevant indicators to decide

which direction has the greater probability-ie if stoch's are at a top(weekly) then

the turn is most likely down and vice versa.Actually, it is not much different to

working without Bradley!!But it does tend to improve confidence especially as

it has been pretty good recently.

you're welcome. i left out

 

5) it's not quantitative

 

which is important, considering the monster up move that runs into july on many bradleys.

 

i posted this (originally from steven j. williams' monstrously large bradley) a few days ago. note the shaded band in jan 02, and how the bradley curve went to the moon and the market went nowhere.

 

note also how if you time-shifted the bradley two weeks earlier, many turns would match up.

[martialcomp]

Mark, Murphy is right about the bailout of the US Government.

 

But, he did not mention the housing bubble and mortgage rates. Inflating the govt bond further will probably keep pressure off of mortgage rates which will keep the housing bubble inflated.

 

That seems to be the Last Stand...don't lose the housing bubble.

 

They still don't get it.

 

Coming out of a recession is suppose to occur when consumers retrench and reliquify (curtail spending, decrease debt and save for a while).

 

Our idiotic Feed is trying to fix the entire mess through more credit. They are doing everything they can to prevent consumers from retrenching like they normally do.

 

Very stupid...this can only end badly.

 

Also, my concern over bank runs is increasing. Finding out that the Feed loaned billions after Sept 11th to save the banks scares the heck out of me.

 

Makes you wonder how many times a single dollar is loaned to others. 10?

[chasmo]

I know news is noise and I dont use it for my own trades.

Stick to the indicaters for that but I have very strong feeling at this point that we are in some kind of a blow off top in terms of the news cycle.War is won, Saddam dead etc.... Now how are we going to top that?

Mars is about to oppose the US Mercury and right after that at the time to the fullmoon on the 16th it is on the US Pluto in an exact square to the axis of the full moon. Not only that but Mars by being in this position is in an eaxct oppostion to GB's Saturn.

What this indicates is probably not something huge as Mars is making no major aspect to the outer planets but what is for sure is some kind of disturbing news is about to hit big time and the so called victory rally is either about to be eclipsed by something else or there just aint going to be a victory rally.

I dont know what this news might be but it wont be good and the daily barrage we have been getting of late of good war news and post Iraq war euphoria somehow comes into question either from new concerns or concerns about the way Iraq is going.

What ever it is....... Bush is going to be very upset about it and this will start a whole new news cycle.

Might be SARS but I kind of doubt SARS is moveing that fast for it to a real concern by the 16th.

[Pee Brain]

Can't believe BEARX actually climbed today. I was wondering if any market action, up or down, could make it stop declining.

 

Smart move on the part of investors going into junk bonds. Equity investors don't give a damn about their ownership, as is proven by stock option grants, so why not buy the bonds? If the companies are unprofitable, just print some shares to keep the bonds afloat.

 

there's another way to look at it... idiot investors with ravaged accounts thrashing about for yield. Al is chasing people out of savings accounts like cockroaches in the old "Raid" commercial. how are people gonna retire on 3% 10-year treasuries... thats $2,500 a month on a $1M account, and most folks will be lucky to have $100K account balance. that wont even cover catfood for a month. so they look at junk, preferred, etc, anything with a yield above the alchohol content in beer... what will happen to principal if real rates rise? what will happen to the underlying entity if rates rise and/or we go into a recession? 40-year lows in interest rates; is the risk to the upside of the downside? is this the time to be buying junk anything? fade the baitball, they're always wrong.

[mjkst27]

pardon my ignorance, but what's a baitball?

[Pee Brain]

Full AP Story:

 

By MARTIN CRUTSINGER

The Associated Press

Monday, April 7, 2003; 5:15 PM

 

 

WASHINGTON - Confronting new fears of recession, the Federal Reserve is refining an emergency economic rescue plan that includes further interest rate cuts and billions of dollars in extra cash for the banking system.

 

The Fed's effort would be aimed at pulling the country out of a nosedive that has seen 465,000 jobs evaporate in just the past two months, raising fears among economists that the weak recovery from the 2001 recession is in danger of stalling out altogether.

 

"Clearly, the Fed is in uncharted territory," said economist David Jones. "I think they will try some experimental moves."

 

One key element hasn't been used successfully in a half-century.

 

Based on comments by Federal Reserve Chairman Alan Greenspan and other Fed officials, the central bank is expected to move beyond its traditional buying and selling of short-term Treasury securities held by banks to the direct purchase of longer-term securities in an effort to influence long-term interest rates.

 

Also, Fed officials have indicated they are prepared in the event of an unexpected shock to the system to lend massive amounts of money directly to commercial banks to make sure that financial markets do not freeze up.

 

And as a third policy option, Fed officials have indicated they would explicitly state that if the federal funds rate is moved below its current 41-year low of 1.25 percent, it is likely to stay at the lower level as long as needed to get the economy on its feet - which would help investors' worries about a sudden jump in interest rates down the road.

 

The fact that Fed officials have been so open in discussing these options underscores the need the central bank sees to restore investor confidence that has been shaken by the fact that the Fed's aggressive two-year campaign to cut short-term rates has yet to produce a sustainable economic recovery. The Fed's target for the federal funds rate, the interest that banks charge for overnight loans, is now at a 41-year low of 1.25 percent.

 

"The Fed is trying to buck up fragile confidence," said Mark Zandi, chief economist at Economy.com. "They know that everyone is asking the question: what can be done if the U.S. economy slides back into a recession and it ignites a deflationary cycle?"

 

Greenspan in a speech in December in New York noted that the Fed from 1942 to 1951, as part of an agreement with the White House, successfully capped long-term Treasury yields at 2.5 percent as a way to hold down borrowing costs to finance World War II.

 

However, private economists note that a later Fed effort dubbed "Operation Twist" - in which the central bank sold short-term Treasury securities and bought long-term securities in the early 1960s in an effort to influence rates at both ends of the yield curve - was judged to be a failure because the central bank did not make the transactions in large enough amounts.

 

"If you want to produce results, you have to convince markets that you are serious and will do whatever it takes to alter the rate structure," said former Fed board member Lyle Gramley.

 

The Fed made just such a massive response on Sept. 12, 2001, the day after the terrorist attacks, when it lent a record $46 billion to banks in a single day to keep the financial system functioning.

 

Fed officials have indicated that their battle plan has been influenced heavily by reviewing the mistakes made by the Bank of Japan, which has been unable to jump-start that country's economy over a decade despite driving short-term interest rates to zero. Fed officials believe the Bank of Japan's biggest mistake was being slow to respond after that country's real estate bubble burst in the late 1980s.

 

Vincent Reinhart, the Fed's top monetary policy staffer, told an economic conference recently that the Fed is striving to act pre-emptively before falling prices become entrenched.

 

"The best policy for dealing with deflation is to avoid it strenuously by acting pre-emptively," he said.

 

Because of this, some economists believe the Fed will not wait until its May 6 meeting to put its plan into effect, opting to cut the federal funds rate through an emergency conference call, possibly as soon as this week.

 

However, other anal cysts argue that the Fed will likely wait, hoping that the favorable tide of the war will bolster markets in coming weeks and restore confidence.

 

"I think they will hold off cutting rates again to see if an early, successful conclusion to the war has the desired effect everybody is hoping it will have," said Zandi.

 

i posted a link to the mises site this morning. today's article opines that the FED's inflation of the money supply will actually result in deflation and high real interest rates. its a good, short read.

[Jimi]

Vincent Reinhart, the Fed's top monetary policy staffer, told an economic conference recently that the Fed is striving to act pre-emptively before falling prices become entrenched.

 

"The best policy for dealing with deflation is to avoid it strenuously by acting pre-emptively," he said.

 

Uhhhh... OK. I guess.

 

But if you are actually having to "deal with deflation," then that, umm, sort of presupposes that a deflationary condition is already existant... and therefore, the policy he's prescribed, namely that one should act pre-emptively, wouldn't really apply.

 

"The best policy for dealing with blood gushing from your chest is to avoid [such gushing] by acting pre-emptively."

 

Or, in a nod to hypertiger, "What's the best way to deal with a fractional reserve system?"

 

"The best policy for dealing with a fractional reserve policy...."

 

Gather gold & stay groovy,

 

Jimi

[machinehead]

... some economists believe the Fed will not wait until its May 6 meeting to put its plan into effect, opting to cut the federal funds rate through an emergency conference call, possibly as soon as this week.

 

However, other anal cysts argue that the Fed will likely wait, hoping that the favorable tide of the war will bolster markets in coming weeks and restore confidence.

 

"I think they will hold off cutting rates again to see if an early, successful conclusion to the war has the desired effect everybody is hoping it will have," said Zandi.

Three choices are implicitly offered here:

 

1. Reflation plan goes into effect this week by 'emergency conference call.'

2. Markets roar upward unassisted in 'victory rally.'

3. Reflation plan goes into effect at May 6th Fed meeting.

 

The combination of 'no rally' and 'no action' does not seem to be on the menu. In the War on Deflation, defeat is not an option. Thus spake Greenspanathustra.

[martialcomp]

The idiots at the Feed (Fairview as far as I am concerned) also think they are going force people like us out of bonds and in to stocks.

 

Ain't gonna happen.

 

I will buy gold and silver before I go long in the stock market again.

[Pee Brain]

BAITBALL:

 

its like a ball of bait fish, like anchovies... they just swim around in a ball chasing each other, while the tuna sweep in and eat the ones on the margin. the baitball just seems to be mindlessly chasing itself.

 

if you ever go tuna fishing when they are biting, the tuna will hit anything shiny - even a bare hook.... they just get in a frenzy....

[torah man]

phatbubble wins the most innovative avatur. you have to watch it for a while to really appreciate it.

 

great job.

[crooked_analyst]

Mark...

 

Thanks for the article...time to back up the truck for a little yellow and silver

[BAREister]

The Fed won't do that until PUSHED by Ms Mkt, probably at MUCH lower levels.

 

Then the issue will be whether the measures work ASS intended, once implemented/deployed.

 

They're not going to FUR their guns, here.