Wednesday, January 23, 2008

Ice Cream After A Beating

Remember when you are a young kid, you did something wrong, your parents whacked you, and after they felt sorry and gave you ice cream. Well, thats close to why the Fed cut 0.75%. Is that enough? I have argued before, that won't be enough because this is not something a rate cut can rectify. It has to play itself out. If your property is heading for foreclosure, a 75 basis point cut will do nothing to save your home. Not in an era of slowing economy.
The rate cuts is largely anticipated, though better than the 50 basis point but there is really not much the Fed can do now.

The entire movie has to play out on its own in entirety. I may sound like the ever bearish Marc Faber now cause I was never bearish for a long time, but this is pretty bad, and its pretty bad because the majority still are unsure why the correction is happening, and that is the killer blow.

Its a devious bursting of the credit bubble which had been engineered for the past 5 years, yes, Greenspan was largely the culprit, though he would not admit so.
If you have a tumour, you cannot stop the surgey halfway by putting more chloroform onto the patient. The patient has to go through with the surgery for complete recovery. Still not time to buy yet.

The scrambling to cut 75 basis point also indicate some kind of panic, nothing much left for the Fed to do, any more they risk the USD going into a freefall. Just like antibiotics, you have to take the medicine for the whole course, cannot stop halfway. Any rebound in any stocks are likely to be a dead cat bounce (have you ever tried to bounce a dead cat).


solomon said...

With the jaw dropping rate cut, I am switching to cash holding. Like Dali said, when this news is digested the next couple of days, the market is abt to nose dive again.

Clearly, in this situation, lack of leadership to steer US out of problem. You can see ECB stand firm of not reducing rate because of their inflationary issues.

US Should learn from Malaysia like in 1997/98. Stop the leakage first from the Financial. Then only annouce the stimulus and rate cut. But when u do it in a span of 2-3 weeks. You are suggesting to the market, situation is worse than traders thought.

I will blame this to Alan Greenspan for creating the mess; Ben Bernake for lack of leadership quality. If dollar fluctuate downward, it will hurt their equities. One need to fully disclose the subprime losses.

If we sit back and ponder, it is another classical case of economic and politic?

Note : There is another blog which had some good analysis, not mine just invited to see them.

Leon Tan said...

"Ice cream after a beating..."
You have made it very clear. The current US strategy in overcoming a recession will only prolong this crisis. So why not? sit back, relax and wait for this recession to recover on its own?

Great blog!

AQW said...

To put things in perspective, for anytrader this would indeed be a nice surprise as the mkt didn't price an early cut...question remains is the rebound sustainable.

Not bad idea to still sell on strength.

Spore seems to hv given most of the initial bounce...

Tony said...

Calling a bear market trough can be very profitable but can be very hard to execute. Maybe a 20-25% drop from peak is that point where you buy.

yau said...

i definitely agree Dali. fed should cut interest rate like 50 basis points every month. not accumulate and cut straight 75 basis points. bernanke did a wrong thing is he lead by market instead of fed lead market.

1 more thing in europe. if ECB stand the interest rate. the europe will be another japan. remember the japan bubble. bcoz BOJ dint cut interest rate cause the japan's economy havent improved untill today. ECB should cut orelse the market will be very terrible.

pls give comment to me whether u agree or disagree. thanks

yau said...

i wan to correct something in my last comment. when the top peak of japan, BOJ hike interest rate untill BOJ over curb the mkt and dint ease the interest rate cause the japan economy untill today havent improved.

rask3 said...

In his tenure Greenspan gave the markets lotsa puts. And now his successor his giving his share of puts: Bernanke puts. Lol. What's wrong with trying to beat the old master at his game?