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Fed's next move could be to lower rates / Hedge Funds MWHAHAHAHAHAHAHAHAHAHAHAHAHAHAHA



September 11, 2008 – Comments (5)


I came across the following article on CNN this morning and I said to myself, "Ahhhhh, they're finally starting to get it." 

Fed's next move could be to lower rates - The central bank is likely to keep its key interest rate at 2% at its September 16 meeting but expectations are growing for a rate cut before year's end.

I have been ranting and raving for months now that there's absolutely, positively no way that the Federal Reserve will raise interest rates any time in 2008, or even early 2009 for that matter.  In fact, on a number of occasions I have said that I would not be surprised in the least if the Fed's next move was to cut interest rate rather than to raise them. 

We're coming up on an election so right there it makes it extremely unlikely that the fed would raise rates before November.  Add to this the fact that job losses are accelerating and the fact that the government desperately needs the housing market to stabilize and banks to recapitalize their balance sheets and there's NO WAY that the Fed was going to raise rates.  Add to this the fact that the price of oil and many other commodities have dropped precipitously over the past month (much too quickly in my opinion, but that's what happens when hedge funds have to unwind and short sellers start to pound on things) and the fact that for some mind boggling reason the U.S. dollar is soaring to the moon and all of the hawks who were crying for the Fed to raise interest rates don't have a leg to stand on.

So here we sit, with absolutely no chance of a Fed rate hike, the U.S. economy in terrible shape, the federal deficit growing exponentially as the government bails everyone and their mother out, on, and on, and on and somehow the dollar is sitting at its highest level in a year?  I really need someone to explain to me how this is not anything more than a surprisingly large bear market rally.  Seriously, please use the comment section of this post to explain to me why the dollar rally will last.  For the life of me, I can't figure out how it will.

By the way, this is a fantastic quote from the above article:

"With this in mind, one economist said that so-called inflation doves, those who argue economic weakness is a greater threat than inflation, have ample reason to call for a rate cut.

"Like Prince said, 'This is what it sounds like when doves cry,'" said Bob Brusca of FAO Economics, who is predicting that the Fed will lower rates before the end of the year.""


This next headline just makes me laugh:

Hedge fund managers lose money again in August



5 Comments – Post Your Own

#1) On September 11, 2008 at 5:17 PM, Imperial1964 (94.49) wrote:

I am not a currency trader, so I'm not going to predict the future.  But I do see the case for the dollar rallying in the near and maybe medium term.  Asia is heavily dependent on US and European consumption.  Much of the EU is in as bad of shape as we are, but they are only now starting to realize it.

In order for the dollar to decline, something else has to rise.  What exactly would that be right now?  In fact, our stock markets have lost less than most other major indices around the world.

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#2) On September 11, 2008 at 5:31 PM, jester112358 (28.23) wrote:

Here's something I read:  The Chinese government has forced their banks to buy additional $s (lots or them) on the currency markets by requiring they up their capital reserves and that these reserves be denominated in $s not yuan.  They have to sell their currency and buy dollar, which helps to keep the yuan value down, helping their exports.  They also are more worried about deflatiing growth and the restless unemployed masses that implies than inflation.  Essentially, $s are being hoarded by central banks, creating a temporary supply/demand inbalance in $.  If these hoarded $, stored temporily in US treasuries, are liquided and allowed to circulated, look out below!  So, I agree with your suggestion that over the next few years, this kind of currency hoarding/manipulation by central banks will fail and the dollar will continue its decline.  Unless we start being more productive, live, below our means like the Chinese, become net savers and investors etc.  Unlikely, for americans in my opinion.

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#3) On September 11, 2008 at 5:43 PM, bendlund (98.84) wrote:

I can think of two possible explanations for the dollar rally.

1) The US is bad, but everywhere else (Europe in particular) is worse.

2) The dollar may have been used as a funding currency for a popular carry trade that's unwinding. As deleveraging continues, the rally will continue. When credit stabalizes, the decline will resume.

I believe the government is right to step in and recapitalize the system, even at the cost of socializing losses. The justification for this is that price declines can be self-reinforcing; all the large, leveraged players need to de-leverage. Of course, deleveraging means price declines, which damage the ballance sheets of the large, leveraged players, leading to the need to deleverage. Sure, some foreign money and cash investors can step in and pick assets up cheap, but the size of the crisis is such that direct support from the government is (IMO) needed to prevent catastrophic asset deflation and massive loss of faith in the financial system.

Of course, this very argument disputes the idea of an equilibrium price, and goes against currently popular economic ideas. 


I've also long expected (since about the time commodities started to crash) that people who thought the fed would cut interest rates any time soon were wrong, and I've made a good amount of money (for me, at least) on fed funds futures. Now, of course, I only wish I bought more.

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#4) On September 11, 2008 at 7:02 PM, GS751 (26.90) wrote:

hahaha I just thought of this I wonder how George Soro's feel's about his big Lehman position.

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#5) On September 12, 2008 at 5:16 AM, lquadland10 (< 20) wrote:

Look behind the curtain. Look through the smoke and mirrors. Ha That sounds like the wizard of oz book. In a preverce way I can see it. I see the glimmers coming together and the light is getting better. Not great but if lou dobbs wins then it will be ok and I am willing to pay the price. Fool On.

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