Friday, September 07, 2007

Now The Rate Cut Is Coming

I know the markets long ago priced in a Fed funds rate cut of at least 25 bps, but while retail sales numbers, the monthly job numbers and the Fed beige book showed a fairly lukewarm but still growing economy, I wasn't convinced Uncle Ben was going to shower The Street with cheap money.

After today's release of the dismal August job numbers (the economy lost 4000 jobs, the first loss in 4 years), I'm now convinced Bernanke will lower interest rates on September 18 by at least 25 bps (and perhaps even 50.)

As Marketwatch put it, the Fed now has all the cover it needs to lower interest rates and reinflate asset bubbles without looking like they've caved in to Wall Street.

Yet Herb Greenberg wonders why the financial markets sold off big-time today, given they were looking for bad job numbers to force the Fed to cut rates:

Now they get what they believe might be the ammo to convince the Fed to cut rates (unless rising oil is an inflationary concern) and they sell stocks. What happened to the "bad news is good news" axiom that has driven Wall Street all these years? What happened to follow the Fed? Or don't fight the Fed? Or all hail the Fed? Maybe reality is: People are realizing they need to fear the Fed because as I've written here in the past, and will say yet again, what happens if they give a party and nobody comes? What happens if a rate cut doesn't solve the problem? And that's followed by another cut? And another? Answer: It means things could be worse than they appear. We'll find out soon enough as the beat (pause) goes on...

Greenberg's been saying this for awhile. The shills on CNBC have been ridiculing him for it.

But even Larry Kudlow sounded rather circumspect tonight following the close of the markets.

Could it be their really is fear that things are worse than everybody thinks?

Nahhh...I bet Monday is a big buying opportunity day.

One thing to note about these August numbers, though - they're only for the first part of August. With companies in the financial sector shedding a lot of jobs later in the month and with Countrywide announcing 12,000 layoffs tonight, the job numbers are probably going to be even worse next month.

Although Countrywide does say they may not lay off as many employees if Uncle Ben drops rates.

Not that there's any pressure or anything.

BTW, what happens to food, energy and commodity prices (already's over $700) after Uncle Ben lowers rates and churns the Fed's printing press up into overdrive?

And what happens to the dollar?

I mean, can you still spend greenbacks if they're in the toilet?

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