Posts for Ticker ‘Bernanke’

FOMC: The Certainty Of Rate Cuts

There is no question about Fed Fun Futures showing a 100% chance of a rate cut at 2:15 PM EST today.  The verdict awaited is whether we see a 50 basis point cut or a 25 basis point cut.  We looked at Fed Fund Futures late Tuesday and the our math came to an 86% chance for a 50 basis point cut, or only about 14% for a 25 basis point cut.  So we’re looking at either a 3.25% or 3.00% Fed Funds Rate.

It is the belief of 247WallSt.com that Bernanke & Co. finally saw the whites of the U.S. economy’s eyes about to overrun them in flight over the Martin Luther King holiday weekend.  The 75-basis point cut was the first and it wouldn’t make sense for the FOMC to go back to a wait-and-see posture with only a 0.25% cut.  The WSJ and Bloomberg both have consensus at 3.00% for Fed Funds.

When we look further out at Fed Fund Futures there is a great chance that we may see the Fed Funds rate at sub-2.50% by the of July 2008 and a shot at 2.25% by the end of August 2008.  We caution that using Fed Fund Futures were almost like having a crystal ball under the Greenspan era, but the market doesn’t quite have the same certainty in its predictions so far under the Bernanke regime.  We are fairly certain for a 50 basis point cut today in the both the Fed Funds rate and the Discount Rate, but we will want to wait and see if we agree with the farther dates. 

We still argue that we are in a recession regardless of the economic numbers, although the causes of this recession are far different than past recessions.  The cures are much more different too.  Unfortunately it looks like we all have some debt to pay down and we need to take a spending break.  Rewarding the sins of excessive liquidity and ease of way to much liquidity by offering more liquidity is ironic. 

The Congressional Stimulus Plan is going to take some time.  We think that depository reserve limits will be up for change soon and other stimulus will come into play very soon, including methods of regulators looking the other way on certain ratios, not minding regional caps as much as in years prior, offer incentives in financial mergers, and much more.  After all, why would we have said "Financial Mergers May Be MANDATED Rather Than Preferred" to save the economy?  The great bail-out conspiracies live. 

Rates will help, but we have a solid rough patch to go through whether future short-term borrowing rates are 2.0% or 3.5%.  If we only get a 25 basis point cut, it’s hard to imagine either of Wall Street OR Main Street being fiscally excited about the markets. Stay tuned.

Jon C. Ogg
January 30, 2008

Posted on: January 30, 2008 – 6:31 am in Economy, , , ,

Bernanke Delivers Emergency Rate Cuts

The Federal Reserve has decided to finally take action to at least catch up to the markets with an inter-meeting emergency rate cut.  The FOMC has announced a 75 basis point rate cut in both the Fed Funds rate and in the Discount Rate.  Fed Funds are now 3.50% and the discount rate is 4%.  Just about two hours ago we wondered if the FOMC would do this to come to the rescue.

"The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.  While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households.  Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets….. The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully."

The FOMC also noted that appreciable downside risks to growth remain and it will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

This is what we were hoping for.  While we would have rather seen this occur during market hours, maybe looking a gift-horse in the mouth isn’t necessary.  We still have the scheduled meeting on January 29 and 30 next week.  This won’t fix all of the problems out there, but it’s a start.

Jon C. Ogg
January 22, 2008

Posted on: January 22, 2008 – 8:32 am in Economy, ,

Will the Fed Intervene Early?

Today is going to be a critical day in the financial markets.  U.S. markets were closed on Monday while it was a financial blood bath on Monday in the E.U. and Asia and Tuesday was initially weak as well, although the European markets have stabilized at least somewhat.

The largest culprit isn’t earnings guidance out of companies that have reported.  That actually looks OK if you consider the environment.  This bond insurance counterparty risk could create a whole new wave of writedowns, but it could actually create worse actual charges instead of just paper value charges.  But now we have the DJIA futures indicated down 475 points or so.  Just yesterday we noted the possibility of a 1,000 point drop in the DJIA.

The Federal Reserve is far behind the curve.  It is our belief that a stimulus package will not be limited solely to this $140 or $150 Billion consumer package hinted at last week.  As part of "Financial Mergers May Be Mandated Rather Than Preferred" the Federal Reserve must take actions.  What has to occur is a Fed Funds cut.  Some want 50 basis points and some want as much as 75 basis points shaved off.  But there is also the Discount Rate that needs to be cut even more than Fed Funds so that banks can have a better shot at tapping the discount window at rates lower than they can invest or loan the money out at.

The Bush stimulus package hints last week were not given much fanfare.  If the FOMC decides that it should wait until the January 29 to 30 meeting to take action then they will be even farther behind the curve than they have been this whole time.  We’ve noted that we are already in a recession and the backward numbers just haven’t caught up yet.  Just last week Bernanke was discussing a slowing growth as though "it hasn’t happened yet" and maybe it won’t.  They can wake up and take immediate action to minimize just how deep the slowdown goes into recession. 

Otherwise, well maybe they might want to tell the public that the best way to make money is by shorting the stock market.  Its been more than 20 years since the last crash in 1987, so maybe Bernanke and friends want to see how the public reacts so they can add it to their behavioral theory discussions.

Jon C. Ogg
January 22, 2008

Posted on: January 22, 2008 – 6:56 am in Economy, , ,

Economic Numbers Could Have Been Worse (January 15, 2008)

The markets were bracing for some horrible news on the economic front, and while these numbers are all bad they are not quite as bad as some of the trader chatter was expecting yesterday.

The PPI: producer prices came in -0.1% on the nominal front and were +0.2% on a core basis as measured on an ex-food and ex-energy basis along with anything else deemed volatile.  But on a year over year basis these numbers are still high with +7.2% on the nominal PPI came in at +6.3% (from 7.2% in November), and the core rate came in at +2%.  Expectations for PPI were roughly +0.2% on both the core and nominal PPI.

December retail sales also came in weak with a -0.4% reading, and were -0.4% on an ex-autos basis as well.  Expectations were 0.0% headline and -0.1% ex-autos, but that seemed like a poor estimate that wasn’t factoring in enough.

The New York Federal Reserve’s EMPIRE MANUFACTURING INDEX came in at 9.03.  Estimates were around 10.0.

These numbers may fuel the thought that FOMC has more room to cut rates without inflation spiking higher.  The rumors (more like hopes) of an inter-meeting rate cut were out yesterday, and Fed Fund Futures were showing chances were high for a 75-basis point cut by the end of February.

Jon C. Ogg
January 15, 2008

Posted on: January 15, 2008 – 8:41 am in Economy,

FOMC Comes Up Short (DIA, TLT)

The FOMC did just come out and issue its discount on interest rates today.  We saw a 0.25% RATE CUT FED FUNDS and we saw a 0.25% RATE CUT ON THE DISCOUNT RATE.   That 0.25% dual cut might not be greeted with much love because many were hoping for a 0.50% cut perhaps at least on the Discount Rate.  The FOMC has noted several issues:
Slowing and intensification of housing,
the strain to financial markets has increased,
core inflation readings have improved modestly but higher energy prices could impact that,
balance of risks with a bias to inflation is gone.

Here is the page where you can access the full statement from the FOMC and compare to prior rate cuts. Here are critical developments around today:

At 2:11 PM EST the DIAMONDS Trust (AMEX:DIA) thattracks the DJIA was up $0.37 to $137.76 and the iShares Lehman 20+ Year Treasury ETF (NYSE:TLT) was up 0.7% at $91.89.  The DIAMONDS are now down 0.4% or so.

We won’t rush for the doors nor will we get the pom-poms out for this one today, particularly as many planned FOMC meeting reactions are ultimately reversed more than once in the minutes after an FOMC announcement.

Jon C. Ogg
December 11, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: December 11, 2007 – 2:23 pm in Economy, , , ,

Fed Increasing Public Forecasting; To Confuse Further

The FOMC under Bernanke is now saying that it wants to increase its communication to the public and will increase its public forecasting from twice per year to four-times per year.  This pertains to public reports that are made by Federal Reserve Board members and Reserve Bank presidents and released to the public.  It will also begin a 3-year inflationary forecasting rather than a two-year.  It will also begin forecasting headline CPI rather than just the Core-PPI which excludes food, energy, medical, and everything else that most of us use every day.  Here is the full list of changes:

  • overall personal consumption expenditures (PCE) inflation,
  • as well as for real gross domestic product (GDP) growth,
  • the unemployment rate,
  • and core PCE inflation.
  • Projections of Nominal GDP Growth will be discontinued.

The full link to this is here at the Federal Reserve site.

Traders may actually like a more open Federal Reserve, but 24/7 Wall St. wonders how this will be any more accurate when you consider how the Fed has been behind the 8-ball over and over.  This is good on the surface, but the old maxim of  "be careful what you wish for" comes to mind when it boils down to forecasting out of academic economists.  Unfortunately, the Fed’s crystal ball is usually no better than that of the bond market.

Jon C. Ogg
November 14, 2007

Jon Ogg produces the more detailed 24/7 Wall St. subscriber-based Special Situation Investing Newsletter; he does not own securities in the companies he covers.

Posted on: November 14, 2007 – 9:56 am in Economy,

Cramer Calls It Open Buying Season

On tonight’s MAD MONEY, Jim Cramer said he was taking away his "they know nothing!" button from his rant about the FOMC.  Now Cramer is saying the Fed has finally acted and now they can’t really be criticised because they now know.  He thinks this may avert a larger crisis.  Cramer said he wants you to tune out the people that say this rate cut didn’t matter, because this will be the first of many cuts.

He thinks you can buy almost everything now because almost everything will work now.  The sellers are basically done selling now.  If you want some of his idea lists, here are some:

  1. Here is his list of Top 9 Picks for 2007
  2. Here is his "New Four Horsemen of Tech"
  3. Here is his Mortgage Madness Portfolio
  4. Here are his numerous picks from the fantasy football stocks…
  1. Here are his Top China Picks
  2. Here are 10 of his Warren Buffet Stock Reviews, and a second group of them.

By the way, Cramer won a huge score with his "Mortgage Madness Portfolio" that performed so well today.

Jon C. Ogg
September 18, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: September 18, 2007 – 5:23 pm in Cramer, ,

FOMC Delivers With 50/50 (September 18, 2007)

Today was the planned FOMC decision on interest rates and it seems there was a split between those looking for 25 or 50 basis points.  We were in the latter group, or at least that is what we think it will take to smooth things out with added measures down the road (perhaps not in fed funds ahead though).

We got on the 50 basis point cut to 4.75% on FED FUNDS and got a 50 basis point cut to 5.25% on the DISCOUNT RATE.  The markets have initially reacted in favor when you compare NOW to 2:10 PM EST.  The DJIA is now up some 200 points, although we won’t speculate where these end up.

Here is the STATEMENT from the FOMC.

If you’d like to compare how this looks in comparison to the minutes of the August 7 meeting (released August 28), you can link to that here.

Here is a snapshot of where the markets were at 2:10 PM EST a few minutes ahead of the decision:
DJIA          13,478.86; +75.44 (+0.56%)
S&P500    1,485.77; +9.12 (+0.62%)
NASDAQ    2,591.06; +9.40 (+0.36%)
10YR-Bond 4.501% (+0.031%)

This follows today’s PPI release today that was great for the inflation hawk worries, although I have heard more people questioning the data than there are believers.  We also had the weakest homebuilder sentiment reading supposedly in about 20 years.

Jon C. Ogg
September 18, 2007

Posted on: September 18, 2007 – 1:23 pm in Economy, , , ,

FOMC Acknowledges Concerns, But No Real Rescue Feelings

The FOMC has spoken, and as expected rates were left unchanged at 5.25%.  Here were they key phrases we looked at:

The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent. Economic growth was moderate during the first half of the year.  Financial markets have been volatile in recent weeks, credit conditionshave become tighter for some households and businesses, and the housingcorrection is ongoing. Nevertheless, the economy seems likely tocontinue to expand at a moderate pace over coming quarters, supportedby solid growth in employment and incomes and a robust global economy.

Readings on core inflation have improved modestly in recent months.However, a sustained moderation in inflation pressures has yet to beconvincingly demonstrated. Moreover, the high level of resourceutilization has the potential to sustain those pressures.

Although the downside risks to growth have increased somewhat, theCommittee’s predominant policy concern remains the risk that inflationwill fail to moderate as expected. Future policy adjustments willdepend on the outlook for both inflation and economic growth, asimplied by incoming information.

The Statement from the June 28, 2007 meeting still noted moderate growth despite the ongoing adjustment in the housing sector.  The FOMC needed to address this housing to include serious recent changes in lending markets.  It also previously said it expected the economy to continue to expand at a moderate pace over coming quarters.  The FOMC also stated on June 28: In these circumstances, the Committee’s predominant policy concern remains the risk that inflation will fail to moderate as expected. Future policy adjustments will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.

CONCLUSION……

No one was expecting a rate cut today.  What was expected was more accomodative and easier language that showed concern about the credit markets.  The FOMC isn’t showing any real concern over the market malaise in housing and the liquidity crunch seen in the credit markets.  This is not going to be viewed a Federal Reserve that is nervous nor one that is going to come to the rescue any time soon.  So far the DJIA, S&P 500, and NASDAQ have dropped well into negative territory since Bernanke & Co. have spoken.  The market probably won’t think these guys are completely asleep at the wheel, but there definitely isn’t any sense of this FOMC wanting to be a guardian angel.

Many of these initial post-FOMC market reactions are rapidly reversed, and the Fed-Speak language here is always open to at least some ongoing interpretation.

Jon C. Ogg
August 7, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: August 7, 2007 – 1:23 pm in Economy, , , , , ,

Tech Tuesday: All About Cisco Systems & The Fed (CSCO)

Tomorrow is going to be an interesting day after a massive rally Monday.  The market is going to be looking to the FOMC for soem stability on the economic outlook and hope that Bernanke & Co. say they are carefully monitoring the slide from subprime into the rest of the economy. 

Tech stocks will potentially have to wait for the market close before hearing Cisco Systems results for the quarter and fiscal year.  Shares of Cisco barely made it into positive territory closing up $0.04 at $29.50 Monday.  If you want a full earnings preview from Friday, you can see it here.  Here are the basics if you just want the basics: $0.35 EPS and $9.29 Billion revenues.  Next quarter estimates are $0.36 EPS and $9.38 Billion in revenues.  If we get any fiscal July-2008 targets from the company, estimates are currently $1.55 EPS and $39.7 Billion in revenues.  If the company only gives guidance in percentages for fiscal 2008 you would get a static 2008 to 2007 implied 16.5% gain in EPS and a 14% gain in revenues.

Even after the drop Friday, shares are up almost 10% over the last quarter.  That $30.00 barrier is still an issue and has been difficult for the stock to hold.  Analysts on average have an average target of $32.00 to $33.00, and we gave a scenario earlier in the year for a $34.00 target mid-year that has yet to be seen.

As a reminder, the company is in that new $5 Billion share buyback plan we thought was a bit odd only two weeks ahead of earnings and this is still one of Jim Cramer’s TOP 2007 PICKS.  If Cisco upsets the market it may have additional fallout in the sector, particularly as the street thinks that they are the key leader winning more and more business in the sector.

Jon C. Ogg
August 6, 2007

Jon Ogg can be reached at jonogg@247wallst.com; he does not own securities in the companies he covers.

Posted on: August 6, 2007 – 3:49 pm in Earnings, Technology Companies, , , , ,