Morning Report: Wall Street Prepares Guillotine for Bernanke
If Bernanke doesn't act, and act aggressively soon, Wall Street will have his head. Also, constitutional rights are in question as Michigan Democrats are ruled irrelevant by party bigwigs.
(Stocks in this article: NYSE: SPY, NYSE: DIA, Nasdaq: QQQQ, NYSE: SDS, Nasdaq: INTC, Nasdaq: ASML, NYSE: JPM, NYSE: IMB, NYSE: DAL, NYSE: NWA, Nasdaq: AAPL, NYSE: AMR, NYSE: BA)
The fear of spreading wildfire has investors heading for the hills globally today. The theoretical disconnect between U.S. and global markets was not supported overnight as markets from Hong Kong to London moved sharply lower. News from Intel (Nasdaq: INTC) and JP Morgan Chase (NYSE: JPM) helped momentum build on the recession slide.
Here at The Greek, we may have taken our ear off the heart of the market with it plugged to the rail for the next significant move. Our forward looking, mostly prescient effort, sometimes underestimates the herd mentality late to the game momentum investing that still pervades the market. It's why we were early to predict recession. This recent weakness is hard to bear, but the more the pain, the more strong the medicine should be from the Fed and the government. The Fed had better move 50 points at least, and that may not even be enough now to sooth this market. We want to see the Mishkin's theoretical "big one" play out. The medicine the Fed can administer to sooth the market is a 75 to 100 point cut at this point. Anything less is just going to temporarily ease the migraine pressure.
The president might actually be willing to bear some pain here in order to see oil prices ease. If George plans to wage war against Iran, or more likely put down Iranian rebuttal after Israel bombs away at Iranian facilities, then he might like to see oil prices ease to a lower starting point from which they would rocket. What's more important to the president, seeing Republican succession or completing his legacy as the post-911 dismantler of the "Axis of Evil?" Americans rally in the event of war, so both may in fact result from the same path. One thing is certain to us, Israel will not risk a Democrat in office and an Iran with ongoing nuclear development. So, Israel's timeline sticks well-within Bush's tenure.
At the same time, the president's last State of the Union Address should offer viable stimulus, and Bernanke's meeting the day after should also offer an injection of confidence, IF Ben doesn't act sooner. There is need for emergency meeting, as the U.S. walks the ledge of market crash. Wall Street will have Ben's head if he fails now.
Consumer Price Index (December)
As oil prices eased a bit in December, headline CPI rose 0.3%, still a tenth more than consensus estimates were pointing toward. Core CPI, which excludes food and energy, climbed 0.3% and is disconcerting to us and should be to you as well. CNBC's Rick Santelli is again spot on regarding this one, and the Bloomberg article linked here is off. The Fed needs to react strongly here, not to stave off recession, but to help speed the clean up process. It's too late now to head off recession in our view as well, and I am again growing tired with Bernanke. Look for Mishkin to replace him soon, or Kohn. The market will have nothing less than his head.
Year-over-year, Core CPI rose 2.4%, which is above the target range for inflation growth in the Fed's dream world. We reiterate that in the Fed's own words, inflation targeting should not preclude short-term emergency actions. Quoting The Who, "Let's see action!" Headline CPI growth reached 4.1% in 2007, and that is scary. If food and energy matter, as we believe here at The Greek, inflation should spread further into broader goods and services soon.
The Bloomberg article speculates that easing consumer demand will limit corporation opportunity to pass on rising costs, but my friends, the danger of global economy presents. With the dollar weak overseas, U.S. firms might not cut prices in the states and instead just boost sales overseas, while also cutting employment here. Yikes! That has the taste of stagflation to it, and I'm not feeling well.
Mortgage Refinancings Take Off
A rare helpful result of flailing economic health, and a late, but still cutting Fed, is mortgage rates testing 2005 levels. This past week's Mortgage Applications Survey from the MBA showed a 43% increase in the Refinance Index. As we said, lower rates treat the illness, which is better than treating the symptoms if you want cure. Let's get these bad loans refinanced, strengthen the underlying paper. Do that and the derivatives become more viable as well. Problem solved. Can it really be that simple? Love to hear your comments. Please see the comment link below the article to let WSG's many readers gain exposure to your wise opinion.
Romney Wins Michigan & State Dems Muted by Bigwigs
The Greek is open-minded and shares views from both parties, while leaning Republican. The only reason I choose a party at all is because it allows me to play a greater role in the selection of our leadership. The pro-life issue, however, is critical in my belief structure, and while I believe free choice exists, and man can commit his own sins and be judged by the only judge that matters, I also see sin in helping others commit sin. So, that's why I have to stand for pro-life and the main reason I'm Republican, outside of my capitalistic tendencies.
When I see dirty tricks on either side of the table, I have to point them out. The Democratic Party's decision to penalize Michigan with no delegates for its early primary choice is illogical, unfair to the citizens of Michigan and unconstitutional. The party should face the court system for this. It's purpose is purely selfish, to best elect the candidate its party leadership chooses, and take that choice away from Democrats. At the same time, I believe it is also intended to disrupt the Republican primary, by attempting to offer Democrat votes for non-viable Republican candidates in open primaries. The purpose here is purely disruption.
Why was Hillary still on the ballot, and Edwards and Obama off? We believe Hillary is the party choice, and Edwards and Obama were duped into taking their names off-ballot. Meanwhile, some Democrats went to the polls attempting to disrupt the Republican race, but the effort seems futile. With the party so dispersed this year, Democrats chose either to vote for Hillary, to vote against Hillary, or not to vote.
In aiding McCain to win a few years ago, nothing was gained. Also, it's entirely possible voters were unsure who would be disruptive to the Republican election this time around, and Romney may have thus garnered some Dem votes, considering he won so handily. We still believe Romney is the best candidate to lead America in the years ahead, and we expect he will be the nominee and president. So, nothing is gained by taking the voting rights of Michigan Democrats away except violation of their constitutional right. If I were a Michigan Democrat, I would be fuming today that my American right to vote was muted by some bigwigs who think they can choose for me and rule me irrelevant! I say that as an American.
Market-Moving News
- Financial Times: Recession Fears Spark Global Sell-Off
- AP/Yahoo!: Trouble at Intel (Nasdaq: INTC)
- Consumer Price Index Dec. Core In Line at +0.2%, Headline Hot +0.3%
- CNN: Romney Takes Michigan
- Mortgage Bankers Association: Mortgage Applications Take Off on Refinancings
- Treasury: Treasury Int'l Capital Nov.
- Fed: Industrial Production & Capacity Utilization
- Bloomberg: China Still Heavy on the Brakes
- Platts: Crude Collapse
- CNBC: IEA Cuts '08 Demand Forecast
- EIA: Petroleum Status
- ECONOMIC REPORT 1:00 - Housing Market Index
- ECONOMIC REPORT 2:00 - Beige Book
- CNBC: Supreme Court Limits Shareholder Suits
- MarketWatch: Dollar Pressured Vs. Yen
- AP/Yahoo!: 2 Japanese Indicators Sour
- Yahoo! Earnings Calendar
- Bloomberg: JP Morgan Chase (NYSE: JPM) EPS Drop 34%
- CNN Money: IndyMac (NYSE: IMB) Slashes Workforce 24%
- CNN Money: Northwest (NYSE: NWA), Delta (NYSE: DAL) Look to Hook Up
- AP/Yahoo!: Apple (Nasdaq: AAPL) Bets On Online Movie Rentals
- SA: What is Intel (Nasdaq: INTC) Really Worth
- MarketWatch: ASML (Nasdaq: ASML) Order Book Lacking
- BBC: Pakistani Militants Capture Gov't Fort, Weapons
- The Greek's Week Ahead - Gauging "Substantive Action"
- Greek: Buy Investment Banks
- Greek: Sunset for Solar Stocks
- Economist: The Geopolitical Week Ahead
- Iran Daily: Tales from the Dark Side
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posted by The Greek | 9:30 AM
6 Comments:
"(if)...George plans to wage war against Iran, or more likely put down Iranian rebuttal after Israel bombs away at Iranian facilities,"
Significant military action indeed seems to provide a way out of this conundrum:
Inflation poses imminent risk to worldwide growth. And while recession is the greater evil, deflation is necessary to sustain another cycle of growth.
If deflation happens under the cover of geopolitical tumult, world currencies can reset, and Central Bank fund rates adjusted to historic lows. The political windfall is also obvious.
Oh, and the decoupling of world economies, certainly vis-a-vis capital markets is pure bunk. I believe even Schiff has that one wrong.
Love your blog! and appreciate your commentary.
2 comments, though: refinancing, even if rates are favourable, is not trivial, in light of falling home prices. It forces home owners to re-appraise their property (mark down their equity), in in some cases put more money down (margin call...)
The second comment has to do with Iran: as an Israeli, I have to tell you that your believe in the abilities and will of Israel to take on Iran seems too strong to me. Israel has a weak government, a prime minister that is still awaiting the findings of a special committee invetigating the Lebanon debacle, not sure he will be willing to risk further military complications any time soon.
I agree: lowered rates are no panacea.
Lenders are demanding tighter standards. Stated income loans are virtually non-existent. Country-wide (for example) is requiring 50bp 'insurance.' And as the comment points out, loan-to-value ratio is dropping as properties depreciate. This has the dual effect of 'margin calls' for the loan but also imposes the PMI requirement for many people. Those that cannot afford only add to the glut of unsold homes offered at foreclosure levels.
An UGLY, positive-feedback system.
Today's news on CPI only underscores the problem:
"For full-year 2007, the CPI increased 4.1%, which was the largest gain since 1990. The core CPI advanced 2.4% for the calendar year."
Lowering rates from here can only stoke inflation, even in turn down. How does the FED deal with Stagflation?
And now many are complaining about the FED's new communications policy, which has upset the apple cart with foreboding remarks.
One way or another, deflation is required (IMO). As both commodities and equities fall, bond prices will presumably rise. Only this will lower mortgage rates in sustained fashion, allowing the FED to FOLLOW the market response.
Good point about the housing retest. Without the collateral, they would end up paying up for the same sized loan, if George and the Banks didn't have a talk...
Regarding Israel, an Israelite would probably know best, but I suspect you would wipe out their entire army via the air before they even crossed Iraq.
Is it the missiles you are concerned about? The U.S. would take out the silos in a matter of days. The real risk is if Russia helped out more than expected. A submarine fires some torpedoes; does anybody really know where they came from... or if China decided it needed that oil bad enough to take it. Either way, the U.S. would be hurt, not really Israel.. unless some nukes have been developed or purchased.
more affects of home price depreciation...
right now, even in the midwest, homeowners are lobbying to have property taxes reduced
lost state revenues will result
taxation will increase
yet another stagflationary feedback loop
Markos....this is from the Washington post earlier this week 1/15
What am mess.
MIke M
Begin forwarded message:
As much as she's here to explain what to do inside the booth, Dingell -- wife of the long-serving Rep. John Dingell and Democratic Partycommitteewoman -- is also going to explain how it's come to this: how a large industrial state was stripped of its convention delegates and how voters can't even write in the names of their favored candidates. Stating the obvious, Dingell says, "I am not happy."
This is the "Mishegoss in Michigan," now seven years in the making. It began in 2000, when Dingell and Sen. Carl Levin (D-Mich.) approached the DNC about changing the presidential primary system that gave preference to Iowa and New Hampshire when it came to first-in-the-nation status. Dingell and Levin were promised the issue would be addressed. Three years later, Levin threatened to move the Democratic caucuses to the same date as the 2004 New Hampshire primary. Again talked down by the party leadership, Dingell and Levin were told that a commission would examine adding additional states to the early part of the campaign.
The result? A January caucus for Nevada and a primary for South Carolina. Michigan Democrats weren't thrilled, but agreed to keep to their Feb. 9 slot so long as both New Hampshire and Iowa stayed with their assigned dates. When it became apparent last year that New Hampshire would move up its primary, Michigan Gov. Jennifer Granholm signed a law in September setting up primaries for both parties on Jan. 15.
What happened next was simply chaos. The DNC threatened to strip Michigan andFlorida (which also moved up its primary) of their convention delegates. On the other side, the Republican National Committee took away half of the state's delegates. All the Democratic candidates signed pledges not to campaign in Michigan.
Then some candidates went even further: Citing loyalty to party leaders in the early states, Obama, Edwards, Bill Richardson and Joe Biden said they no longer wanted their names on the ballot in Michigan. In order to receive write-in ballots, the four had to agree to accept them -- which none of them did. (Hillary Clinton, meanwhile, kept her name on the ballot. Her ally, former governor Jim Blanchard, told the Detroit Free Press: "Hillary's strategy is not just to honor the DNC's rules, it's to win in November. Michigan's important.")
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