Wednesday, October 08, 2008

Nevermind...

Wow, practically as soon as I wrote the last piece, everything reversed. Swap spreads are still modestly tigher, but stocks, CDS, Treasuries all back to recent patterns. Good times... good times...

We'll eventually see a bounce in risk product, but I'm not positioning for it. I'm selling all rallies.

6 comments:

  1. The rate cuts are a mistake IMO. Not only does it have minimal impact on the problems unfolding right now, it basically uses up FedRes' ammo for the next few years (I'm ruling out going down near-zero rates.) This also raises the inflation threat in the future. Although I have never been in the inflation camp, the rate cuts push me in the inflation direction.

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  2. Hasn't the market already cut rates ? It seems that the Fed's rate cut is simply to maintain its credibility. It has not been able to maintain anything close to its target for the better part of a month:

    http://macrobuddies.blogspot.com/2008/10/steering-fed-funds-rate.html

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  3. I think this market's motto is "the maximum amount of pain for the maximum number of people"

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  4. This comment has been removed by the author.

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  5. But what is the FedRes to Do now? If does not cut rates, Bernanke would be a "Nero who fiddled while Rome burnt" because the general perception would be that the Fed Res is doing nothing to contain recessionary expectations.(As it stands the US is struggling to keep up with its 2% growth rate) If it does, Sooner or later Inflation would have to be factored in. I think the Fed Res is cutting rates merely to show some activity on that front. As Murph says, it is just a measure to build Credibility...

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