Wednesday, October 31, 2007

Dazed and Confused

Happy Halloween and FOMC day!
This morning I had some personal things to do, so I had today off. I was able to hang around and read headlines and watch the CNBC channel for a while before and after the FED rate decision. I must say, it was a very confusing day. It was a strange feeling watching grown adults that are allegedly employed in the financial arena parade silly ideas around all day. I do not mean they said things that I personally do not agree with, that what makes a horse race, but just absolutely silly and/or contradictory things that make no sense at all. The really funny part is that not one talking head or analyst ever questions any of the dumb stuff that is said on TV. Journalists, and I use the term very loosely, do not even try any analysis in their reports, they just trumpet whatever their press piece says. I tried to jot a few notes of the really good stuff for tonight's post. In no particular order, here is today finest of financial coverage!

The FED Sets the FED Funds rate, Unless the Market Does
I am extremely loosely paraphrasing above, but this exact sentiment was uttered during "The Closing Bell" segment by some guy. The FED acts independently after reviewing all available data. The data has shown that a cut was not needed at this time. The markets had already baked a cut into the ever expanding cake of help they expect, so the FED had no choice but to cut. Circular logic at its finest.

The FED statement was Hawkish, but the Language does not Matter
The FED statement today could only be read as at least weakly signaling no more rate cuts this year. Stocks went down pretty hard. Then a new idea swept the markets! The FED has to say that hawkish stuff so the market does not "price in" more rate cuts, so that when they do cut, we will be surprised! So that means they are going to cut more, so lets reset the cake bake mix and put that in as well. Markets rallied strongly to the close. Confused? I am too.

Speculation is Reckless, Hurtful, and Irresponsible, Unless its in Things we Need Speculation In
The rise in Oil prices was lambasted a pure speculation. One talking head said that easily 30% or more of the price of Oil is pure speculation by traders. Ditto for Gold. The consensus was that greedy nasty speculators were pushing up commodity prices across the board, and something needs to be done to reign that in. However, speculation is desperately needed in housing to push prices back up because all the reckless folks bidding up homes are now underwater. Google busts out over $700 a share and that kind of trading is all good. I am not kidding that this kind of stuff was going on today. To add to a wonderful Minyanville phrase of "Inflation in things we need, and Deflation in things we want" the new phrase should read "Speculation in things we own, and No speculation in things we need to get". I'll tell you what Mr. market, lets go ahead and chop off 30% from Gold and Oil, and you chop off 30% from homes and the DOW and lets stop speculation today. Just say no as the saying goes.

Housing is only 5% of the Economy, But we Need Rate Cuts to Save the Financial System
This was easily the most repeated and most confusing idea going on today. Person after person repeated the "housing is 5% of the economy" mantra. Not one talking head or analyst asked where that number came from. Lets assume its true. In the same breadth these people are calling for rate cuts and other FED help to end the housing bust? If I had 95% of a Big Mac, I would be just as full. If I had 95% of my paycheck I would be fine. If housing is only 5% of the economy, why do we need such drastic intervention to prevent banks from failing? Why do we need to stop foreclosure rates from skyrocketing? If its only 5%, then really all this stuff is way overblown. Obviously this one wins for super silly idea of the day, and again not one analyst or talking head ever brought up the issue.

That's a collection of some of the better chatter going on today. I fully admit that I can offer nothing on these matters. I could dig out data, charts, a Ouija board and still not get through to anyone that can buy the crap listed above. The totally absurd things I saw and read today have convinced me of two things:
  • There will be NO downward movement is stocks in the next calendar year
  • The housing bust will be bailed out on the banking end, but through blind instruments and FED shenanigans. Do not get me wrong, home prices are going to continue to fall, foreclosures are going to go parabolic, and the home buying industry will be crushed. Just do not expect to see any macro fallout involving banks or major brokerage firms. They will be well cared for. In time the housing problems will not even get a headline, as its only 5% of the economy anyway!

That's my take from today. The dollar continues it push to the 70 mark on the dollar index. Gold almost topped $800 an ounce. I have another poll on the dollar up today, please check it out.

Have a good, if confusing, night.

18 comments:

Anonymous said...

I am still here visiting daily. Liked the Death Star Post! Too funny..... but you left out our beloved Jarjar... eh I mean bushy.... hehe

Keep up your great work and your opinion/views are always appreciated.

My bro and I are considering buying some South African Gold this week. We see it heading for $1000 as this rate cut wasn't necessary. It's a sad state of affairs when holding cash is a loss..... why even bother working?

G

PS Yeah the wife just lost her job and things in the job lineup don't look too hot for me either. Joy.. oh yeah and I got a serious cold yesterday... Happy Halloween!

Anonymous said...

why even bother working?

I quit at the tender age of 51, cashed in on the CA house in 05 and retired. I had already loaded up on gold and silver in 03 and I could take an early retirement plus I was debt free. Working for what I saw as a depreciating currency just wasn't worth it. The fall of the dollar is living up to my expectations that I saw then.
I moved to one of the states that The Economist magazine called America's New Ghetto and bought a small farm and a couple of house and paid less for them then I did for my truck plus one of them was furnished so if I ever need a rental I have one. I grow most of my own food now and do what I want to do not some multinational. The amount it takes to live on out here is minimal compared to CA which works well as I try to keep my income as small as I can to keep from paying anymore taxes then I have to. After living in CA for 51 year and having now moved out here all I can say is I will never move back.

Kevin

Anonymous said...

Kevin,

I am totally envious! You have explained exactly what I want to do right now and I am 30! If you need a farm hand let me know! I will work for food and shelter!

G

BradH said...

Your observations on the TV 'analysts' is dead-on. They're just pathetic. However, it's scary when the 'professional analysts' do the same thing.

However I do not agree with your conclusions and think neither of them will come true. But we'll see.

getyourselfconnected said...

Anonymous G, glad ypu are still coming by to read. I really like the Death Star post, but not one link anywhere on the financial blogosphere was kind of dissapointing!
Kevin, sounds like you did it, and are doing it right. Few people realize how much a low stress life adds years of real health to ones life. Its better than health food!
Bradh, today's action certainly made my call yesterday look bad, but I will post some ideas on the down day in a bit.
Glad everyone stopped by, and 4 comments is a new record for Economic Disconnect. Come on back.

Anonymous said...

G

When I sold my home in CA I sold it way below what I could have gotten for it, I did a FSBO to a guy with a family that is younger then you are with the only requirement that the purchase had to be cash. His grandmother passed away and left him some money about the time I was getting ready to sell so he had the cash. I took what it had cost me to have it built in 84 and multiplied it by 4% which was about 100K less then surrounding comps. I did this for a couple of reasons.1 It had served my purpose and my kids were grown and gone. 2 I figured that a break even was good enough for me. 3 Some of you young guys are going to need to come threw this intact. 4 I may be just a tad to honest but I couldn't see screwing someone when I knew damn well what was going to happen. I also told this kid that CA was in a housing bubble and that the price could fall to what he was paying me and his money would probably be better invested in gold. In the disclosure statement I included that in my opinion we were in a housing bubble and that whoever bought it could lose money.
I sincerely hope he makes it.

I live in the sandhills of NE it gets cold in the winter and snows like hell and it can be hot and humid in the summer but the water is clean and good, the sky is blue, wildlife are everywhere and I have a nice trout stream about a mile from the farm.
The closest McDonald's is 30 miles, the closest Wall-Mart or any shopping centers is about 200 miles. We do have high speed DSL which I do require for trading. I'm not a thing person my self but most young people from my observation are including a couple of my 4 grown kids. They wouldn't live out here for anything.


Kevin

Anonymous said...

Kevin,

Well my father in law just retired and put a large home on 13 acres in upstate NY. I know visiting isn't the same as living in harsh conditions but I have also been in Fl for 20 years and let me tell you the heat and humidity are hell without AC! I am currently in the job hunting market again and if things don't pan out within 6 months I am going to move up north with the in laws. (space isn't an issue up there) I am kicking myself for not buying gold and silver sooner but it's still never too late to pickup some more Oz when the money is there. Your location and living conditions sound absolutely fantastic as I am sick and tired of Florida traffic and heat. Everything here is being bulldozed over and paved for more crappy condos and overpriced zero lot line homes. I am 30 have a wife and one child and to be perfectly honest I am considering packing up and just starting new some where else. I don't think our situation here in the US is going to get better. Are you more of a survivalist being where you are or just wanted to be left alone?

G

westwest888 said...

What if Ben Bernanke is using dollar devaluation in a game of chicken with China to force them to abandon the currency peg? Exhibit A:

"The authority sold HK$7.828 billion ($1 billion) to defend the currency yesterday, twice as much as two previous interventions since Oct. 23."

I think the Fed knows everything we know, and then some but when they speak it's to a world audience so they're tight lipped. To us, it appears they're trying to destroy the currency. I think they're doing something analogous to seeing how far they can pull the cooling rods out of a nuclear reactor without reaching critical mass. Except the reactor is the global economy and the fuel is China.

Congress, the cabinet, and the state department can't seem to get China to let the Yuan (RMB) float. But maybe that rogue branch, the Federal Reserve, can force their hand. And can they restore the currency's former value afterward without sending us into a huge recession?

Anonymous said...

I'm in a love/hate relationship with virtual memory because of the way prices are always,and I mean always dropping. I hate buying SDs for my R4 / R4i at (seemingly) a crazy bargain price only to see it become a whole lot more cheaper a couple of months later.

(Posted by NewPost v2 for R4i Nintendo DS.)

Anonymous said...

I am disappointed that this one doesn't have starwars references

Anonymous said...

Ya i completely agree more STARWARS YAY!

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Derp

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No u

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