Fed moved its rate (Wall Street is a powerful lobby...and 'free money' is like crack for anyone in finance). But the stressed parts of the economy are almost all tied to the Prime rate, not the Fed rate, so ... poor Ben is still going to get it from all sides. (I think he's doing o.k., he just hasn't learned the art of how to jawbone the market. It's a fault of being a plain-talker ...).
... almost every time I hear a GOP candidate pandering with platitudes about unleashing business activity by cutting 'Washington regulation', I feel that I need to check that I still have my wallet ...
Cheap money almost always "works". Almost. Just bear in mind that Japan has had 0.5% interest rates for almost a decade, now ...Meanwhile, as you wonder about how the GOP makes America strong, remind yourself just how wonderful the world of deregulation can be (i.e. how much the current sub-prime 'failures' will cost taxpayers and consumers).
Not all deregulation has been abysmal, but the recent past has been like a nightmare. Those poor Californians are still swimming from energy-market deregulation under Bush ... So, every time I hear a GOP candidate pandering with platitudes about unleashing business activity by cutting 'Washington regulation', I feel that I need to check that I still have my wallet ...
WHAT WE'LL FIND OUT TODAY - READING THE MIND OF THE MARKET
We'll find out today why people are selling (or, why they will be buying).
Believe it or not, the fall in the market is consistent with a view that inflation (in combo with the inflation-risk premium) goes up from a long-term rate of, say, 2.5% to 3.5%. Can't fight that with lower fed rates ... the market will bounce, but just a little, until the source of those price rises gets tamed. (Just to be complete, that's a bigger pickup in inflation than is warranted by the weak dollar alone, on my estimates, anyway).
Now, it's unlikely that the view is that "core" growth falls by 1%, but if a lot of people are worried that long-term growth is seriously at risk because of the unsustainability of negative trade patterns, cut-tax-and-spend policies, or lost potential due to permanently higher energy costs, then we ought to see only a muted rebound.
If it's just fears over a sharper-than-expected recession (sub-prime woes), then we also will not see a rebound, until earnings start to provide disconfirming evidence, if any.
So, the only scenario in which we see a sharp rebound is in the case of generalized anxiety over growth or worries about the financial system itself (raised by these bond-insurers who don't have "enough money" based on a "revised" risk model that itself might be wildly incorrect).
