Monday Morning Market Roundup: FED begins 2 day meeting on rates…next stop, Less Than Zero??..Jamie Dimon on 2009 and Housing…WH on Big 3…

Markets opened mixed, have all turned negative.  DOW down 77 to 8552; NAS down 33 to 1507 and S&P down 11 to 870, the 10 yr is at 2.54% WOW!!

As the Federal Reserve begins a two day meeting expected to culminate in a rate cut of 50 bp tomorrow, consider recent comments by various former Fed Governors alluding to our ability to operate in an effective negative interest rate environment. Once they go to zero some think they are out of bullets. Less Than Zero…sooner or later we will pay the piper in inflation…

From the WSJ:

…The market expects the Fed to cut its key lending rate to 0.50%. But, more important, investors want to know whether there “are more aggressive quantitative moves soon to come, or are they further down the road,” said Rick Klingman, managing director of Treasury trading at BNP Paribas in New York.

The Fed is scheduled to meet Monday and Tuesday, with its interest-rate decision coming Tuesday at 2:15 p.m. EST.

Aware that its scope to cut interest rates is limited, the Fed already has tiptoed into the arena of quantitative easing, essentially printing money and using the cash to fund lending…

The EU nations are already making noises about ceasing interest rate cuts, remember their mandate is solely to manage against inflation. Our FED does full employment AND inflation, and frankly I have always found that to be a conflict, since economists feel full employment leads to …yes inflation…

On the auto bailout news,  the White House is behaving rather strangely, floating various rumors. Fox reports Bush says, no bailout deal anytime soon, which would IMHO be deadly for the markets. Then we had a report on CNBC saying the bailout could be as high as 40 billion, which is more than double the amount that failed in the Senate. No one knows where it is coming from. We only have 15 billion left in TARP tranche one. A Treasury/Fed combo loan/guarantee program was the assumption the talking heads are making.

Perhaps the reason the WH is playing coy is b/c they are trying to get Congress to be more amenable to accessing TARP tranche deux (I don’t think POTUS’ trip to Afghanistahn would preclude Paulson from putting a package together) ..I don’t know but I do know if they don’t come out with a definitive plan very soon, the markets will begin to respond negatively…

Via Fox:  The administration, following the legislative defeat, said it was considering several options, including using money from the $700 billion financial bailout fund to provide loans to the carmakers. Bush reiterated Monday that tapping the financial bailout fund remains an option. ..

Via CNBC: U.S. President George W. Bush said on Monday an announcement on a auto industry rescue was not imminent, leaving the industry’s fate clouded in uncertainty for a little longer..”We’re not quite ready to announce that yet,” Bush told reporters on Air Force One during a flight from Baghdad on an unannounced visit to Afghanistan.

Updated POTUS report: 11:25am EST: GOOD NEWS! Phil LeBeau on the Auto Beat reports POTUS said on AirForce One:

“This will not be a long process because of the economic, the fragility of the auto industry”

The US Dollar is continuing to drop, and no one can agree where it is headed next, I say Rick Santelli has it right and it has topped, we shall see:

The dollar fell to an eight-week low against the euro and dropped versus the yen on speculation the Federal Reserve will cut interest rates and the U.S. will bail out General Motors Corp. and Chrysler LLC.

The greenback approached a 13-year low against the Japanese currency after U.S. President George W. Bush said yesterday he may use funds meant to shore up banks to keep the automakers out of bankruptcy. The Fed is forecast by economists to cut its benchmark rate tomorrow.

“There is dollar weakness in anticipation of this week’s meeting, where it’s widely expected that the Fed will cut the benchmark rate,” said Lee Hardman, a London-based foreign- exchange strategist at Bank of Tokyo-Mitsubishi…..

Anywho, markets expect 50 bp and for the first time I can recall the markets don’t really seem to care what the FED does.  Sentiment is just that negative.

You wouldn’t know that based on the parade of talking heads who seem to be tasked with ‘talking up’ 2009. I will stick with what Jamie Dimon (JPM Chase CEO) told Erin Burnett on December 11th. Remember, only Jamie got it right on the housing meltdown. One of the comments he made was that he expects housing values to drop another 20%-OUCH!:

Video here and here and here

(more…)

December 15, 2008. Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Big 3, Cabinet, CITI, Economy, FDIC, Finance, Foreclosures, Housing, Labor Department, Obama Administration, Politics, Popular Culture, Simon Pegg, TARP, Unemployment Statistics, Wall St. 3 comments.

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