Gun's to Bens head...Ben will blink...
With the financial distress apparent and likelihood of either being in a recession or near one, why are not short term interest rates at 2 % [Fed Funs]?
Because the Fed and Ben are sober minded inflation fighters.
BUT....when push comes to shove. When the big players are screaming in pain [Citi, Countrywide, MBIA, WM, on and on] which is the markets own way put a gun to the Feds head...which priority will win out??
Reflate or hold the line on perceived inflation risk??
Bet on reflate every time when push comes to shove and shove it has come.
Ben Bernanke and no other Fed official wants to go down in history as the one who fought inflation but let the system fall into an imploding morass of economic dislocation, the likes of which we have not seen in 50 years.
The Fed. has not sufficiently "gotten it" until this week.
We think the Market screamed in their ear and finally got their attention with Countrywide at $5, MBIA at $11 down from $65 on Oct., and C. and on and on.
The Fed can ignore a New Century Financial bankruptcy last Feb. and it did but it can not ignore our MAIN financial players signaling acute distress that is symptomatic of distress that threatens our economic system.
These people live in an elite world, they talk to each other. They know what each other is thinking. Robert Rubin, former Treasury Secretary and main player at C can get on the phone and give an earful to Ben Bernanke any of time of the day.
What we're saying is that the Fed. will give the market what it wants and the market threw a tantrum to drive that point home.
The Fed. has no choice in the matter. Ideology be damned, inflation fighting will take a back seat to saving the system.
Will it be enough?
Does not matter in the short term. It's about perceptions and the market knows the above as of today.
Result...bottom is likely in short term.
It got ridiculous. Tech earnings are expected to be up 22% and the market acted like they were Mike Tyson washed up. Shorts are in for a rude awakening if they do not quickly abandon that silly notion.
TRed
