Replies to post #39566 on Zeev's Turnips Patch-No Politics (ZEEV)

[satorino]

Zeev,
this is one of your most lucid writing. bellissimo.
satorino

[mainehiker]

Zeev totally agree that rates should be
raised and your reasoning is clear....but not sure he wont cave in and cut

[Softechie]

AG manipulating the market?

[Pinhi]

Zeev, outstanding post re: raising rates. Couldn't agree more FWIW.

Pinhi

[lostalot]

Zeev: Lower rate will keep consumer spending floating in the mist of huge consumer confidence drop in Oct. It is the consumer spending to keep economy dipping back to recession. Fed must do everything they could to keep consumers to spend. So, I want Fed to lower rate rather than raising rates. Neither lower or raising rate will prompt business to spend anyway.

[gtober]

Zeev, i tend to agree with your conclusions. But, could the consumer handle a rate hike at precisely the point in time they seem to be crapping out.

GT

[jdaasoc]

Agree that next move is not down. The longer he hold rates steady, the more pressure for completion of bonds assets into equities conversion that has happened since 7/22 will continue awaiting the recovery in economy.

Rate hike is coming next year when pricing power returns to the likes of CSCO INTC etc.

That is wild card. Pricing power right now looks ropey and lower rates don't help one iota.

[Gizmo]

Just chiming in here <g> Good post.

Gizmo

[leon]

i think zeev is absolutely correct on what should happen. but, what should and actually does happen are not necessarily in sync. it seems to me that regardless of the feds action next week we are going to be presented with an excellent trading opportunity. if the fed stands pat, i would expect an initial plunge in the mkts followed by a strong rally after the consensus view formulates that the economy must be stronger than "we" realize or the fed would have lowered. conversely, any cut will probably be met by strong buying pressure until that same consensus few now recognizes how really weak this economy must be and begins to earnestly dump all stocks. if this scenario plays out as i suspect, the stategy s/b to short the "cut" as the rally unfolds and aggressively buy the initial dump if there is no fed change. anyway, thats my view at the moment subject to how other events may unfold between now and next weeks meeting.

[pstuartb]

Zeev - I'm wondering about your rate hike comments. With capacity utilization so low, and corporate debt loads so high, why would businesses rush forward with capex plans if faced with a rate hike? An argument could be made that there is relatively little pent up demand for new cap expenditures, and that many companies can not afford it. And with consumer debt levels so high, wouldn't a hike discourage additional consumer spending? Since consumer spending is nearly double that of business, wouldn't a reduction in housing refies and increase in consumer interest rates potentially offset any business spending? You know more than I do about these issues, but it seems to me that at this point rate movements are less likely to cure the economy's ills than the reduction of debt and the passage of time.

[retired cfo]

Hey Zeev:

Just remember - two parts of the equation - rates and willingness of banks/markets to lend.

The credit committees of the banks are being VERY tough on terms, amounts, ratios, etc. LBO guys (KKR, Bain, Onex, Hicks-Muse, Willis Stein, etc. etc) were getting 5x-6x EBITDA 30 months ago. Now lucky to get 3.5x. Note how relatively few LBO deals have been announced; they can't get funded at terms that work.

I don't disagree with any of your points on impact or direction, only that banks are doing again what they did in 90-91, playing the spread on treasuries rather than loan to businesses.

all the best
gsm

[JMKel]

Interesting point of view...there is a crisis of confidence in CAPEX spending not consumer spending. Food for thought....

[m1o2n3i4c5k6]

Zeev, today Bob Brinker felt that because of the recent bad business news, (higher unemployment, etc) AG will cut the rate again by .25 or .50 basis points.

Assuming that occurs, what is your opinion as to the immediate impact on the Nas. Thanks.