At the first sign of weakness in the general economy, I expect Bernanke to start chopping fed funds by 50 to 75 basis points at a time
That's the first thing on which we solidly agree. <g>
I think most markets (except long bonds) expect this as well.
I think people expect this; i.e. Boom Boom will save us.
As you said, long bonds don't expect this. On that we agree, too. But if one market doesn't expect this, how can the others?
First, I don't expect Boom Boom to begin cutting until housing is in deep shit. But I think they see the writing on the wall. On Wednesday, Minyanville's Kevin Depew said this about the Fed's policy statement:
What was slightly unexpected was the note that "some tentative signs of stabilization have appeared in the housing market." That's a bold & weird statement; bold if for no other reason than that it simply can't be substantiated by the facts, weird if for no other reason than that it simply wasn't necessary to include that note to make the case that economic activity has become more firm.
Reading between the lines, it must mean that the Fed is far more concerned about spillover effects from a housing slowdown than has previously been admitted.
When they cut, the long bond is gonna get smoked, and I don't think that's going to be good for the stock market, especially homies. Regarding the stock market, it will be just like from 2000-2002 when they were furiously cutting and the market kept going down. This time, though, it will be worse because inflation is raging and the long bond won't like it.
The best beneficiary under the above scenario: gold. |
