RE:"I know, the money supply is growing too fast, but I think a big chunk of this money is ending up in matresses in the developing world and as cash in underground economies."
This money is not being counted by the Fed system. In fact, if
all the money supply increases went to these "sinks" then we
would be seeing declining money growth not increasing. :^)
Regarding the rest of your response, I concur that the Fed
may opt to do nothing. I will not be surprised, however, if
they raise rates a bit. THE MARKET may not take it too kindly
as you said. That is why I'm net short. Its a real pickle for
Alan and the Board. And they do not like being placed in a
position of so few options.
I have always believed markets move on unanticipated information
and especially unanticipated money supply changes. IMHO a 50 bp
move is too much, no action leaves unresolved inflation issues,
loosening out-of-the-question for now, and 25 bps. an interesting possibility. If you put yourself in the Board's shoes it looks
like a middle course, good for bonds and credibility, temporarily
bad for stocks, and if stocks "go to hell" and result in a later
recession a choice that was a justified, preemptive move that
can be corrected. Keep in mind if a "crash" does happen, interest
rates will have already moved lower, thereby assisting the Fed
in accomodation. I do not see a 1929 scenario, but rather a
healthy stock market correction of 10 to 25%. That move is not
the end of the world given where valuations currently are. To
rabid Bulls, it may seem like the end of the world I suppose.
BWDIK. Good luck all. |
